Qualcomm Revised to $67.50 on Solid Outlook with Better Pricing

Following up on a strong September quarter, Qualcomm (NASDAQ:QCOM) reported blowout Q1 FY 2012 results, capping off what has been an excellent year for the company. Qualcomm’s revenue for the last quarter came in on the higher end of their $4.35-$4.75 billion guidance announced in October at $4.68 billion, which was a 40% increase over the same period last year and 14% higher sequentially. Both its chipset and licensing divisions saw healthy growth as a seasonally strong December quarter, which was helped by Apple’s iPhone 4S and helped lift sequential revenues by 19% and 6% respectively. While chipset sales increased 23% sequentially, CDMA device ASPs also increased by close to 4% over the last quarter which provides support to our expectations for future royalty revenues in the coming quarters.

In light of the bumper earnings and sound guidance for the coming quarters, we have updated our price estimate for Qualcomm’s stock to $67.50.

See our complete analysis for Qualcomm stock here

iPhone 4S demand shores up chipset shipments

While Qualcomm’s position at the top of the mobile semiconductor industry is unmatched, its association with Apple has reinforced its position. Last quarter, Qualcomm became the sole provider of baseband chipsets for Apple’s new iPhone 4S. The iPhone 4S turned out to be Apple’s best release till date, helping it sell over 37 million iPhones last quarter. Not only did that help Qualcomm ship an unprecedented total of 156 million chipsets, which is a 23% increase over last quarter, but also increased the average handset ASPs by 4% over the previous quarter. Moreover, it led Qualcomm to guide for the shipments to drop only modestly to 150 million next quarter, a quarter that has seasonally been weak for the industry.

Qualcomm also expects the trend of increasing handset ASPs to continue throughout this year as it increased its earlier $197 – $209 guidance for FY 2012 to $204 – $216. If the trend holds, it will be a huge positive for Qualcomm’s royalty revenues. Since the licensing division has a high margin of close to 90%, this will add to its bottom-line and shore up the overall gross margins for the company as well.

Number of catalysts for 2012

The company also guided for a healthy year-over-year 19-29% growth in revenues next quarter and bumped up its revenue estimate for the fiscal year from the earlier $18-19 billion estimate to $18.7-19.7 billion estimate. A number of factors could help Qualcomm reach that estimate.

An increasing migration of emerging market customers from 2G to 3G, in addition to a continuation of the iPhone success story as Apple adds China to its growing list of countries where the iPhone 4S is available. A huge catalyst could also emerge if Apple uses Qualcomm’s next-generation multi-mode LTE chipsets in its next-generation LTE-enabled iPad and iPhone as well. (see Qualcomm’s Next-Gen Chips May Help Apple Launch LTE Devices Next Year) Finally, Qualcomm would benefit immensely from the launch of a horde of new mobile devices on Microsoft’s Windows Phone platform as it is the sole provider of chipsets that are compatible with this platform.

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