Qualcomm (QCOM) delivered a solid quarter driven by continued leadership of its multimode 3G LTE chipset solutions and record licensing revenues. In recognition of its strong financial position and the continued growth of its business, it recently announced a 20% increase in its dividend as well as a new share repurchase authorization of $7.8 billion.
The Road Ahead
Strong growth for 3G/4G is expected, based device shipments are forecast to continue in calendar 2014. Qualcomm continues to grow its base of single mode 4G OFDMA licensees and now has over 100 globally, including more than 60 in China. These are in addition to the over 255 CDMA-based licensees it has globally.
Qualcomm continues to invest heavily in developing the leading and most widely licensed portfolio of patented technologies applicable to 3G and 4G devices. In addition to its industry-leading position in 3G and 4G technologies, its licensed technologies include a wide variety of other technologies implemented in the same devices.
It continued to build on its broad customer footprint in QCT as revenues in MSM shipments were up 8% and 9%, respectively, MSM chip shipments were in line with expectations with a stronger mix of products in the premium tier. QCT has a strong continued product leadership. Multiple products based on its Snapdragon 801 chipset have recently launched, including the Samsung Galaxy S5, the new HTC One M8 and the Sony Xperia Z2 smartphones and tablet.
Products based on Qualcomm’s Snapdragon 805 and fourth generation multimode 3G/4G modem, featuring Cat 6 LTE are expected to launch later this year. In addition, it recently announced several new products in its roadmap, further demonstrating its leadership position in bringing 3G LTE modems and 64-bit CPU architectures across multiple product tiers.
Strong Global Demand
Globally, there’s a strong continuously growing momentum of Snapdragon-based devices with more than 525 designs in the pipeline. Qualcomm’s Wi-Fi revenues are strong and growing and fiscal year-to-date Wi-Fi shipments are up more than 45%. Currently, it has over 350 802.11ac designs, including more than 250 on its mobile solutions.
It also announced its next innovation in Wi-Fi, with a comprehensive set of products that use multi-user MIMO to make it to the 802.11ac networks more efficient, delivering up to three times improvement in throughput.
Looking forward, LTE and unlicensed spectrum are expected to provide further capacity enhancements and coexist nicely with Wi-Fi to help meet the expected significant increase in data demand. It’s making excellent progress with the RF360 solutions, particularly the envelope tracker. Total shipments more than double this quarter and it now has over 75 designs across 15 OEMs.
Looking forward, its long-term growth drivers remain intact. Gartner forecasts approximately 1.9 billion smart phones to be shipped in 2018, while cumulative Smartphone shipments are expected to reach approximately 8 billion between 2014 and 2018. There’s a strong continued forecast of 3G/4G device shipments for calendar year 2014 and the rollout of 4G in China continues to be an important near-term growth catalyst for its business.
All the operators in China have aggressive LTE rollout planned with China Mobile alone planning to expand its network coverage nationwide to more than 500,000 LTE base stations by the end of 2014. Qualcomm has strong LTE design momentum with the OEMs in China, which is driving significant demand for its multimode 3G LTE chipsets.
On a global basis, the deployment of overlay LTE networks continues to be a key growth driver for it as over 270 operators have now deployed LTE and more than 210 additional operators are planning deployments according to the GSA. Further about 48 operators are investing carrier aggregation across 28 countries and seven operators have launched commercially.
The extension of mobile technologies into industries such as automotive, health care, smart city's, energy and other consumer electronics wearables and other segments is also another set of growth opportunities for us. Looking forward, industry analysts forecast approximately 400 million 3G/4G non-handset device shipments in 2017.
Qualcomm’s inventions provide key building blocks in solving complex issues across these different verticals. There have been several positive developments on the mobile computing front. Microsoft is now offering its Office Suite on non-Windows-based tablets, further enhancing the utility of these devices by augmenting their productivity features. Further, there are strong efforts from operators to encourage wireless data usage on connected tablets, including T-Mobile.
It delivered another solid quarter and is pleased to be raising its fiscal year EPS guidance. There is strong momentum with its semiconductor solutions and it expects significant growth ahead for 3G/4G devices, including the continued rollout of multimode 3G LTE devices in China and elsewhere throughout the globe.
It reported record non-GAAP EPS this quarter, driven by better than expected operating performance from its QCT business and record QTL performance combined with strong investment gains and a lower than expected tax rate.
The returns on its investment portfolio reflect gains from strong investment results being recognized as it balances risk in the portfolio in line with its increased capital return targets. Continued gain recognition is forecast over the next two fiscal quarters though at lower levels than in quarter two.
During fiscal quarter two, it returned approximately $1.6 billion to stockholders, including $589 million of dividends paid and $1 billion in stock repurchases. During the quarter, it announced 20% increase in its dividend and increased its stock repurchase authorization to $7.8 billion.
Looking ahead, its guidance for fiscal 2014 is mostly unchanged except that it is modestly increasing its EPS expectations for the fiscal year to reflect the better than expected performance year-to-date. It has increased its outlook for QCT business for the remainder of fiscal 2014, driven by its strong LTE product leadership and the expected ramp of LTE in China. It has reduced its outlook for QTL for fiscal 2014, due to the softer demand in the December 2013 quarter for reported devices.