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Chips and Handsets: QCOM, NOK, Infineon

Posted on Monday, Apr 28th 2008

Qualcomm last week reported its second quarter results. Earlier coverage is available here and here. Vijay Nagarajan’s extensive coverage is available here in which he looks at its numerous legal battles with Broadcom and also Nokia.

Its Q2 revenues were $2.61 billion (excluding Nokia royalties), up 17% y-o-y and 7% sequentially. Net income was $766 million, up 6% y-o-y and diluted EPS was $0.47, up 9% y-o-y and 2% sequentially. It bought back shares worth $769 million and increased its quarterly dividend from $0.14 to $0.16 per share.

Segment-wise, Qualcomm CDMA Technologies (QCT) revenue grew 29% y-o-y to more than $1.6 billion with operating margin of 26% and shipments of 85 million MSM units (up 39% y-o-y). Qualcomm Technology Licensing (QTL) revenues were $795 million with shipments of about 112 million new CDMA devices and average ASP of about $222. Operating margin increased to 86%. In Qualcomm Wireless & Internet (QWI), revenue was down 2% to $194 million.

For fiscal 2008, QCOM expects revenues between $10 billion and $10.4 billion, an increase of 13%-17%. For Q3, it expects revenue growth of approximately 8%-16%.

The royalty case with Nokia is expected to go to court in July. In February, ITC upheld a ruling that Nokia’s handsets do not infringe on three of its patents and in March, a British court ruled its claims of patent infringement against Nokia as invalid. It is currently trading around $43 with market cap of $70 billion as against Vijay’s valuation of $44.60.

Chart for QUALCOMM Inc. (QCOM)

As for Nokia, it posted a mixed first quarter with net sales of €12.7 billion, up 28% y-o-y and down 19% sequentially. Diluted EPS excluding special items was €0.32, up 46%. Nokia device volumes were up 27% y-o-y but declined 13% sequentially to 115.5 million units. Its device ASP was €79, down from €83 in Q4 2007 primarily due to a higher proportion of lower priced products and to some extent the weakening US dollar.

In January, it replaced its three mobile device business groups with an integrated business segment, Devices & Services. Devices & Services net sales in the quarter grew 13% to EUR 9.3 billion with strong overall volume growth partially offset by a significant ASP decrease. Nokia Seimens Network segment net sales were €3.4 billion, down 26% sequentially.

On the acquisition front, Nokia Siemens Networks in February acquired Apertio, a leading provider of open real-time subscriber data platforms and applications. And in January, Nokia announced plans to acquire Oslo-based software provider, Trolltech.

Nokia’s estimated device market share is 39%, down from 40% last quarter and up from 36% last year. Y-o-y market share increase was led by its strong position and market share gains in Latin America, Asia-Pacific, China and to a lesser extent in Europe. Its market share decreased y-o-y in North America and sequentially in Middle East & Africa and North America to a lesser extent in Europe and Asia-Pacific. Its convergence device volumes grew 24% to 14.6 million units, driven by sale of 10 million Nokia Nseries and almost 2 million Nokia Eseries devices. Nokia’s move to walk away from CDMA doesn’t seem to be working in North America where its market share has plunged from 20% to 7% in two years.

But things might change with the upcoming launch of its next generation edition of S60, which has touch-screen and multi-touch capabilities similar to the iPhone. However, the phone would be based on Symbian OS, which as I said in an earlier post is its weakness. But Nokia would be bringing a smartphone to the mass markets that would see it further increase its market share. Its stock is trading around $30 with a market cap of around $112 billion. It hit a 52-week low of $28.28 on April 24.

Chart for Nokia Corp. (NOK)

The convergence device movement is heating up and Apple is also rising up to the challenge with a new 3G iPhone. And Infineon is expected to be its baseband supplier. Infineon also reported its second quarter results last week. Last week also saw its HSDPA platform being selected by Samsung for its HEDGE mobile family. Earlier coverage on the company is available here and here.

Q2 revenues were € 1.049 billion, up 7% y-o-y and down 4% sequentially. The sequential decline was primarily due to negative revenue seasonality in the Communication Solutions segment. EBIT was € 36 million in the second quarter, down from € 65 million last quarter. The group net loss was € 1.371 billion or € 1.82 per share which was led by a €1 billion writedown for Qimonda, in which it owns about 77%.

There are reports of negotiations with Micron, Japan’s Elpida Memory Inc. and Korea’s Hynix Semiconductor Inc., as well as financial investors for the sale of Qimonda. Even Infineon was rumored to be a takeover target. Today, it announced the acquisition of Primarion, Inc. to strengthen its power management applications.

For Q3, Infineon expects revenues to be flat to down slightly compared Q2. The weakening US dollar has added to its woes and it revised its full year guidance from 25-30% growth to a high single-digit y-o-y % growth. Its stock is trading around $9 with a market cap of around $7 billion. It hit a 52-week low of $6.26 on March 20.

Chart for Infineon Technologies AG (IFX)

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