Posted by: Cliff Edwards on April 27, 2009
Is Qualcomm calling a bottom to the wireless industry downturn?
In the company’s second-quarter earnings statement today, CEO Paul Jacobs suggests he never saw much of a downturn to begin with. The company’s older CDMA technology, already on the wane, has been affected. But growth in 3G and the potential for new fourth-generation networks is keeping the business going, he says.
“Global demand for 3G-enabled products and services remains strong despite the current economic environment,” Jacob says.
Qualcomm’s earnings and revenues seem to back that opinion up. Revenues remained remarkably stable. The company posted sales of $2.45 billion, compared to $2.60 billion in the prior year and $2.51 billion in the prior quarter.
Profits tumbled after Qualcomm settled longstanding patent battle with rival Broadcom by paying $891 million. The company posted net income of $894 million in the prior year and $520 million in the prior quarter. Excluding the settlement, earnings were close to Wall Street expectations.
The settlement is a big chunk of change. But it effectively ends years of acrimonious and distracting challenges to Qualcomm’s business model of licensing a broad suite of patents to handset makers and wireless carriers. Broadcom and Nokia over the past few years have challenged Qualcomm and accused it of charging for patents it doesn’t own and overcharging for those that it does. The Broadcom case was due for another court hearing that could have adversely affected Qualcomm. Both parties against to a cross-licensing deal.
Nasty litigation aside, the rest of the year still doesn’t look great for companies in the wireless industry. Nokia CEO Olli-Pekka Kallasvuo earlier this month blamed a massive quarterly hit to its revenues on the “extensive de-stocking by operators and distributors” of inventory already in the sales channels in first quarter.
But it does look like we’re starting to see winners and losers emerge even before the economic downturn shakes out. Samsung posted a quarterly operating profit rate of a whopping 11.5 percent in the first quarter, compared to Nokia’s 8.9 percent. Motorola when it reports its quarterly results is expected to join Sony Ericsson in sliding further behind Nokia, Samsung and LG.
Qualcomm investors also seem to think it will be one of the winners. It’s stock in late trading Monday was up nearly 6% to $43.69. Telecom analyst James Moorman at Standard & Poor’s (also owned by BusinessWeek parent McGraw-Hill Cos.) boosted sales and profit projections for Qualcomm’s full fiscal year. But he maintains a sell rating on the company, calling shares overvalued.