Qualcomm: Cash Cow

Wrapping up another impressive year of profits and cash flow, wireless kingpin Qualcomm (Nasdaq: QCOM) met the expectations of Wall Street yesterday with fiscal fourth-quarter revenues of $3.971 billion and earnings of $827 million, or $1.01 per share. All financial and performance figures were in line with the detailed guidance that Qualcomm had notched up earlier in the year, so no startling surprises rattled after market bids on the stock.

Ahead of the earnings report, Qualcomm's stock had advanced steadily since May and now sits near its 52-week high of $48.63 a share. Global sales of cellular phones kicked up noticeably in the summer, and the prospects of increased subscriber churn due to number portability coming in the U.S. and Korea has helped boost the stock. Qualcomm earns royalties and benefits from the sale of chipsets in CDMA phones, so the more often customers change carriers, the more likely they are to buy a new handset.

Qualcomm has become the ATM of the wireless world, generating an additional $2.2 billion dollars in cash in its fiscal year 2003. This leaves the company with a bank balance of $5.4 billion, enough cash flow to confidently raise their dividend by 40% and complete $158 million of a billion-dollar stock repurchase plan.

What every analyst and avid Qualcomm investor was really waiting for though was future guidance from the CDMA gorilla. Not surprisingly, Qualcomm gave what many consider conservative estimates for their 2004 fiscal year: virtually flat with only single-digit top line growth. Part of the tepid growth envisioned comes from Qualcomm's expected decline in CDMA chipset market share. Qualcomm has enjoyed over a 90% share of this market, but Nokia (NYSE: NOK) has made strides recently in its CDMA products, which use chips designed in-house. Qualcomm also sees competition coming from semiconductor giant Texas Instruments (NYSE: TI), with whom it is presently embroiled in a lawsuit over a technology license agreement.

But Qualcomm's CEO is particularly excited about this coming year. In classic Irwin Jacobs style, the company will forego pressure for increased margins in 2004 and significantly boost R&D spending to better position the company in WCDMA equipment in the years ahead. With positive signs pointing to the rollout of several WCDMA networks for 2004, Qualcomm will sow now so it can reap later. Repeating an admittedly ambitious plan for 50% share of the lucrative WCDMA market, Qualcomm is gearing up for the long haul.

You can discuss Qualcomm on the company's discussion board on Fool.com

Dave Mock's cash only seems to flow one way -- the wrong way. He is co-author of Tapping into Wireless, and welcomes your feedback at dave@davemock.com.