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Highlights From QCOM's Q4 Conference Call: FY11 Revenues Hit Record $15 Billion - Smartphones Leading the Way

November 3, 2011 5:09 PM EDT
Qualcomm, Inc. (NASDAQ: QCOM) reported Q4 EPS of $0.80, 2 cents better than the analyst estimate of $0.78. Revenue for the quarter came in at $4.12 billion versus the consensus estimate of $4.01 billion. Shares closed up 7.53% today.

Highlights From QCOM's Q4 Conference Call:

  • (Paul E. Jacobs) Our revenues grew to a record $15 billion in fiscal 2011, and we delivered record earnings and MSM chip set volumes.
  • Looking forward, we expect strong revenue and earnings growth again in fiscal 2012. In the coming year we expect continued healthy growth in CDMA-based device shipments despite the macroeconomic slowdown. Smartphones will lead the way along with the continued global adoption of 3G and accelerating consumer demand for wireless data.
  • We now have over 200 royalty-bearing 3G licenses and 13 single-mode OFDMA licensees around the world. During fiscal 2011, we also continued to expand our licensee base in China, adding more than 20 new Chinese licensees.
  • QCT continued to execute well. We believe our Snapdragon family of chipsets has established the industry standard in mobile, allowing us to expand our partnerships with several new customers.
  • In India, we worked hard to ensure LTE TDD was adopted, and we're pleased to see the initial build-out contracts being awarded. And according to the GSA, there are two commercial LTE TDD networks in Saudi Arabia, with an additional 27 operators making LTE TDD network investments around the world. We've collaborated with several OEMs on the launch of multimode 3G LTE TDD devices, demonstrating the ecosystem's readiness for deployment.
  • And as planned, we've executed on a restructuring plan for FLO TV and have agreed to sell the related spectrum to AT&T (NYSE: T). Now, we believe that regulatory approval should be granted as expeditiously as possible, as our proposed spectrum sale furthers many of the key policy goals that the SEC is actively promoting.
  • So overall, we delivered very strong earnings and operating cash flow growth in fiscal 2011. We increased our dividend for the eighth consecutive year and returned $1.5 billion to shareholders in the form of buybacks and cash dividends. And we ended the year well-positioned with a strong balance sheet, including approximately $21 billion in cash and marketable securities.
  • First is the continued mass adoption of smartphones. According to Gartner, global smartphone shipments reached 108 million units in the second quarter of 2011, representing a 74% year-over-year increase, and they're expected to surpass 1 billion units annually by 2015.
  • Second is the growth of 3G in emerging regions. According to Wireless Intelligence, approximately 67 million 3G connections were added in emerging regions this past quarter, representing a 38% year-over-year increase, and greater than 1.5 billion new 3G connections are expected to be added in these regions through the end of 2015.
  • A third catalyst is the opportunity for mobile computing and the expansion of 3G connectivity into device types beyond the handset. Microsoft's (Nasdaq: MSFT) demonstration of Windows 8 on Snapdragon at their recent developer conference underscores this shift in the computing landscape.
  • The fourth key driver is the continued deployment of advanced network technologies to handle the accelerating demand for data. According to the GSA, there are now 152 HSPA+ and 35 LTE commercial networks throughout the globe.
  • (Steven M. Mollenkopf) We had another record year, shipping approximately 483 million MSMs, up 21% year-over-year. We just completed our highest volume quarter in history with approximately 127 million MSMs shipped.
  • Shipments of our integrated Snapdragon chipsets grew more than four times this is year. The cost, size, and performance advantages of our integrated approach position us to grow faster than our competitors.
  • There are now more than 300 Snapdragon-based devices announced, and more than 350 additional devices in development. New Snapdragon-based devices launched this quarter include the HTC Jetstream LTE tablet for AT&T, the BlackBerry Torch 9850 (Nasdaq: RIMM) and the Samsung Galaxy S2 for T-Mobile USA and the Samsung Galaxy Tab 10.1 LTE for NTT DOCOMO.
  • (William E. Keitel) Fiscal fourth quarter revenues were a record $4.1 billion, up 39% year-over-year, and non-GAAP operating income grew 44% year-over-year. Non-GAAP earnings per share were $0.80, up 18% year-over-year.
  • QTL revenues grew 48% year-over-year and total reported device sales by our licensees were approximately $39.1 billion for the fourth fiscal quarter, up 38% year-over-year, driven by strength in both emerging and developed regions. We estimate that approximately 187 million to 191 million subscriber units were shipped by our licensees in the June quarter at an average selling price of approximately $204 to $210. We continue to see handset ASP strength across both emerging and developed regions, as well as increasing breadth of connected devices.
  • Turning to our results for the full fiscal 2011 year, revenues were a record $15 billion, up 36% year-over-year, reflecting strong execution by our QTL and QCT businesses and continued smartphone adoption and 2G to 3G migration.
  • GAAP earnings were a record $2.52 per share, up 29% year-over-year. Record non-GAAP operating income was more than $6 billion, up 41% year-over-year. And non-GAAP earnings per share were a record $3.20, up 30% year-over-year.
  • We anticipate fiscal 2012 revenues to be in the range of approximately $18 billion to $19 billion, up approximately 24% year-over-year at the midpoint. We expect our non-GAAP operating income to be in the range of approximately $6.7 billion to $7.2 billion, an increase of approximately 14% at the midpoint. We expect fiscal 2012 non-GAAP earnings per share to be in the range of $3.42 to $3.62, an increase of approximately 10% year-over-year at the midpoint.
  • We anticipate that non-GAAP R&D and SG&A combined expenses will grow at approximately 15% year-over-year, plus or minus a couple of points, and driven primarily by growth in R&D expense and a full year of Atheros. We expect our non-GAAP tax rate for fiscal 2012 to be approximately 18% to 19% and our GAAP tax rate to be approximately 18%.
  • We expect a modest sequential increase in non-GAAP R&D and SG&A combined expenses, and we expect our non-GAAP tax rate for the first fiscal quarter to be approximately 18% to 19%.
  • (Q&A) Two parter if I could on the unit growth assumption. Sticking, Bill, sticking to the 775, I know you're not giving the September number, but the royalty revenue looks kind of flat sequential. So, it looks to me like that's implying a much low double-digit sequential growth in the fourth quarter. So, what is the reason for a little less than seasonal Q4, compared to historic? And does that have any impact on your model for next year that the 16% growth is also below what we've done in the last few years? Is the more cautious view in Q4, does that carry over seasonality wise to the calendar '12 number? (A) Sure, Tim. We're reaffirming the 775 number. And for next year, the midpoint growth estimate of about 16% is a little lower than what we've seen in recent years. But likewise, we think the global economy is looking weaker as well. So, we've triangulated that CDMA-based unit shipment forecast for next year to a rather low global GDP growth estimate, again, particularly for Europe, but also for the U.S. The strength we're seeing if anywhere on global GDP would be in the emerging markets. Specific to our fiscal Q1 guidance relative to the fiscal Q4, if you recall, the QTL revenues are recorded one quarter in arrears. And so what we'll report in our fiscal Q1 will be shipments for fiscal Q4. Fiscal Q4 we don't think had a significant growth over fiscal Q3 in the market, whereas for the market as a whole, we are seeing strong growth in this first fiscal quarter, which QTL we expect will reflect next quarter.
  • Steve, just wanted to get some more color on the 8960 as you move to 28-nanometer. It seems like a very key product for your roadmap in 2012. As this product ramps, how should we think about it as it impacts your ASPs? Should we kind of have our normal seasonal price declines in March, but then as 8960 ramps, your ASPs could kind of go up embedded in your guidance? Just trying to get some color on ASP and then if you can just give any color on 8960 in general, that would be very helpful. (A) Sure, Mike. A couple of things, one is it's progressing pretty much the way we had hoped. So, it's on track for the dates that we talked about last call. We'll see that build volume through really the mid-calendar year of '12 and as we said before. So, quite happy with how that's looking both from a design-in perspective, as well as from the engineering side. We will - that will build throughout the year. We're also taking the 28-nanometer process, and we're actually going to create a tier of projects, which I think we talked about a little bit before, on the high end, more of a tablet specific part, as well as a mass market LTE product. So, if you look at 28-nanometer in total through next year or this year, fiscal year '12, you'll see it build on the 8960, which I would consider to be a premium part, and then transition to a tiered roadmap, pretty consistent with what we've done with other technology transitions as well.


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