The Motley Fool Previous Page

Qualcomm Is Down but Certainly Not Out

Keki Fatakia
April 24, 2012

CDMA pioneer Qualcomm (Nasdaq: QCOM  ) recently posted strong, second-quarter numbers that comfortably exceeded analyst expectations. The company's revenue went up by almost 28% from the prior-year period, hitting $4.9 billion. Net income also rose by an astounding 123% up to $2.2 billion from $999 million last year.

However, despite the great show, Wall Street gave Qualcomm a thumbs-down as the company's shares took a hit. Let's find out why.

A few bumps on the road
The market reacted to Qualcomm's third-quarter, earnings-per-share forecast coming in below analyst estimates. The company said that operating expenses are slated to shoot up further because of a projected supply shortfall for its 28-nanometer chips. These chips are supposed to cater to the next generation phones supporting 4G LTE technology, one of which may be Apple's (Nasdaq: AAPL  ) forthcoming iPhone 5. This news also has led to speculation that the shortage of Qualcomm's chips could delay the release of the iPhone 5.

With companies such as Samsung, Apple, and HTC accounting for almost 30% of Qualcomm's chip sales, the supply shortage possibly could affect the production of a lot of other upcoming cellphones as well.

Reasons for optimism
On the bright side, however, the company seems to be addressing the supply problem by working closely with its Taiwan-based manufacturing partner for 28-nanometer chip technology, and tying up with new ones as it scouts for alternate suppliers. Research firm Strategy Analytics has predicted that worldwide LTE phone shipments this year would reach about 67 million units. Small wonder then that Qualcomm is ramping up the 28-nanometer chip production process.

Remember, the good part is that the problems Qualcomm is facing are not because of lack of demand, but rat