Qualcomm’s semiconductor biz dips, promises rebound on 28nm ramp

July 23, 2012 — Wireless semiconductor maker Qualcomm Incorporated (Nasdaq:QCOM) announced results for Q3 of fiscal 2012. While the chipset and licensing businesses grew Y/Y on 3G and 4G adoption, growth estimates in these sectors are now moderated to be “more back-end loaded,” said Dr. Paul E. Jacobs, chairman and CEO.

Qualcomm reduced its outlook for semiconductor volumes in fiscal Q4. Jacobs pointed out that QCOM is ramping 28nm chip supply, aiming for a strong December quarter.

More chipmakers’ quarterly results: Intel, IBM, AMD

QCOM reported revenues of $4.63 billion, up 28% Y/Y, down 6% sequentially; operating income of $1.38 billion; net income of $1.21 billion; diluted earnings per share of $0.69; operating cash flow of $922 million. Return of capital to stockholders was $802 million, including $429 million, or $0.25 per share, of cash dividends paid, and $373 million to repurchase 6.6 million shares of our common stock. Get QCOM’s financial report details here (PRNewswire).

Analysts’ takes:

FBR Capital Markets points out a host of negatives for Qualcomm, which guided its calendar Q3 down: macro demand is slowing, the supply chain is de-stocking inventory (phones and chips), 28nm shortages continue, Apple is likely bleeding down iPhone 4S production ahead of an anticipated huge iPhone 5 ramp in September, Broadcom seems to be ramping incremental baseband share at Samsung, the semiconductor unit of Qualcomm, QCT, is at all-time-low gross margins (~53%) and operating margins (16.5%). Qualcomm’s soft revenue guidance for calendar Q3, $4.45 billion to $4.85 billion was largely driven by QCT’s guidance of 134 million to 142 million units, FBR remarked. QTL device revenues were guided slightly worse than expected.

Barclays Capital noted that QCT’s channel inventory was the primary, though not sole, driver of Qualcomm’s large miss: QCOM delivered only 141 million chips in F3Q and guided to 138 million (midpoint) for F4Q. Of the 25-30 million missing units, about 20 million can be blamed on lower channel inventory. The balance can be ascribed to lost market share, likely to Samsung and Mediatek. The operating margin should reach a frighteningly low 14%, Barclays noted.

Competition is growing for Qualcomm, as the company plans to grow operating expenses another 11% sequentially next quarter, FBR notes. Qualcomm is spending more to support 28nm rollouts, next-generation baseband products, and its ARM mobile computing initiative.

The 28nm shortage should be alleviated in Q4 2012, FBR said, and average selling prices for QTL devices are higher than expected; the iPhone 5s are likely to drive more goodness here. Q4 monthly iPhone build capacity will ramp to 18 million to 20 million units, with quarterly builds possibly topping 50 million units, FBR estimates. With the iPhone 5 and possibly the iPad mini both sporting higher 4G LTE baseband content, Qualcomm can look to a strong holiday season, FBR expects.

Barclays agrees that Qualcomm’s suggested strong fiscal Q1 2013 is supported by on-target 28nm ramp. A mix shift to 28nm should drive a ‘quick’ snap back in margins, Barclays said.

Another note: QCOM believes an ongoing Securities and Exchange Commission (SEC) investigation now includes a look into its past business practices in China. The Department of Justice (DOJ) also appears to be involved.

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