Qualcomm Inc. shares dropped 16 percent last Wednesday after the cdmaOne innovator warned of slower chip sales this quarter.
This warning eclipsed Qualcomm’s higher-than-expected first fiscal quarter earnings. Merrill Lynch cut its near-term rating to “neutral” from “accumulate.” Salomon Smith Barney lowered its rating from “buy” to “outperform.” Other firms maintained their ratings.
“We expect to see unit shipments of MSM chips down sequentially in the second quarter of fiscal 2000, and we believe this is a result of inventory balancing by QCT customers and seasonal factors,” Richard Sulpizio, president and chief operating officer of Qualcomm, said in the company’s quarterly conference call. “However, we believe the year continues to look very strong with industry forecasts of total CDMA phones sold in the 70-million range.”
Qualcomm said the slowing sales of chips resulted from a components shortage affecting handset makers worldwide. Another driving factor stemmed from cdmaOne operators carrying less inventory, said the company.
However, Qualcomm said it expects to meet or exceed fiscal first-quarter’s earnings per share of 25 cents. The sale of its handset division to Japanese vendor Kyocera, scheduled to be completed in February, and high cdmaOne royalties should offset lower revenues and profit Qualcomm expects from its chip business, the company said.
“The downturn in the chip business is only short term,” said Tony Thornley, Qualcomm’s executive vice president and chief financial officer. “Therefore, we expect to meet or exceed estimates for full fiscal 2000.”
Qualcomm said it shipped 14.5 million Mobile Station Modem phone chips to customers worldwide during the first quarter of fiscal 2000, compared with 5 million units the previous year. Cumulative shipments of MSM phone chips exceeded 81 million and total cumulative chip shipments were more than 200 million units.
Qualcomm reported revenues of $1.1 billion for the first quarter of fiscal 2000, an increase of 19 percent compared with $941 million the previous year. Reported net income reached $177 million, or 23 cents per share, in the first fiscal quarter, said Qualcomm. Royalty fees from third parties for cdmaOne technology increased 224 percent from the year-ago period, reaching $144 million.
“We believe that the sale of our phone business, along with the sale of the wireless infrastructure business last year, will support continuing improvements in our financial performance while allowing us to increase resources devoted to wireless Internet access,” said Dr. Irwin Jacobs, Qualcomm chairman and chief executive officer.
