Qualcomm posts a solid quarter, drops on forecasts

Qualcomm reported record fiscal Q2 revenue earnings on April 24, 2013; however, Qualcomm projected weaker than anticipated fiscal Q3 per share earnings, causing shares to drop 6.9% to $61.45 (after hours). The forecast raised worries that Qualcomm's expenses are increasing at a time the average selling price of devices is falling. Also new low-cost phones and heightened competition are affecting margins.

Qualcomm's semiconductor business margin was 17%, the amount is much lower than the 26 percent margin posted in the first quarter.

There have been concerns that the smartphone industry's growth is slowing, but Qualcomm hasn't shown many signs of weakness. The company remains one of the only LTE providers in the industry, and its diverse customer base should help buffer it from a soft economy. However, Qualcomm likely will face more competition as rivals introduce LTE chips, and there are some upcoming Chinese vendors that could prove to be a big threat in the key emerging markets. Chief Executive Paul Jacobs said that 850 devices have been released or announced that use Qualcomm chips, and there's another 475 to come.

Qualcomm continues to spend significant funds on R&D. In Q2, Qualcomm spent $1.88 billion on research and development and selling, general, and administrative expenses, up 21 percent from the same period a year ago and up 11 percent sequentially. The company expects that level to rise 2 percent to 4 percent sequentially in the third quarter.

For the full year, Qualcomm expects an average selling price of $216 to $224 for 3G and 4G devices. It previously anticipated $214 to $226. In 2012, the average selling price totaled about $216 to $222.

For the fiscal Q2 ended March 31, Qualcomm reported net income fell to $1.87 billion, or $1.06 share, from $2.23 billion, or $1.28 a share, a year earlier. Excluding items like acquisition-related charges, earnings rose to $1.17 a share, from $1.01 a share a year ago. Qualcomm in January had projected fiscal second-quarter adjusted earnings of $1.10 to $1.18 a share.

Revenue soared 24% to $6.12 billion, above the midpoint of Qualcomm's estimates for $5.8 billion to $6.3 billion.

The company shipped 173 million chipsets during the period, up 14% from the previous year and at the high end of its projections for 163 million to 173 million.

Looking forward, Qualcomm expects fiscal third-quarter adjusted earnings of 97 cents to $1.05 on revenue of $5.8 billion to $6.3 billion.

It now expects adjusted earnings of $4.40 to $4.55 a share, up from January's forecast for $4.25 to $4.45 a share. It also anticipates revenue of $24 billion to $25 billion, up from its earlier expectation of $23.4 billion to $24.4