Qualcomm, Inc. (QCOM): Solid Results In A Weak Handset Market

BMO Capital Markets analysts Tim Long, Alex Spektor and Ari Klein maintain an Outperform rating for Qualcomm, Inc. (NASDAQ:QCOM) as the company reports solid December quarter results.

Qualcomm, Inc. (NASDAQ:QCOM) beat the December quarter, and guidance was slightly lower for March but higher for the FY. The royalty business was as expected in both September and December. Even with some weak handset OEM reports, we calculate TRDS growing 17% in the December quarter. The chip business was really strong, growing units sequentially by over 10% once again. We also estimate that chip GMs improved by 150 bp in the quarter. The company repurchased $1 billion of its stock and still ended the quarter $2.2 billion higher at $31.6 billion. We are raising our FY2014/2015 pro forma EPS estimates for Qualcomm from $5.05/$5.70 to $5.10/$5.75.

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Qualcomm’s earnings impact and analysis

Qualcomm, Inc. (NASDAQ:QCOM) continues to post solid results, even in a quarter when the handset market seemed weak. We estimate that royalty revenues will grow at a double-digit pace in both 2014 and 2015. The chipset business remains well positioned, with 3G market share approaching 60%, and 4G share in the mid-90% range. The more aggressive capital return programs also boost EPS growth.

Valuation and recommendation

Our price target for Qualcomm, Inc. (NASDAQ:QCOM) of $86, up from $77, assumes the stock trades to a P/E of 15x our FY2015 estimate. We rate QCOM shares Outperform.

Qualcomm, Inc. (NASDAQ:QCOM) reported solid December quarter results. Although revenues were a touch light, EPS was higher than our/consensus estimates, and $0.06 above the guidance range, including a $0.04 net benefit from the Omnitracs sale. September total device units were in line, while ASPs beat, although the calculated royalty rate disappointed slightly. The TRDS outlook for December was in line with our estimates. On the chip side, December units handily beat our estimate and Qualcomm’s own guidance, but ASPs disappointed. The March outlook for MSM units is in line with our prior thinking.