Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the second quarter of fiscal 2013 ended March 31, 2013.
“We delivered another strong quarter as the worldwide adoption of smartphones continues,” said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. “Looking forward, we are seeing strong traction with our new Qualcomm Snapdragon 600 and 800 processors, and we continue to expect healthy growth in 3G and 3G/4G multimode devices around the world. We are pleased to be raising our calendar 2013 3G/4G device shipment estimates and our revenue and earnings guidance for fiscal 2013.”
Second Quarter Results (GAAP)
- Revenues: 1 $6.12 billion, up 24 percent year-over-year (y-o-y) and 2 percent sequentially.
- Operating income: 1 $1.88 billion, up 24 percent y-o-y and down 10 percent sequentially.
- Net income: 2 $1.87 billion, down 16 percent y-o-y* and 2 percent sequentially.
- Diluted earnings per share: 2 $1.06, down 17 percent y-o-y* and 3 percent sequentially.
- Effective tax rate: 1 13 percent for the quarter.
- Operating cash flow: $2.22 billion, up 17 percent y-o-y; 36 percent of revenues.
- Return of capital to stockholders: $431 million, or $0.25 per share, of cash dividends paid.
Forbes: Qualcomm Cheap Phone Warning is Ominous
Qualcomm owns intellectual property related to code division multiple access (CDMA). This technology is behind many of today’s wireless networks. Qualcomm also provides chip sets for mobile devices. Since Qualcomm licenses the technology or provides the guts of a wide base of wireless devices and networks, there are serious implications for smartphone manufacturers in Qualcomm’s results.
martphone prices are falling much faster than expectations. Of further concern is the number of new entrants in the smartphone market. Somewhat shocking was a statement by Qualcomm that some of its customers are able to launch their devices in as little as 60 days from start to launch. These customers are using Qualcomm Reference Design (QRD).
As of January 2013, 170 QRD based devices have been commercialized by more than 40 manufacturers. The irony here is that based on the large number of emails I receive, investors tend to extrapolate from their experiences in the United States and Europe and do not realize that there are more than 40 manufacturers of smartphones. The 60-day time to launch is in stark contrast with the traditional time of nine months to a year.
This is real bad news for Apple. Growth is in emerging markets as the developed markets are mostly saturated. In emerging markets, disposable incomes are not high enough for the masses to afford existing Apple products. Apple has already ruled out a $99 iPhone. The indications are that Apple is hard at work on a low end phone. Nobody knows the price of the future low-end iPhone. Most of the informed speculation centers around a price in the range of $300 to $400 in contrast to the $613 average selling price of the present iPhone.
The strong inference from Qualcomm’s earnings report is that smartphone prices are falling so fast that the new low end Apple iPhone is not likely to be competitive.
BlackBerry has been touting its success in emerging markets with Z10, but Z10 is simply too expensive for these markets. BlackBerry’s CEO is on record saying that BlackBerry is working on a low end phone. However considering how fast smartphone prices are falling, even if BlackBerry is able to introduce a new device at 50% of the current price of Z10, it is not likely to become competitive.
Qualcomm’s earnings report validates Nokia’s strategy for the emerging markets. Its line of low-end phones called Asha is doing well in emerging markets, but Nokia is about to face stiff competition primarily from Chinese manufacturers. Most of the phones from the new entrants are based onGoogle GOOG -0.14% Android. Further, these new entrants are shying away from Windows Phone OS.
The bottom line is that a sea change is on the horizon which is good for Google and Qualcomm but bad for almost everyone else.