Qualcomm Inc.’s better-than-expected financial results for its third quarter caused the company’s stock to jump more than $3 to $39.01 the day after the news was released.
Based in San Diego, Qualcomm makes semiconductor chips used in cell phones and wireless base stations.
For the quarter, the company reported on July 20-what day net income of $560 million, or 33 cents per share, on revenues of $1.35 billion compared with net profits of $486 million on revenues of $1.34 billion, or 30 cents per share, for the same quarter in 2004.
In addition to beating Wall Street estimates on sales and profit projections, Qualcomm raised its annual earnings forecast for the fiscal year ending Sept. 30 by 2 cents for a total estimate between $1.22 to $1.24 per share. The company’s previous forecast was $1.14 to $1.18 per share.
Traded on Nasdaq under QCOM, shares rose July 20 to $36.09, up by 29 cents from the prior day’s close. The 52-week range for Qualcomm is $32.08 to $44.99.
“Most people were looking for an OK quarter but it came in higher because the sale of the higher end handsets was better than they expected,” said John Messner, principal of Messner & Smith Investment Management Ltd. in Downtown San Diego.
Qualcomm executives, including newly installed Chief Executive Officer Paul Jacobs, credited a surge in the average selling price for handsets running on Qualcomm’s licensed wireless technology as the reason for the improved profits and sales.
During the quarter, the selling price on a handset came in at $231, vs. an earlier company estimate of $215.
Qualcomm attributed the surge to increased shipments of higher-priced cell phones in Japan. The phones use a more advanced form of the company’s technology, called W-CDMA, which allows them to transmit and receive higher amounts of data and obtain Internet access.
In a conference call with analysts July 20, Jacobs said Qualcomm isn’t content to garner nice profit margins on higher end phones, and is pumping money into the development of more affordable cell phones as well.
“The next 1 billion subscribers will come from markets with low per capita GDP (gross domestic product),” said Jacobs, who took over the reins of the company this month after his father, founder Irwin Jacobs, retired as CEO. The elder Jacobs remains with the company as chairman.
For the nine months ended June 26, Qualcomm reported net income of $1.6 billion on revenues of $4.1 billion, compared with net income of $1.3 billion on revenues of $3.7 billion for the like period of 2004.
That kind of profit machine is creating a major cash pile that Qualcomm is using to buy other companies developing innovative wireless technologies, and to reward investors with cash dividends.
At the end of the quarter, Qualcomm counted cash and cash equivalents of $7.9 billion, up from $7 billion for the same time last year. The company also paid out $147 per share in dividends and repurchased nearly 21 million shares for $723 million. Qualcomm said it is about halfway through a planned stock buyback program.
“There aren’t that many companies with that kind of cash and no debt. They’re in a very strong financial position,” Messner said.
For the company’s last quarter, Qualcomm provided guidance on net profits coming between 28 to 30 cents per share, and revenues to come in between $1.43 billion to $1.53 billion.
Company officials were mum about any news regarding a patent infringement lawsuit filed by Irvine-based Broadcom Corp. last month, except to say that it filed a countersuit alleging that Qualcomm’s technology patents were infringed.