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Qualcomm Earnings Up, Stock Price Not So Much

Despite turning in a record year in revenue and earnings, Qualcomm Inc.’s fiscal fourth quarter results didn’t impress the market, which pushed down the stock.

Shares closed Nov. 7 at $67.09, down 3.8 percent from the previous day’s close of $69.74 before the year-end results were announced. Qualcomm (Nasdaq: QCOM) stock is up by about 13 percent over the year, compared with the 28.5 percent gain in the Standard & Poor’s 500 Index.

In the fourth quarter, Qualcomm reported $6.5 billion in revenue, up 33 percent over the prior year’s fourth quarter. Net income was $1.5 billion, up 18 percent over the full year, but down 4 percent from the third quarter.

For Qualcomm’s fiscal year that ended Sept. 29, the company reported total revenue of nearly $25 billion, up 30 percent from the prior fiscal year. Annual net income was $6.85 billion, up 12 percent from the net income in fiscal 2012.

Chairman and CEO Paul Jacobs was very pleased with how the year turned out.

“Our technologies underpin the global growth of wireless data, and our semiconductor solutions are used across the industry’s flagship smartphones,” Jacobs said, adding that the company’s future growth prospects remain solid. “We expect double-digit compound annual growth rates for both revenues and earnings per share over the next five years.”

Next-Gen Devices Drive Chip Demand

Qualcomm is a major supplier of chipsets used by the makers of wireless devices and in wireless networks. It also collects royalties on devices sold by other manufacturers through its patents on its CDMA technology.

The demand for these chips continues to accelerate as global wireless networks upgrade to handle next-generation devices. The company said it is especially optimistic about the continued growth of improved cellphone usage in China in tandem with the launch of more powerful wireless networks there.

“We expect the move to LTE (a third-generation technology) to be good for us,” said Steve Mollenkopf, Qualcomm’s chief operating officer.

However, demand for higher-end smartphones and other devices isn’t as great as it is for cheaper devices, which will affect Qualcomm’s margins and device shipments at least through the first half of this year, Mollenkopf told analysts.

For the first quarter of fiscal 2014 which ends in December, Qualcomm forecast chip shipments ranging from 195 million to 210 million, up 7 to 15 percent annually. For all of its last fiscal year, it shipped 716 million chips.

Revenue for the first quarter was forecast at $6.3 billion to $6.9 billion, or a range of 5 to 15 percent above the revenue in first quarter 2013.

The company projected first quarter diluted per share earnings, excluding certain charges, to finish from $1.10 to $1.20, down 5 to 13 percent year over year.

A consensus of Wall Street analysts were anticipating the first quarter adjusted earnings to average $1.29.

For the full 2014 year, Qualcomm forecast revenue to finish between $26 billion and $27.5 billion, for an annual increase of 5 to 11 percent, a big drop from the 30 percent gain it did in the past fiscal year.

Annual operating net income on a diluted per share basis was forecast at $4.95 to $5.15. That compares to the actual 2013 adjusted earnings of $4.51 per share.

Omnitracs Sale on Track

Jacobs pointed out that the fiscal 2013 results didn’t include the company’s planned $800 million sale of its Omnitracs unit. The sale to Vista Equity Partners was announced in August and expected to be completed by the first quarter. The estimated gain of 22 cents to 25 cents per share wasn’t included in the first quarter forecast or in the overall 2014 projection.

The company said its fourth-quarter results included a one-time charge of $173 million — or 10 cents per share — as a result of its recent court decision on a patent infringement case won by Jacksonville-Fla.-based ParkerVision Inc. The company is appealing the verdict.

Qualcomm continues spending a big chunk of its revenue, about a $5 billion last year, on research and development. And it continues a stock buyback program that spent $3.3 billion last year, and paid out dividends of $592 million — or 35 cents per share — last year.

Then again, it’s sitting on a cash pile that stood at $29.4 billion at the end of September, which is down from $30.4 billion at the end of June, but up from the prior year end when it was $26.8 billion.

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