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Qualcomm And STM Swing To Profit

Posted on Tuesday, Apr 27th 2010

Chipmakers Qualcomm (NASDAQ:QCOM) and STMicroelectronics (NYSE:STM) recently reported their quarterly results. Both companies swung to a profit, but Qualcomm provided a weak outlook that sent its shares plummeting. Let’s take a closer look.

Qualcomm reported second quarter revenue of $2.66 billion, up 8%. Net income was $774 million or $0.46 per share compared to a net loss of $289 million or $0.18 per share last year due to a $748 million litigation settlement charge related to the company’s patent agreement with Broadcom. It ended the quarter with $18.2 billion in cash after paying $279 million in dividends and repurchasing shares worth $1.71 billion. Q1 analysis is available here.

Guest author Nalini Kumar Muppala in his Smartphone Ecosystem series looks at how Qualcomm’s Snapdragon, which combines an application processor, baseband, and GPS, has turned out to be formidable competition for Texas Instruments’ OMAP3. The Snapdragon QSD8250 is found in Nexus One as well as phones from Toshiba, HTC, Acer, Lenovo, and Sony-Ericsson. Qualcomm Snapdragon QSD8650 has design wins in phones announced by LG and HTC. Snapdragon will be the first platform supporting all Microsoft’s Windows Phone 7 smartphones to be launched later this year.

Qualcomm is also gaining momentum outside the traditional handset space. HP recently launched the Compact Airlight 100 based on the Snapdragon chipset and running the Android OS. Dell’s Mini 5 Android tablet is also based on Snapdragon. The blurring line between the computer and the mobile phone business has now launched Qualcomm into entirely new markets.

For the third quarter, Qualcomm expects EPS in the range of $0.51 to $0.55 while analysts expect EPS to be $0.55. The weak outlook has caused Qualcomm’s shares to slide. Its share price has also been affected lately by declines in average selling prices for cellphones. CEO Paul Jacobs expects prices to decline again slightly this year but expects this decrease to be offset by the increase in 3G phone subscribers. 3G subscribers now exceed 1 billion worldwide, and this figure is likely to increase with an auction for 3G services in India. The stock is currently trading around $38 with market cap of $62 billion. It hit a 52-week high of $49.80 on January 8.

Chart forQUALCOMM Inc. (QCOM)

After two years of losses, STM finally reported a quarterly profit of $57 million compared with a net loss of $541 million last year. Q1 revenue was up 40% to $2.32 billion driven by 60% growth in its industrial segment and 47% growth in its Automotive, Consumer, Computer and Communication Infrastructure (ACCI) segment. The company’s net cash position improved to $566 million at the end of the quarter compared to $420 million last quarter. Q4 analysis is available here.

Its joint venture, ST-Ericsson, reported an 8% y-o-y increase and 18% q-o-q decline in sales to $606 million. Its adjusted loss was $114 million compared to a loss of $149 million last year and $50 million last quarter. ST-Ericsson recently launched U6715, its Android-ready platform that is already shipping to Acer. It has made inroads into China: Its TD-SCDMA technology was selected by HTC for its smartphones in China, and it also announced development cooperation with China Mobile on TD-LTE, the next-generation 4G mobile technology.

While the ST-Ericsson JV continues to make losses, STM is bouyed up by its growth in the industrial and ACCI segments. Its set top box chips are gaining momentum in China and Argentina. Its Micro Electro-Mechanical Systems (MEMS) business is another area of its focus. It has developed a new family of iNEMO multi-sensor Inertial Measurement Unit (IMU) devices that can detect a variety of movements and states. According to iSuppli, STMicro is the leading supplier of Mems for consumer and portable applications and Nintendo is its leading purchaser followed by Samsung. Apple is its fifth largest purchaser but iSuppli expects its use of Mems to increase with its use of accelerometers-and possibly Mems microphones-in the new iPad tablet.

STM recently sold its stake in loss-making Numonyx to Micron and expects the sale to add about $900 million to its capital structure. Numonyx was launched two years ago by STMicroelectronics, Intel, and private equity firm Francisco Partners but was unable to make any profit in the depressed NOR market. 

STM managed to return to profitability with its restructuring plan that reduced its costs by more than $1 billion. The improving demand after the economic slump is also helping. According to Gartner, worldwide semiconductor revenue will increase by 20% to $276 billion in 2010.

For the second quarter, STMicro forecast revenue growth of 6% to 12% sequentially and 24% to 31% year-over-year. The stock is currently trading around $10 with market cap of about $8.5 billion. It hit a 52-week high of $10.73 just before its earnings announcement.

Chart forSTMicroelectronics NV (STM)

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