Qualcomm reassures on inventory, shares rise

NEW YORK, USA: Chipmaker Qualcomm Inc said wireless chip inventory levels would likely stay lower than usual in 2011, reassuring investors who pushed its shares up 3.5 percent on Wednesday.

Investors had been worried about over-stocking of chips after Qualcomm said during its quarterly earnings conference call on Nov. 3 that inventories appeared to be rising faster than usual for this time of the year.

Chief Financial Officer William Keitel said he expected customer inventory levels to be lower than usual through 2011 despite a build-up going into the holiday shopping season.

"We think the tendency will be for (customers) to keep the inventories lean" due to concern about a slow economic rebound, Qualcomm's head of investor relations, Bill Davidson, said on the sidelines of Qualcomm's investor conference.

Analysts said the comments reassured investors.

"People are generally relieved," RBC analyst Mark Sue said. "That means they can sell more in the future."

Qualcomm also said it expected to boost revenue and earnings per share by at least 10 percent a year over the next five years due to increasing demand for its chips in smartphones and other gadgets like tablet computers.

"We're absolutely targeting double-digit revenue and EPS growth over the next five years," Chief Executive Paul Jacobs told the meeting.

BMO Capital Markets analyst Tim Long said in a research note that Qualcomm's guidance was "very achievable."

Earlier this month Qualcomm reported quarterly earnings of68 cents per share, excluding items such as income from its investment arm. Revenue rose 10 percent to $2.95 billion.

Fast growing market

Jacobs cited estimates that smartphones, which require more expensive wireless chips, would account for 45 percent of the phone market in 2014, when he expects 900 million smartphones to be shipped, up from 15 percent of the market in 2009.

Between 2011 and 2014, Jacobs expects 2.5 billion smartphones to be shipped.

Jacobs also said that in the first half of 2011, the company expects to see commercial launches of e-readers that use Qualcomm's Mirasol display technology, a new business for the San Diego, California-based company.

The company said it plans to invest nearly $1 billion in capital investments in the next year, including building a factory to produce the Mirasol products. It did not say when it expects that business to be profitable.

Jacobs said Mirasol technology would be key to reducing battery drain in smartphones, which have increasingly high power requirements as consumers use them for services such as Web surfing, as well as talking.

"Display is increasingly a dominant factor in the amount of power that's being used by your device," Jacobs said. "The batteries are not keeping up with the demand."