BROOKLYN, N.Y. — Qualcomm Inc. posted better-than-expected earnings results in its second fiscal quarter ended March 30, but its top-line fell short due to lower licensing revenue, mainly in China where the rollout of LTE has been slower than anticipated.
Revenue reached $6.37 billion, up 4% compared with the year-ago period but down 4% sequentially, while net income rose to $1.96 billion or $1.31 per share, up 5% from $1.87 billion a year ago and 4% sequentially. EPS was $0.06 above the high-end and $0.11 above the company's $1.20 midpoint of its prior guidance range.
Qualcomm attributed the profit gains to stronger margins and lower-than-expected operating expenses from its QCT business unit, which manufactures CDMA, UMTS, GSM, and LTE chipsets that support 3G and 4G networks and devices. QCT revenue reached $4.2 billion, driven by strong shipments of its MSM chipsets, which reached 188 million units, up 9% year-over-year and down 12% sequentially.
Qualcomm's Snapdragon 801 chipsets are designed into several smartphones that were recently launched, including Samsung's Galaxy S5, HTC's One M8, and Sony's Xperia Z2. Products based on its Snapdragon 805 and fourth-generation multi-mode 3G/4G modem with Cat 6 LTE are expected to launch later this year, driving overall growth, according to Steve Mollenkopf, chief executive of Qualcomm, in a conference call with analysts following the earnings release on April 23.
However, its QTL (Qualcomm Technology Licensing) business reported lower-than-expected device sales from China, which has been slow to roll out products based on the Long Term Evolution (LTE) network. The QTL unit posted a 9% increase in year-over-year revenue, to $2.07 billion, which was below Qualcomm's projections.
"Licensee shipments in China were lower than expected," said Mollenkopf. "We believe consumer purchasing decisions were delayed in advance of the rollout of LTE." He added that Qualcomm saw a spike in TDS CDMA-based smartphones in China "to clear the channel for new LTE devices."
While Qualcomm expects to see a continued ramp of LTE chipset growth in China for the second half of its fiscal year, mainly from China Mobile, management warned investors it won't benefit from China's LTE ramp-up until fiscal 2015. As a result, Qualcomm lowered its expectations for the QCL unit for fiscal 2014. However, the company remains bullish on its prospects in China.
"Each of the operators in China has aggressive LTE rollout planned with China Mobile alone planning to expand its network coverage nationwide to more than 500,000 LTE base stations by the end of 2014. We have strong LTE design momentum with the OEMs in China, which is driving significant demand for our multimode 3G LTE chipsets," said Mollenkopf.
Qualcomm reiterated its fiscal 2014 revenue guidance of $26 billion to $27.5 billion, and raised its non-GAAP EPS guidance to $5.05 to $5.25, up $0.05 at the midpoint from its prior guidance.
However, to achieve its goals for fiscal 2014, the company will "need to maintain high share in LTE in all tiers as carriers such as China Mobile look to ramp later in the calendar year," according to analyst Sanjiv R. Wadhwani from Stifel Nicolaus, San Francisco, in a written report to investors.
Qualcomm also mentioned during the conference call that it received a Wells Notice from the SEC regarding its FCPA (Foreign Corrupt Practices Act) investigation relating to potential bribery, which the company denies.
— Ismini Scouras is a freelance writer for EE Times.