|IPhone 5 Likely Boosts Qualcomm, Skyworks|
Late-quarter builds may be masked by broader weakness at Qualcomm.
Qualcomm and Skyworks Solutions reported calendar-second-quarter results giving us our first glimpse into the Apple supply chain after the close Wednesday.
Qualcomm (ticker: QCOM) guided the midpoint of calendar-third-quarter revenue to $4.65 billion (flat quarter-over-quarter), weaker than Skyworks Solutions (SWKS) guidance looking for calendar-third-quarter revenue up 7% to $418 million.
Though Qualcomm's weaker guidance seems to imply a delay in iPhone builds, we would highlight that the company remains constrained at 28 nanometers and is dealing with 3G and 4G channel inventory reductions, thus late-quarter Apple (AAPL) builds could be being masked by broader weakness.
This view was corroborated by commentary from Skyworks Solutions -- specifically Skyworks Solutions cited a general smartphone slowdown but expects to achieve sequential growth due to the ramp of a significant program. We suspect this ramp is iPhone 5 and would highlight that 15 million builds and $2.00 [per phone] in incremental content would account for 100% of Skyworks Solutions sequential growth.
Qualcomm reported calendar-second-quarter revenue and earnings per share of $4.63 billion (down 6% quarter-over-quarter) and 85 cents, respectively, modestly below Wall Street estimates at $4.67 billion (down 5%) and 86 cents, respectively, on weaker Mobile Station Modem (MSM) chipset shipments (141 million, down 7% quarter-over-quarter versus guidance of 147 million). Similarly, calendar-third-quarter revenue and EPS guidance of $4.65 billion (flat) and 81 cents, respectively, came in light of expectations for $4.91 billion (up 5%) and 89 cents, respectively, on weaker Qualcomm CDMA Technologies (QCT) semiconductor sales. Specifically, management guided MSM chipsets down 2% quarter-over-quarter to 138 million as unit sales are weaker due to: 1) 28 nanometer supply shortages; 2) 3G and 4G inventory channel draw down; and 3) a pause ahead of calendar-fourth-quarter product launches.
In line with the weaker calendar second- and third-quarter MSM chipset shipments from Qualcomm (and softer macro), management took the opportunity to cut expectations for full-year 3G and 4G shipments from 915 million to 905 million with the 10 million-unit reduction attributed to slower replacement rates in U.S. and Europe. Despite the modestly weaker results and guidance, management was confident that calendar fourth quarter will be up sharply as Tier 1 original equipment manufacturers (OEMs) (i.e., Apple) ramp flagship products ahead of the holiday season. Specifically, management intimated that about 30% of 2012 global 3G and 4G shipments would occur in calendar fourth quarter implying sequential market growth of up 25% and the possible for Apple units up 100%-plus.
Skyworks reported calendar-second-quarter revenue and EPS of $389 million (up 7% quarter-over-quarter) and 45 cents, respectively, modestly above the Street estimates at $383 million (up 5%) and 45 cents, respectively, on broad-based strength. For calendar third quarter, Skyworks guided revenue and EPS of $418 million (up 7%) and 51 cents, respectively, in line with Street expectations.
While Skyworks is expecting solid sequential growth, management noted that the company is seeing a general Smartphone slowdown but is able to buck the industry given the ramp of a significant program. We suspect this ramp is iPhone 5 and would highlight that Skyworks Solutions is largely expected to have $2.00 more content in the iPhone 5 than it did in the 4S.
Assuming 50 million iPhone units for calendar fourth quarter (3.9 million per week) and the need for four weeks of inventory entering the quarter implies calendar-third-quarter builds of 15 million, or $30 million of incremental revenue for Skyworks Solutions, i.e., 100% of sequential growth for the quarter.
-- John W. Pitzer
-- Patrick Walsh
-- Kyle Chen
-- Ryan Carver