Qualcomm on Wednesday reported its earnings for the fiscal second quarter or 2011. Strong demand for smartphones and other connected devices that utilize the company’s chips drove record revenues of $3.88 billion, up 46% over the second quarter in fiscal 2010. Operating income and net profits were up year-over-year as well; operating income was up 38% to $1.07 billion and profits were up 29% to $999 million. Compared to the first quarter of fiscal 2011 however, operating income was down 3% and profits were down 15%. Qualcomm expects continued success moving forward, and the company raised its fiscal 2011 guidance as a result. “We are pleased to report record quarterly revenues, and we are raising our revenue and earnings guidance for the year as the demand for smartphones across an array of geographies and tiers continues to grow,” said Qualcomm CEO Paul E. Jacobsin a statement. “In addition, we have resolved the second of the two previously disclosed licensee disputes. We continue to execute on our strategic priorities as our partners deploy our technologies and solutions to offer leading wireless products and services to consumers worldwide.” Hit the break for the full release.
Qualcomm Announces Second Quarter Fiscal 2011 Results
Record Revenues $3.9 Billion
GAAP EPS $0.59, Non-GAAP EPS $0.86
— Raises Fiscal 2011 Revenue and Earnings Guidance —
SAN DIEGO, April 20, 2011 /PRNewswire-FirstCall/ — Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the second quarter of fiscal 2011 ended March 27, 2011.
“We are pleased to report record quarterly revenues, and we are raising our revenue and earnings guidance for the year as the demand for smartphones across an array of geographies and tiers continues to grow,” said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. “In addition, we have resolved the second of the two previously disclosed licensee disputes. We continue to execute on our strategic priorities as our partners deploy our technologies and solutions to offer leading wireless products and services to consumers worldwide.”
Second Quarter Results (GAAP)
- Revenues: $3.88 billion, up 46 percent year-over-year (y-o-y) and 16 percent sequentially.
- Operating income: $1.07 billion, up 38 percent y-o-y and down 3 percent sequentially.
- Net income:(1) $999 million, up 29 percent y-o-y and down 15 percent sequentially.
- Diluted earnings per share:(1) $0.59, up 28 percent y-o-y and down 17 percent sequentially.
- Effective tax rate: 21 percent for the quarter.
- Operating cash flow: $1.77 billion, up 123 percent y-o-y; 46 percent of revenues.
- Return of capital to stockholders: $316 million, or $0.19 per share, of cash dividends paid.
Net income and diluted earnings per share throughout this news release are attributable to Qualcomm (i.e., after adjustment for noncontrolling interests), unless otherwise stated.
Non-GAAP Second Quarter Results
Non-GAAP results exclude the Qualcomm Strategic Initiatives (QSI) segment, certain share-based compensation, certain tax items that are not related to the current year and acquired in-process research and development (R&D) expense.
- Revenues: $3.87 billion, up 45 percent y-o-y and 16 percent sequentially.
- Operating income: $1.65 billion, up 55 percent y-o-y and 17 percent sequentially.
- Net income: $1.45 billion, up 47 percent y-o-y and 8 percent sequentially.
- Diluted earnings per share: $0.86, up 46 percent y-o-y and 5 percent sequentially. The current quarter excludes $0.18 loss per share attributable to the QSI segment and $0.09 loss per share attributable to certain share-based compensation.
- Effective tax rate: 22 percent for the quarter.
- Free cash flow: $1.85 billion, up 125 percent y-o-y; 48 percent of revenues (defined as net cash from operating activities less capital expenditures).
Detailed reconciliations between results reported in accordance with generally accepted accounting principles (GAAP) and Non-GAAP results are included at the end of this news release.
In the comparisons summarized above, the following should be noted with respect to results for the second quarter of fiscal 2011: GAAP and Non-GAAP results included $401 million in revenues related to prior quarters as a result of agreements entered into with two licensees to settle ongoing disputes, including an arbitration proceeding with Panasonic Mobile Communications Co. Ltd.; GAAP results included $310 million in expenses in the QSI segment related to the FLO TV™ restructuring plan; and GAAP and Non-GAAP results included $120 million in impairment charges related to our Firethorn division, including $114 million in goodwill impairment.
Second Quarter Key Business Metrics
- CDMA-based Mobile Station Modem™ (MSM™) shipments: approximately 118 million units, up 27 percent y-o-y and flat sequentially.
- December quarter total reported device sales: approximately $40.0 billion, up 44 percent y-o-y and 18 percent sequentially.
- December quarter estimated CDMA-based device shipments: approximately 195 to 200 million units, at an estimated average selling price of approximately $200 to $206 per unit.
Cash and Marketable Securities
Our cash, cash equivalents and marketable securities totaled approximately $22.1 billion at the end of the second quarter of fiscal 2011, compared to $19.1 billion at the end of the first quarter of fiscal 2011 and $18.2 billion a year ago. On April 7, 2011, we announced a cash dividend of $0.215 per share payable on June 24, 2011 to stockholders of record as of May 27, 2011.
On January 5, 2011, we announced that we had entered into a definitive agreement under which we intend to acquire Atheros Communications, Inc. for $45 per share in cash, which represented an enterprise value of approximately $3.1 billion on that date. The transaction has received the approval of Atheros’ stockholders and certain foreign regulators, and the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has expired. The completion of the merger remains subject to the satisfaction of certain closing conditions, including the receipt of an additional foreign regulatory approval. We continue to expect the merger to close in the third quarter of fiscal 2011.
Research and Development ($ in millions) Non-GAAP Share-Based
QSI GAAP Second quarter fiscal 2011 $ 633 $ 98 $ 6 $ 3 $ 740 As a % of revenues 16% N/M 19% Second quarter fiscal 2010 $ 547 $ 75 $ 3 $ 23 $ 648 As a % of revenues 21% N/M 24% Year-over-year change ($) 16% 31% N/M (87%) 14% N/M – Not Meaningful
Non-GAAP R&D expenses increased 16 percent y-o-y primarily due to an increase in costs related to the development of integrated circuit products, next-generation CDMA and OFDMA technologies and other initiatives to support the acceleration of advanced wireless products and services. QSI R&D expenses decreased 87 percent y-o-y primarily due to the shut down of our FLO TV business and network.
Selling, General and Administrative ($ in millions) Non-GAAP Share-Based
QSI GAAP Second quarter fiscal 2011 $ 432 $ 87 $ 66 $ 585 As a % of revenues 11% N/M 15% Second quarter fiscal 2010 $ 305 $ 69 $ 56 $ 430 As a % of revenues 11% N/M 16% Year-over-year change ($) 42% 26% 18% 36%
Non-GAAP selling, general and administrative (SG&A) expenses increased 42 percent y-o-y primarily due to an increase in charitable donations, employee-related costs and professional fees. QSI SG&A expenses increased 18 percent y-o-y primarily due to increased costs related to the shut down of our FLO TV business and network.
Effective Income Tax Rate
Our fiscal 2011 effective income tax rates are estimated to be approximately 17 percent for GAAP and approximately 21 percent for Non-GAAP. The second quarter rates of 21 percent for GAAP and 22 percent for Non-GAAP are higher than the estimated annual rates primarily due to additional U.S. income resulting from the settlement of ongoing disputes with two licensees during the second quarter of fiscal 2011.
Qualcomm Strategic Initiatives
The QSI segment manages our strategic investment activities, including FLO TV, and makes strategic investments in early-stage and other companies and in wireless spectrum, such as the Broadband Wireless Access (BWA) spectrum won in the India auction. GAAP results for the second quarter of fiscal 2011 included an $0.18 loss per share for the QSI segment. The second quarter of fiscal 2011 QSI results included $376 million in operating expenses and restructuring charges primarily related to FLO TV.
We have agreed to sell substantially all of our 700 MHz spectrum for $1.9 billion, subject to the satisfaction of customary closing conditions, including approval by the U.S. Federal Communications Commission. The agreement follows our previously announced plan to restructure and evaluate strategic options related to the FLO TV business and network. Under the restructuring plan, the FLO TV business and network were shut down on March 27, 2011, and we are no longer pursuing the MediaFLO Technologies business. Restructuring activities under this plan were initiated in the fourth quarter of fiscal 2010 and are expected to be substantially complete by the end of fiscal 2012. The spectrum was classified as held for sale at March 27, 2011.
In the second quarter of fiscal 2011, restructuring and restructuring-related charges related to this plan included in QSI results were $310 million. We estimate that we will incur future restructuring and restructuring-related charges associated with this plan of up to $65 million, which are primarily related to lease exit and other costs.
The following statements are forward looking and actual results may differ materially. The “Note Regarding Forward-Looking Statements” at the end of this news release provides a description of certain risks that we face, and our annual and quarterly reports on file with the Securities and Exchange Commission (SEC) provide a more complete description of risks.
Our outlook does not include provisions for future asset impairments or the consequences of injunctions, damages or fines related to any pending legal matters unless awarded or imposed by a court, governmental entity or other regulatory body. Further, due to their nature, certain income and expense items, such as realized investment gains or losses, or gains and losses on certain derivative instruments, cannot be accurately forecast. Accordingly, we only include such items in our business outlook to the extent they are reasonably certain; however, actual results may vary materially from the business outlook.
In addition to our ongoing operating costs, our business outlook for fiscal 2011 includes restructuring and restructuring-related charges attributable to FLO TV that are currently expected to be incurred.
We have not included any estimates related to the Atheros business in our third fiscal quarter or fiscal 2011 outlook. The transaction is expected to close in the third quarter of fiscal 2011.
The following table summarizes GAAP and Non-GAAP guidance based on the current business outlook. The Non-GAAP business outlook presented below is consistent with the presentation of Non-GAAP results included elsewhere herein.