Qualcomm: Strong Quarter Accompanied By Stronger Outlook

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 |  About: Qualcomm Inc. (QCOM)
by: The Value Investor

Shares of Qualcomm (QCOM) rose 8% in after hours trading on Wednesday. The developer and innovator of advanced wireless technologies reported its fourth quarter results for its fiscal 2012 after the close.

Fourth Quarter Results

Qualcomm reported fourth quarter revenues of $4.87 billion, up 18% on the year. Revenues surpassed analysts consensus of $4.65 billion. During the quarter, the company shipped 141 million MSM chips, up 11% on the year.

The company reported an operating income of $1.24 billion, unchanged on the year. Net income rose 20% on the year to $1.27 billion, with diluted earnings per share rising 18% to $0.73 per share.

Qualcomm reported full year revenues of $19.12 billion which is up 28% compared to its fiscal 2011. Net income rose by 43% to $6.11 billion, or $3.51 per diluted share. Full year earnings included a one-time gain of $776 million related to the sale of 700 MHz spectrum.

During the quarter, Qualcomm repurchased 15.3 million of its own shares for a total consideration of $841 million.

Chairman and CEO Paul E. Jacobs commented on the results,

I am very pleased with our performance this year. We delivered record revenues, earnings and MSM chipset shipments driven by increasing global consumption of wireless data across a diverse range of devices, particularly smartphones. As we continue to invest in and execute on our strategic priorities, our broad licensing program and industry-leading Snapdragon and 3G/LTE chipset roadmap position us for double-digit revenue growth again in fiscal 2013.

Outlook

For its first quarter of 2013, Qualcomm guides for first quarter revenues of $5.6-$6.1 billion. Non-GAAP diluted earnings per share are expected to come in between $1.08 and $1.16 per share. Qualcomm guides for 168-178 million MSM chip shipments. Analysts expected Qualcomm to guide for first quarter earnings of $0.86 per share, on revenues of $5.33 billion.

For the full year of its fiscal 2013, Qualcomm expects revenues to come in between $23 and $24 billion. Non-GAAP operating income is guided between $8.1 and $8.6 billion. Non-GAAP diluted earnings per share are anticipated to come in between $4.12 and $4.32 per share. Analysts expected Qualcomm to guide for annual earnings of $4.13 per share on revenues of $21.7 billion.

Valuation

Qualcomm ended its fiscal 2012 with $26.8 billion in cash, equivalents and marketable securities. The company operates without the assumption of debt, for a comfortable net cash position.

Factoring in a 8% jump in after hours trading, the market values Qualcomm at roughly $107 billion. This values the operating assets of the firm at roughly $80 billion. This values Qualcomm's assets at 4.2 times annual revenues and roughly 13 times annual earnings.

Qualcomm currently pays a quarterly dividend of $0.25 per share, for an annual dividend yield of 1.7%.

Investment Thesis

Year to date, shares of Qualcomm have risen some 15%. Shares rose from $55 in January to highs of $69 in March of the year. Shares fell back to $55 in the summer on the back of concerns about global economic growth. Shares are currently exchanging hands at $63 per share.

Over the past five years, shares of Qualcomm have risen some 40%. Shares traded as low as $30 by the end of 2008 and rose to the highest levels in the past decade. Between 2008 and 2012, Qualcomm increased annual revenues from $11.1 billion to $19.1 billion in 2012. Net income roughly doubled from $3.2 billion to a reported $6.1 billion.

Investors are very pleased with the strong results for the final quarter of the year. The outlook for the first quarter and its full year of 2013, is very strong. Qualcomm is benefiting from increased adoption of smartphones in developed and emerging markets. Qualcomm relies on smartphone sales rather than personal computer sales, which are suffering and having a negative impact on chip suppliers like Intel (INTC).

The demand for Qualcomm's chips will persist into 2013 based on a "conservative" assumption of global economic growth. The valuation of 13 times 2012s annual earnings is rather modest. A couple of reasons for the relative low profit multiple is the fact that net profit margins are reaching peak levels of 32% this year. Even when excluding one-time items, net margins are historically high.

Another worry is the significant cash position, roughly a quarter of Qualcomm's total market value. Investors might be discounting the cash position on the worry of "expensive" acquisitions. Qualcomm could take away some worries by boosting payouts to shareholders.

I think the prospects look good as Qualcomm boosted the pace of share repurchases over the past quarter. Look for increased dividends and share repurchases in the medium term, which could act as support for the share price into 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.