I have to admit – I am fairly thrilled with QUALCOMM, Inc. (NASDAQ:QCOM)’s performance this past quarter.
The Qualcomm story
Growth in the mobile space is largely uneven, and depending on the geography low-end devices are in greater demand than the high-end. The management team at QUALCOMM, Inc. (NASDAQ:QCOM) believes that smartphone users in emerging market economies will eventually transition to high-end devices.
The company reported that revenues were up by 35% year-over-year. The rise in revenue primarily came from the company’s CDMA (mobile hardware) division (47% year-over-year growth). The QUALCOMM, Inc. (NASDAQ:QCOM) technology license division was up by 17%. The neat side of the story is that the company’s hardware business, which represents the company’s net revenue, was up the most. The licensing division, which has higher gross margins, was also up significantly year-over-year.
QUALCOMM, Inc. (NASDAQ:QCOM)‘s 35% year-over-year revenue growth was offset by a 40.75% increase in total operating costs. The increase in operating costs was expected as the company shifted its strategy to lower margin system-on-chips for emerging market devices. The company was able to report a 21% year-over-year improvement in earnings per share (Non-GAAP).
The company reported $1.03 in earnings per share (Non-GAAP) for the most recent quarter. This met analyst expectation that were set at $1.03 in earnings per share (Non-GAAP). So while the company didn’t surprise, it certainly didn’t disappoint (that’s all we’re asking for at this point).
I think the rosiest aspect is that the company provided guidance that showed rising average selling prices. The CEO, Paul Jacobs stated that the future possibilities in mobility are near endless (HD audio, proximity based communication, wireless charging, ultra-HD video, and so on). So basically the high-end isn’t tapped for innovation quite yet as there are a lot of cool features that can be added to smartphones we just don’t know about yet.
The company provided guidance that revenues should be able to grow by 27% to 31% in 2013. The company’s Non-GAAP diluted earnings per share to grow by 19% to 23% in 2013. The full-year guidance indicates that phones in general will be able to sustain high rates of growth.
Information pertinent to smart phones
The company reports that device average selling price is going to increase from $219 in 2012 to $229 (high end) in 2013. The average selling price is expected to go up because discretionary income should increase in places like China, India, and Russia. This will shift lower-end consumers to higher-end devices.
The rising average selling prices also indicate that both Apple Inc. (NASDAQ:AAPL) and Samsung may have further growth potential in the high-end. The growth will become heavily dependent on socioeconomic factors.
Shipment figures for QUALCOMM, Inc. (NASDAQ:QCOM) are estimated to improve by around 15.8% on the high-end. With 1.085 billion device sales estimated for the 2013 calendar year. Assuming QUALCOMM, Inc. (NASDAQ:QCOM)’s shipments for devices reach the targeted amount, and pent-up demand kicks in for the next generation Apple iPad and iPhone devices, third quarter results could be phenomenal for Apple Inc. (NASDAQ:AAPL).
Apple will be able to sustain earnings growth if it offers a lower-end device and signs a contract with China Mobile Ltd. (ADR) (NYSE:CHL). 2013 seems to have been a transition year for Apple Inc. (NASDAQ:AAPL). In 2014, assuming average-selling-prices trend higher, with shipments up year-over-year, the company could beat expectations.