Qualcomm Awaiting Switch To Digital TV

Yesterday Qualcomm, one of the top semiconductor companies with annual revenue of $11.14 billion in 2008, reported mixed results for its first quarter as profits plunged 56% due to continued losses in financial investments as markets worsened.

Q109 revenue grew 3% y-o-y and was down 25% q-o-q to $2.52 billion on shipment of 63 million chipsets and about 125 million new CDMA devices by the company’s licensees. Net income was down 56% y-o-y and 61% q-o-q to $341 million, or $0.20 per share. Excluding charges, net income was $520 million or $0.31 per share. Street estimates were earnings of $0.47 per share on revenue of $2.42 billion.

The sharp decline in net income was due to a $388 million writedown in investment losses. Qualcomm has unrealized losses on marketable securities of about $1.1 billion – a direct fallout of the volatile market conditions. The company intends to hold majority of these securities until they recover.

Operating cash flow in the quarter was $3.5 billion and included a $2.5 billion one-time payment from Nokia related to the new license deal made in July 2008 after a series of legal wranglings between the two companies. Apart from Nokia, Qualcomm also receives royalties from Apple for the 3G iPhone.

Qualcomm’s cash, cash equivalents and marketable securities were $13.1 billion versus $11.3 billion in Q108 and Q408. In the quarter, it announced dividends worth $264 million, or $0.16 per share (paid on January 7) and $284 million related to the repurchase of common stock.

By segment, Qualcomm CDMA Technologies (QCT) revenue declined 15% y-o-y and 24% q-o-q to $1.3 billion. Qualcomm Technology Licensing (QTL) revenues increased 55% y-o-y and declined 27% q-o-q to $1.01 billion. In Qualcomm Wireless & Internet (QWI), revenue was down to 15% y-o-y and 11% q-o-q to $170 million.

On January 28, the US House of Representatives rejected the bill passed two days earlier in the Senate to delay the switch from analog to digital TV from February 17 to June. Qualcomm was hoping that the switch wouldn’t be delayed so that it could aggressively launch MediaFLO, its wireless media network and technology, in Boston, Houston, Miami and San Francisco. Unless Congress takes further action, Qualcomm will get its wish and the deadline for American broadcasters to switch will remain Feburary 17.

For Q2, Qualcomm expects revenue in the range of $2.25 billion to $2.45 billion versus Street estimates of $2.41 million. It lowered its guidance for 2009 to a range of $9.3 billion to $9.8 billion, from a range of $10.2 billion to $10.8 billion. The Street estimate is $10.25 billion. It also cut its calendar year 2009 unit forecast for CDMA and WCDMA devices to a range of 540 million to 590 million. The stock is currently trading around $35 with a market cap of around $58 billion and hit a 52-week low of $28.16 on November 21.

The market is not showing signs of improvement. In January, corporate buybacks have started slowing down. I wish I could say with conviction that yes, go buy Qualcomm, but I can’t, even though I really like the company.