Qualcomm results, outlook beat Street

NEW YORK, USA: Qualcomm Inc posted higher-than-expected quarterly earnings and said full-year results will beat Wall Street expectations due to strong demand for smartphone chips. Its shares rose 7 percent.

The company also disclosed that U.S. financial regulators are holding a formal investigation into its accounting after a whistleblower complaint but it said that internal and independent auditors had found no errors.

The company, which analysts expect to supply chips for Apple Inc iPhone next year, also cautioned that its customers were building up bigger stockpiles of chips than usual going into the holiday shopping period.

But investors focused instead on the better-than-expected earnings and stronger-than-expected forecast, as Qualcomm often ends up beating its financial targets.

"The larger positive is that Qualcomm's guidance is also much better than what most people had expected, which means, I think, that many things are aligning for Qualcomm as it relates to smartphone growth, market share gains and a strong design win cycles," said RBC analyst Mark Sue.

Company executives told analysts on a conference call that Qualcomm saw strong demand for chips used phones based on Google Inc Android software and in phones based on the newly launched Microsoft Corp Windows Phone 7 system.

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Inventory caution

Qualcomm said its fiscal first-quarter earnings per share would rise to a range of 70 cents to 74 cents on a non-GAAP basis from 62 cents in the first quarter of 2010.

It also forecast first-quarter revenue of $3.05 billion to $3.35 billion, beating analysts' expectations for $2.99 billion. It said full-year 2011 revenue would rise to a range of $12.4 billion to $13 billion from $10.99 billion in 2010.

"It's a very respectable growth we've shared as to our expectation for next year particularly in a fairly lackluster economic environment," chief financial officer William Keitel told Reuters in an interview.

He declined to comment on whether the full-year forecasts included sales of chips for Apple products.

The executive said he hoped to be able to provide more information on the bigger-than-usual build-up of chip inventory this quarter, saying that it likely stems from increasing consumer demand for smartphones.

"You've got more new devices in the market and more manufacturers coming into the market and there's quite a consumer interest, we've seen here of late, in smartphones," he said. "It's logical we would see more inventory build."

Gleacher & Co analyst Mark Mckechnie said that in mentioning the inventory, Qualcomm was likely sending a message of caution to handset makers as well as investors.

"That's classic Qualcomm trying to keep people from getting too carried away," he said. "My sense is that they don't want to see a crazy over-build (of phones) here."

McKechnie said that despite the announcement of the Securities and Exchange Commission investigation, investors were reassured by Qualcomm's comment that it found no errors.

The company said in a filing that it was notified of the investigation on Sept. 8 and understood that it related to a whistleblower's allegations made in December 2009.

Qualcomm posted a profit for its fiscal fourth quarter ended September 26 of $865 million, or 53 cents per share, up from $803 million, or 48 cents per share, in the year-ago quarter.

Excluding items such as its investment arm, Qualcomm earned 68 cents per share, above analysts' average forecast of 59 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 10 percent to $2.95 billion from $2.69 billion in the year-ago quarter, ahead of analysts' average estimate of $2.85 billion according to Thomson Reuters I/B/E/S.

The San Diego-based company also said on Wednesday that it expects to exit its Flo TV mobile television service and forecast restructuring charges of $125 million to $175 million in fiscal 2011 related to the exit.

It said it is still looking for strategic options for the business, which could include a sale of the network or a joint venture or shutting down the service entirely.

Qualcomm shares rose to $48.90 after closing at $45.69 on Nasdaq. The stock had already risen almost 20 percent since late August.