Qualcomm Inc posted a higher quarterly profit on Wednesday, boosted by demand for chips in advanced cell phones, but its forecast for the rest of the year fell short of Wall Street expectations.
Shares of Qualcomm fell 3 percent in extended trading after it said fiscal third-quarter earnings would drop from a year ago, raising concerns that cheaper cell phones with less profitable chips would sell better than expected.
“I think people were looking for more upside in the forecast,” said Charter Equity Research analyst Ed Snyder. “The end market is favoring lower price products.”
Qualcomm’s results follow a disappointing forecast from rival Texas Instruments Inc, whose biggest client is Nokia Oyj. On Monday, Texas Instruments warned of slower than expected demand for chips used in advanced phones.
Qualcomm Chief Financial Officer Bill Keitel said growth in demand for low-end phones was as expected. But he was upbeat on the growth for advanced phones with high-speed data links.
“We’re seeing a little bit more of high-end (demand) than we had expected,” Keitel told Reuters in an interview.
Some analysts were encouraged by Qualcomm’s second-quarter profit, which was slightly ahead of their expectations.
Global Crown Capital analyst Pablo Perez-Fernandez said the company appeared to benefit from growth at major customers like LG Electronics and Samsung Electronics, which compete with cell phone leader Nokia.
“The market is growing faster than people believe and Qualcomm customers LG and Samsung are gaining market share,” he said. He noted the company had a reputation for giving conservative forecasts.
Qualcomm’s net profit rose to $766 million, or 47 cents a share, for the second quarter ended March 30, from $726 million, or 43 cents a share, in the year-ago quarter. Revenue grew to $2.6 billion from $2.22 billion.
Excluding its investment arm and other items, it earned 54 cents per share, below analysts’ average estimate of 52 cents a share, according to Reuters Estimates.
U.S. still growing
Qualcomm executives said that despite concerns over a weaker U.S. economy, the company was benefiting from growth in both the United States and other parts of the world.
“We’re pleased with how the business is running and how it’s diversified geographically,” Chief Executive Paul Jacobs said on a call with analysts.
For the third quarter, Qualcomm expects earnings per share of 50 cents to 52 cents, before items, down from 55 cents in the year-earlier quarter and below the average analyst forecast of 52 cents as compiled by Reuters Estimates.
The company raised its forecast for full-year earnings before items to $2.04 to $2.09 per share, from its earlier target of $2.01 to $2.07. But the midpoint of that range was below the average analyst forecast of $2.09.
Qualcomm estimated lower earnings from cash and marketable securities for the full year, but said that would be more than offset by better-than-expected growth in its wireless chip and technology licensing businesses.
“The interest rates are lower so they’re making less money on that big cash balance,” said Charter Equity’s Snyder. He estimated Qualcomm’s cash balance at about $10.5 billion, including marketable securities.
Qualcomm is embroiled in legal battles with rival Broadcom Corp and No. 1 phone maker Nokia. It said it would need a “business defense” budget for fiscal 2008 of $300 million, mostly for legal costs.
Qualcomm said 2008 revenue would be $10 billion to $10.4 billion, up from its earlier $9.6 billion to $10 billion target. On average, analysts expected revenue of $9.96 billion.
Qualcomm shares fell to $41 in after-hours trading from their close of $41.89 on Nasdaq.