Wrapping up its fiscal 2005, wireless technology giant Qualcomm (NASDAQ:QCOM) announced earnings yesterday that largely matched its previous estimates. More importantly, the company's impressive forward guidance led Wall Street analysts to boost their earnings estimates for Qualcomm's next quarter. The good news should be a relief for Qualcomm stockholders after last week, when several companies filed anti-competition complaints against Qualcomm with the European Commission. Investors are celebrating the healthy earnings this morning, sending the company's shares up over 7%.
Qualcomm reported quarterly revenues of $1.56 billion and earnings of $538 million. For FY 2005, the company captured $5.67 billion in revenue and $2.14 billion in earnings. Full-year and quarterly results represented 40% and 16% revenue growth and 37% and 25% net income growth, respectively. That's excellent news, but the icing on investors' cake was the considerable growth the company expects next year. Qualcomm issued Q1 2006 earnings guidance of 36 to 38 cents per share on revenue between $1.67 billion and $1.77 billion. That topped previous analyst estimates of 35 cents on $1.66 billion in revenue.
Qualcomm will benefit significantly in 2006 from the expiration of its obligation to share royalties under two agreements. However, much of Qualcomm's future growth depends upon the move to third-generation (3G) CDMA-based technologies in wireless networks. Qualcomm gets no royalties from GSM, the current leading standard, but it will get a cut of the new WCDMA technology that many wireless providers are adopting.
In its fourth quarter, Qualcomm reported a whopping 41% in third-party royalty revenue coming from wireless devices built with its WCDMA technology. That's a little more than $180 million coming from a market for devices that has yet to really hit mainstream volumes, as pick-up has been relatively slow.
Qualcomm expects 44 million WCDMA handsets to be shipped in calendar 2005, significantly less than it and others had originally expected at the beginning of the year. Wireless operators around the world have upgraded networks to 3G, but many have not widely pushed 3G services yet, since the technology and handset devices are still maturing. Qualcomm sees 2006 as 3G's breakthrough year, estimating sales of 86 million WCMDA handsets.
In the conference call yesterday evening, Qualcomm addressed complaints filed by Broadcom (NASDAQ:BRCM), Nokia (NYSE:NOK), and four other companies last week. President Steve Altman argued that the action has little merit on many fronts, detailing many inaccuracies and contradictions in the claims. Qualcomm management made it clear that it plans a vigorous fight and has no intention of reducing royalty fees.
While the twists and turns of this public battle over royalties may pressure some to sell Qualcomm stock, buyers are in charge today, because 2006 looks to be a very bright year for the company.
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Fool contributor Dave Mock does not boast an enviable response rate on complaint letters he has filed over the years. He owns shares of Qualcomm and has authored a book on the company -- The Qualcomm Equation. The Fool has a disclosure policy.
