Earnings Scorecard: Qualcomm Inc. (QCOM)

Qualcomm Inc. (QCOM) reported solid earnings results for the third quarter of 2010, beating the Zacks Consensus Estimate by 3 cents per share. Overall, the analysts are bullish on the stock, given the company’s impressive results.

Qualcomm benefited from a significant surge in demand for high-end 3G smartphones, premier technology, solid MSM chipset shipments, an extremely healthy balance sheet and strong execution. Management is now more confident about the rest of fiscal 2010 and as a result, has raised its future financial guidance. This is a considerable improvement from the weak financial outlook provided by the company in the last two quarters.

Third Quarter Fiscal 2010 Highlights

Total revenue of $2.70 billion was down 2% year over year, but fared better than the Zacks Consensus Estimate of $2.622 billion. During the third quarter 2010, Qualcomm shipped approximately 103 million MSM chipsets, up 10% year over year and also up 11% sequentially. This was also better than the company’s guidance of 97 million – 102 million. Management expects to ship 106 million – 111 million MSM chipsets during the fourth quarter of fiscal 2010.

The average selling price of a mobile handset with in-built Qualcomm chipset during this quarter was around $183 -$189, an increase of $1 over the previous quarter. We believe higher MSM chipset shipment was primarily due to the massive demand for Android-based 3G smartphones. The Android operating system was developed by Google Inc. (GOOG) and requires more complex and expensive processors to work properly. Qualcomm’s innovative Snapdragon processors are generally used in Android- powered 3G smartphones.

At the end of the reported quarter, the company had nearly $17.6 billion of cash and marketable securities and no outstanding debt on its balance sheet compared with over $17.74 billion of cash and marketable securities and no outstanding debt at the end of fiscal 2009.

Agreements of Analysts

In synergy with the company’s impressive future guidance, the recent Zacks Consensus Estimate revision trend for EPS remains positive. Out of 11 analysts covering the stock, in the last 30 days, 8 analysts revised their estimates upward, while the remaining three have chosen the opposite path for the fourth quarter of fiscal 2010. Similarly, for the fiscal year 2010, 10 out of 12 analysts raised their EPS estimates, while only 1 analyst reduced it.

Qualcomm continues to employ significant resources to enhance its existing wireless technologies and augment future wireless technology standards. Given the improving visibility regarding 3G CDMA subscriber growth and with more than 2.5 billion GSM subscribers switching to CDMA-based technologies over the next decade, the analysts believe that Qualcomm will post strong long-term earnings growth.

Magnitude of Estimate Revisions

In accordance with overall positive trend of analysts’ estimate revision for Qualcomm, the Zacks Consensus Estimate for the fourth quarter 2010 EPS moved up by 1 cent in the last 30 days and also moved up by 4 cents for fiscal 2010. For fiscal 2011, EPS also moved up by 4 cents in the last 30 days.

Our Recommendation

We believe Qualcomm’s technology leadership in CDMA and WCDMA, its emerging presence in the 3G market, solid fundamentals and long-term growth prospects make its shares attractive. Looking forward, management expects to improve its existing chipset customer base and market share, win new customers for chipset and software solutions and continue to expand the base of 3G wireless networks.

We believe a continued strength in the 3G wireless market and the emergence of mobile video solutions, along with superior technology and a strong cash balance sheet support Qualcomm’s long-term growth prospects. We maintain our Neutral recommendation for Qualcomm. Currently, Qualcomm is a Zacks #3 Rank (Hold) stock.

QUALCOMM INC (QCOM): Free Stock Analysis Report

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