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Qualcomm revises outlook upward

The company raises its forecast on growing demand for mobile phone using its chips.

March 14, 2007|From Reuters

NEW YORK — Qualcomm Inc. raised its forecast for fiscal second-quarter earnings and revenue Tuesday, citing stronger-than-expected demand for products based on its CDMA mobile phone technology.

Wireless chip and technology license supplier Qualcomm forecast quarterly earnings per share of 48 cents to 49 cents, excluding its investment arm and other items, compared with its previous estimate of 42 cents to 44 cents a share.

The San Diego company, which cited particular strength in Europe and North America, raised its revenue outlook for the quarter ending April 1 to $2.1 billion to $2.2 billion, up from its previous estimate of $2 billion to $2.1 billion.

Analysts on average expected earnings of 43 cents a share on revenue of $2.08 billion, according to Reuters Estimates.

Sanford Bernstein analyst Paul Sagawa said the improved outlook appeared to come from better-than-expected demand for CDMA phones particularly in India, as well as strength in its technology royalty business and expense controls.

Qualcomm investor relations executive Bill Davidson said the higher profit was all due to a strength in handset sales, which boosts royalty payments and in turn profit. The company also gets royalties for phones that include its chips.

Qualcomm's royalty business tends to post operating profit margins in the high 80%-to-90% range and its chip business margins are in the high-20% range.

Qualcomm is the dominant chip supplier for phones based on CDMA, the most widely used wireless technology in the United States.

It also sells licenses and chips for W-CDMA, a wireless technology becoming popular in Europe and other parts of the world. Qualcomm and Texas Instruments Inc. compete on W-CDMA chips.

Qualcomm said its new forecast was based on the shipment of about 60 million to 61 million mobile phone chips compared with its previous target of 55 million to 57 million units.

Qualcomm, which accounts for royalties on products shipped last quarter in the current quarter, estimated that 91 million CDMA units were shipped in the last quarter with an average selling price of $214, compared with its previous target of 82 million to 86 million units at an average price of $217.

Stifel Nicolaus & Co. analyst Cody Acree said the outlook was overshadowed by Qualcomm's multiple legal disputes, which have weighed substantially on its expenses.

Qualcomm is in negotiations to renew a licensing agreement with Nokia, and it faces patent disputes with Broadcom Corp. in the U.S. and European regulatory complaints from large wireless companies.

Qualcomm shares rose $1.71 to $41.83.

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