Qualcomm thrives as rivals struggle

With management raising revenue guidance, fiscal 2013 might be an even bigger year for the chip maker.

By TheStreet Staff Nov 12, 2012 4:55PM

thestreet.com LOGOOutside Qualcomm headquarters in San Diego © Gregory Bull/AP PhotoBy Richard Saintvilus


In what's been a tough market for the semiconductor sector, Qualcomm (QCOM) continues to confound the skeptics, some of whom rushed to pronounce an end to the company's growth story.


Competing chip makers such as Intel (INTC), Nvidia (NVDA) and Texas Instruments (TXN) have been hurt by, among other things, weak demand for microprocessors and chip sets. But Qualcomm recently exceeded the estimates of Wall Street analysts for revenue and profit it its fiscal fourth quarter.


It also did what few rivals have been able to do -- raise guidance.

Qualcomm's profits surged 20% to $1.27 billion, or 73 cents a share, in the three months through September, exceeding year-earlier results of $1.06 billion, or 62 cents a share. Results were boosted by an increase in smartphone shipments.


Revenue was equally impressive, soaring 18% year over year to $4.87 billion, ahead of analysts' estimates of $4.67 billion. The company said chip shipments reached 141 million, a 1% year-over-year increase.


Qualcomm ended the fiscal year with profits of $6.11 billion, or $3.51 per share. That's annual growth of 43%. Likewise, fiscal year revenue of $19.1 billion was good enough to top fiscal 2011's by almost 30%.



The company was able to find growth even as the overall semiconductor sector suffers from weak demand in a slowly recovering economy. In addition to Qualcomm's strong quarter, investors can be heartened by its relatively rosy outlook for the months ahead.  


For the current quarter, Qualcomm expects GAAP earnings per share of 90 to 98 cents and adjusted EPS of $1.08 to $1.16. The adjusted EPS range would mark a year-over-year increase of 11% to 20%. Revenue is seen coming in at $5.6 billion to $6.1 billion. The top range of the revenue guidance exceeded analysts' existing estimates by more than 13%. Management said the company is positioned for exceptional growth in the double-digit range.


The San Diego company continues to demonstrate why it has not only one of the best businesses in the entire market but also one of the best management teams. It understands what its goals are and has a pathway for achieving them. 

While competitors are busy trying to steal share, Qualcomm continues its march into an ever-broader lineup of mobile devices. Its chips can be found in gadgets from Apple (AAPL), Google (GOOG), Nokia (NOK), Samsung and Microsoft (MSFT). (Microsoft publishes MSN Money.)


Rivals will find it challenging, if not impossible, to make a meaningful dent in this business, especially as Qualcomm continues to reinvest to ensure its chip technology remains the top choice among a multitude of phone makers.


Additionally, Qualcomm is able maintain its lucrative licensing business, which continues to be undervalued by investors.


All of this said, I do wonder whether rivals such as Broadcom (BRCM) and Nvidia can become threats to Qualcomm's business. Nvidia has been making great strides in securing new business from some prominent companies. Its Tegra 3 chip has become a key component inside both Microsoft's Surface tablet as well as Google's Nexus 7. What's more, as Nvidia is shoring up its footing in the mobility realm, it is maintaining a strong presence in its PC roots. Should Qualcomm be concerned? 

I love Qualcomm's business. Surprisingly, the company rarely gets mentioned in discussions of the best-run companies. Moreover, the company is in a fast-growing mobile market, which has yet to peak.


With management raising revenue guidance, there is a chance that fiscal 2013 might be an even bigger year for Qualcomm. From that standpoint, I would be adding shares at current levels until the company shows meaningful signs of slowing growth.


At the time of publication, the author owned shares of Apple.


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