Smartphone Shift Lifts Qualcomm's Net
By DON CLARK
Qualcomm Inc. reported a 4.1% increase in quarterly profits on a 2% decline in revenues, results that were better than the company had projected and eased fears of a slide in cellphone prices.
The San Diego-based chip maker also raised its guidance for revenue and earnings growth for its current fiscal year, based in large part on a continuing shift to third-generation cellular networks that use Qualcomm technology.
Qualcomm gets much of its profit from royalties that are based on a percentage of cellphone prices. The company's stock has come under pressure lately as prices have declined, partly reflecting the growing proportion of cellphones sold in markets like India where low-priced handsets are most popular.
The company, which each quarter records revenue from cellphone sales made in the prior period, on Wednesday put average selling prices for handsets in the quarter ended in March at $183 to $189 per unit. That is higher than the price it reported in April for the period ended in December, according to William Keitel, Qualcomm's chief financial officer.
A shift to higher-priced smartphones appears to be helping. Paul Jacobs, Qualcomm's chief executive officer, told analysts on a conference call the company is seeing gains as its high-end Snapdragon chip has been selected for new smartphones, including HTC Corp.'s Incredible and EVO models.
One disappointment for Qualcomm has been the performance of a unit called FLO TV that operates a wireless network to broadcast video programming to cellphones. Mr. Jacobs said the company is "considering alternatives" for the operation, and is in discussions with a number of partners, but gave no further details.
Qualcomm reported profit for the period ended June 27 of $767 million, or 47 cents a share, compared with profit in the year-earlier period of $737 million, or 44 cents. Revenue declined to $2.71 billion from $2.75 billion a year ago.
Mr. Jacobs projected that unit sales of cellphones based on its technology—known as code division multiple access—will rise 23% in 2010. The company forecast a revenue range for the fiscal year ending in September with a midpoint of $10.85 billion, up from an earlier forecast with a $10.7 billion midpoint. It projected earnings per share excluding results from the investment unit at $2.33 to $2.37 for the year, up from $2.21 to $2.32.
"The results reinforce our belief that the company will be a primary beneficiary of the shift to smartphones," said Bill Kreher, an analyst at Edward Jones.
Write to Don Clark at don.clark@wsj.com
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