Qualcomm (QCOM) #3 [9]

44.36 +0.94: Qualcomm on Wednesday increased its financial guidance for the fourth quarter and fiscal year ending September 25, 2005, citing strong market momentum for high-speed wireless chipsets. The company, which manufactures and licenses advanced wireless technologies, said it is seeing strength across many geographies in shipments of third-generation CDMA handsets. During the June quarter, both CDMA - the mobile standard in North America - and WCDMA handset shipments increased sequentially in most regions of the world.

Based on the current business outlook, Qualcomm expects to earn approximately $0.32 to $0.33 per share on revenue in the range of $1.48 to $1.58 billion, compared with its earlier estimate of $0.29 to $0.31 per share on $1.43 to $1.53 billion in sales. The revised forecast, which includes a $0.02 reduction for additional tax expenses and $0.01 for investment related income, represents an increase in earnings of around 7% to 10% year/year and sales growth of 8% to 15%. On average, analysts had projected EPS of $0.30 on revenue of $1.49 billion.

Conjointly, the company anticipates FY05 earnings of $1.16 to $1.17 per share with revenue between $5.6 and $5.7 billion, versus the consensus estimate for earnings of $1.15 per share and revenue of $5.61 billion. The latest estimate is based on shipments of roughly 40 million MSM, or Mobile Station Modem, chips during the current quarter. This is in comparison to approximately 39 million in the same period last year. Furthermore, the company estimates June quarter shipments of about 48 million CDMA and WCDMA units at an average selling price of $213, compared to its previous estimate of 43 to 45 million units at an average selling price of about $215.

The improvement in handset estimates, as compared to the prior guidance, was attributed to greater CDMA handset shipments in North America, Latin America, and the rest of the world. In addition, the company highlighted the degree of traction that WCDMA chipsets have received from mobile device manufacturers.

As a result of the healthy sales estimates for mobile chipsets, carried by strong momentum in third-generation wireless technology - which promises to provide consumers with many advanced features and new data services - Qualcomm is well positioned to accelerate earnings and drive multiple expansion. The company's demonstrated ability to respond to market trends, as well as improve its handset performance and pricing in an extremely competitive environment, continues to support growth prospects. As the company, and the industry, transitions to 3G technology, its competitive market position and strong fundamentals should afford it a bounty of opportunities looking ahead. At the current price level, Qualcomm trades at approximately 38x trailing earnings, an enticing valuation compared to the average level of 49x over the past five years.