Analysts Mark McKechnie and Zachary Amsel at Evercore maintain Overweight rating on QUALCOMM, Inc. (NASDAQ:QCOM) with a price target of $75 after the challenging September report lowering the guidance for December, but somewhat compensated for by better fiscal 2014 guidance. Analysts note a potential pressure on the stock due to lower margins from QCT.Qualcomm

Qualcomm Q3 numbers

For the September quarter, adjusted Earnings per share came in at $1.15 on revenue of $6.5 billion compared to analysts’ estimate of $1.08 per share on revenue of $6.4 billion, excluding a $0.10 charge for litigation.

Net cash for QUALCOMM, Inc. (NASDAQ:QCOM) dropped by $1 billion quarter on quarter to $29.4 billion or $17 per share as due to $2.5 billion in CFO (cash flow from operations) being offset by dividends worth $600 million and a buyback of $3.3 billion. Adjusted operating income came in at $1.94 billion, which was below analyst’s expectations of $2.15 billion. QCT sales were above analysts’ expectation and came in at $4.5 billion. Average selling price dropped from $24.5 to $23.5 quarter on quarter, and margins came down at 15.8% below analysts’ expectations of 16.5%.

Analysts note that ASP (Average selling price) and margins dropped due to lower ASP Apple builds, but will be offset by Samsung inventory, which comes at a higher ASP. Also, the report states that average QTL sales of $1.87 billion were down marginally from analysts’ estimate of $1.9 billion “but on higher TRDS reflecting a 3.1% implied royalty rate” compared to analysts’ 3.3%. The reason for this could be an overpayment reversal, customer mix shift and higher mix of devices sales above the forecasted $325 ‘cap,’ believe analysts.

Brighter 2014 predicted by analysts

For fiscal 2014, analysts have upgraded their outlook for QUALCOMM, Inc. (NASDAQ:QCOM) at the mid-point. Earnings per share for December is guided to be $1.10-$1.20 on revenues of  $6.3 billion to $6.9 billion compared to analysts’ estimate of $1.24 on $7 billion in revenues backed by lower average selling price for chips and margins. Guidance for the fiscal 2014 looks brighter, with an earnings per share estimate of $4.95-$5.15 compared to the consensus estimate of $4.93.

Analysts have lowered the EPS estimate for December, but increased the estimate for fiscal 2014 and fiscal 2015 at $5.00 and $5.45 respectively. Analysts believe that QUALCOMM, Inc. (NASDAQ:QCOM) will benefit from consumer inclination towards Apple Inc. (NASDAQ:AAPL) and Samsung, and margins will be more than compensated by QTL royalty, which represents 2/3 of the company’s operating profit.