QUALCOMM, Inc. (NASDAQ:QCOM) posted below-consensus EPS, but after excluding litigation charges, results were better than expected and most of the numbers were above expectations, says a report from William Blair by analysts Anil Doradla and Brian Nugent. Additionally QCT and QTL volume were beyond the analysts estimation offset in part by below expectations royalty rate and sluggish QCT selling price.


The report further says that 2014 outlook for QUALCOMM, Inc. (NASDAQ:QCOM) is marginally ahead of consensus on “on the bottom line” even though the top line outlook is not very impressive.

Impressive numbers from Qualcomm

QUALCOMM, Inc. (NASDAQ:QCOM) posted fourth quarter results wherein revenue came in at $6.48 billion, an increase of 33% year over year, and $75 million above the analysts’ estimates. QUALCOMM, Inc. (NASDAQ:QCOM) posted an increase in the MSM shipment at 190 million, which was up by 10.5% sequentially, and was more than the high-end guidance of 171 million to 181 million. MSM average selling price came in low by 4% sequentially due to a higher mix of lower-tiered products. Analysts at William Blair research believe that high-end platforms have been slow to move to next-generation chipsets (iPhone), along with the low end pricing pressure.

QTL shipments for the June quarter came in at 260 million to 264 million, which was 12 million over the analysts’ estimate. For the quarter, QUALCOMM, Inc. (NASDAQ:QCOM) witnessed a drop in its royalty rate by approximately 20 basis points, which according to the management was the aftereffect of OEM mix, fixed-fee agreements, caps on high-end devices and a couple of one-time items.

Gross margin down due to pricing pressure in chipset

Gross margin for QUALCOMM, Inc. (NASDAQ:QCOM) came in at 5.9%, a decline of 200 basis points, which according to the analysts was due to mix shift to QCT and pricing pressure in the chipset business. QCT operating margin was recorded at 15.8%, which is around the “recent trough in the year-ago quarter.” Analysts expect that improvement in chipset margin will be more or less moderate in the first half before reaching the level of 20% in the fourth quarter of 2014 backed by architectural and supply chain initiatives on the COGS side and slower expense growth.

Operating expenses increased 6% successively, which was more or less in line with the guidance after deducting litigation charge. Operating expense should come in lower after fiscal 2014, according to QUALCOMM, Inc. (NASDAQ:QCOM). Total pro forma operating margin for the company came in at 29.9%, a decline of 270 basis points sequentially. The company repurchased $3.3 billion of stock, and plans to buy back at least $4 billion more during fiscal 2014.