Qualcomm (QCOM) Posts Q3 EPS of 99c; Announces Strategic Realignment

(Updated - July 22, 2015 4:03 PM EDT)

Qualcomm (NASDAQ: QCOM) reported Q3 EPS of $0.99, versus the analyst estimate of $0.95. Revenue for the quarter came in at $5.8 billion versus the consensus estimate of $5.85 billion.

Business Outlook

The following statements are forward looking, and actual results may differ materially. The "Note Regarding Forward-Looking Statements" in this news release provides a description of certain risks that we face, and our most recent annual and quarterly reports on file with the Securities and Exchange Commission (SEC) provide a more complete description of risks.

Our outlook does not include provisions for future asset impairments or for pending legal matters, other than future legal amounts that are probable and estimable. Further, due to their nature, certain income and expense items, such as realized investment and certain derivative gains or losses, cannot be accurately forecast. Accordingly, we only include such items in our financial outlook to the extent they are reasonably certain; however, actual results may differ materially from the outlook. Our outlook includes an estimate of the benefit related to stock repurchases that we plan to complete.

We have not included any estimates related to the proposed acquisition of CSR plc in our fiscal 2015 outlook. The acquisition is expected to close by the end of the summer of 2015. We expect the acquisition to be accretive to Non-GAAP earnings per share in fiscal 2016, the first full year of combined operations.

Strategic Realignment Plan

Today, we announced a Strategic Realignment Plan designed to improve execution, enhance financial performance and drive profitable growth as we work to create sustainable long-term value for stockholders. As part of this, among other actions, we are implementing a cost reduction plan to reduce our annual costs from fiscal 2015 levels of $7.3 billion (adjusted for variable compensation) by approximately $1.1 billion through a series of targeted reductions that will not jeopardize our growth objectives or core technology roadmap. We also plan to reduce annual share-based compensation grants by approximately $300 million. We expect these cost initiatives to be fully implemented by the end of fiscal 2016. In connection with this plan, we expect to incur approximately $350 million to $450 million in restructuring and restructuring-related charges, of which approximately $100 million to $200 million is included in our fourth quarter fiscal 2015 GAAP EPS guidance. Refer to the full text of that release on our investor relations website at: http://investor.qualcomm.com/results.cfm

QCT Outlook

We have reduced our outlook for our semiconductor business, QCT, in the fiscal fourth quarter compared to our prior expectations driven primarily by factors impacting premium-tier demand, including:

• Increased concentration within the premium tier causing reduced demand for certain OEM devices that include our chipset;
• Lower demand for our premium-tier chipsets from a vertical customer; and
• Lower sell through in China of certain handset models using our premium-tier chipsets.

QTL Outlook

In the second quarter of fiscal 2015, we reached a resolution with the NDRC regarding its investigation and agreed to implement a rectification plan that modifies certain of our business practices in China. However, we continue to believe that certain licensees in China are not fully complying with their contractual obligations to report their sales of licensed products to us (which includes 3G/4G units that we believe are not being reported by certain licensees). We continue to make progress, with licensees executing agreements based on the new China terms, and with several other licensees informing us that they intend to retain the terms of their existing agreements. Negotiations with certain other licensees are ongoing, and we expect it will take some time to conclude these negotiations. We believe that the conclusion of new agreements with these licensees will result in improved reporting by these licensees, including with respect to sales of three-mode devices (i.e., devices that implement GSM, TD-SCDMA, and LTE) sold in China. Our current outlook for our licensing business, QTL, also reflects the following:

• We expect global 3G/4G device shipments to be approximately 1.52 billion to 1.6 billion for calendar year 2015. At this time, we are not providing a forecast for calendar year 2015 reported 3G/4G device shipments.
• Our guidance for estimated fiscal fourth quarter and fiscal 2015 3G/4G total reported device sales includes an estimate of some prior period activity (i.e., devices shipped in prior periods) that may be reported to us.

The following table summarizes GAAP and Non-GAAP guidance based on the current outlook. The Non-GAAP outlook presented below is consistent with the presentation of Non-GAAP results included elsewhere herein.

For earnings history and earnings-related data on Qualcomm (QCOM) click here.

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