Qualcomm (NASDAQ:QCOM) recently provided a disappointing outlook and lowered its 2010 guidance, citing competitive pricing and a slow recovery in developed markets. But the good news is that the company has design wins in Google’s Nexus One, as does Broadcom (NASDAQ:BRCM). Broadcom is also believed to be in the iPad.
In a recent post on chipmakers, I mentioned that Qualcomm has a design win in the Droid for its baseband processor/radio frequency chip, while its Snapdragon chip is in the design for Nexus One. Qualcomm expects Snapdragon to be eventually used in more than 40 devices made by 15 manufacturers, but the chip won’t be limited to phones and should appear in consumer devices like smartbooks. At the recent CES, HP demonstrated its Snapdragon-enabled, Android-based smartbook device while Lenovo displayed a Skylight smartbook and LePhone based on the Snapdragon.
Qualcomm is the world’s leading cell phone chipmaker, and it is now forraying into Intel’s territory, while at the same time Intel is trying to enter the smartphone market with plans to release a smartphone processor called Moorestown. However, both Intel and Qualcomm must be disappointed that Apple has developed its own chip, A4, for the iPad. Lee Gomes of Forbes points to a kind of “democratization” of semiconductor design and says that one day Apple may well develop a chip for Mac, and PC makers like HP and Dell may also start making their own chips.
Another company that is manufacturing its own chips is Samsung. According to Rethink Wireless, longtime Qualcomm customer Samsung is coming out with Galaxy 2, which will use its own ARM-based processor, Hummingbird. Despite this, Qualcomm is a 3G goldmine since it receives license fees from all 3G and CDMA phones, including the iPhone 3GS.
Qualcomm recently extended its licensing contract for 3G and 4G with Samsung and has a 15-year deal with Nokia. Qualcomm also announced that it is sampling the industry’s first chipsets for dual-carrier High-Speed Packet Access Plus (HSPA+) and multi-mode 3G/Long Term Evolution (LTE). With this move, its licensing business is positioned to flourish for several more years as the industry moves from 3G to 4G with HSPA+ and LTE. In the recent quarter, licensing revenue was $917 million, down 9% y-o-y but up 10% q-o-q.
In its recently reported first quarter results, Qualcomm had revenue of $2.67 billion, up 6% y-o-y and down 1% q-o-q. Net income was up 100% y-o-y and 28% q-o-q to $1.04 billion or $0.62 per share. Excluding charges, EPS was $0.50. Analysts expected Q1 earnings of $0.48 on sales of $2.7 billion. The company ended the quarter with $18.9 billion in cash. Q4 analysis is available here.
For the second quarter, Qualcomm expects revenue of $2.4 billion to $2.6 billion, or a decrease of 2% to an increase of 6%; GAAP EPS of $0.35 to $0.39; and non-GAAP EPS of $0.49 to $0.53. Analysts projected Q2 EPS of $0.57. Qualcomm also decreased its full-year revenue outlook from $10.5 billion to $11.3 billion to $10.4 billion to $11 billion. Its annual revenue in 2009 was $10.39 billion and the current market cap is about $64 billion. The stock is trading around $38 after hitting a 52-week high of $49.80 on January 8.
Broadcom, on the other hand, has managed to get into everything: it is in the iPod Touch, the iPhone 3GS, and now Nexus One and the iPad. In Nexus One, Broadcom’s BCM4329 chip integrates 802.11n, Wi-Fi/Bluetooth and FM technologies. It is also believed to have its Wi-Fi/Bluetooth combo chip and a touchscreen controller designed into the iPad.
Broadcom is looking to expand its broadband networking portfolio with acquisitions. In November 2009, the company said it is buying maker of switch fabric chipsets, Dune Networks, for $178 million, and it recently announced plans to acquire Teknovus for $123 million. Teknovus specializes in Ethernet passive optical network (EPON) chipsets and software and has sales, design, and support centers in Asia and the United States. EPON is a technology that provides broadband services at up to 10 gigabits per second, and according to the Dell’Oro Group, the Asia Pacific PON market is expected to grow from 22.8 million to 94.5 million subscribers by 2014. According to Infonetics Research, the worldwide market for PON systems will reach $4.5 billion in 2013.
Broadcom recently reported strong Q4 and fiscal year 2009 results driven by its broadband communication and enterprise networking segments. Q4 revenue was $1.343 billion, up 19% y-o-y and 7.1% q-o-q. Net income was $59.2 million, or $0.11 per share, compared with loss of $159.2 million, or $0.32 per share, last year and net income of $84.6 million, or $0.16 per share, last quarter. Excluding special items, earnings were $0.49 per share versus the $0.44 expected by analysts on revenue of $1.32 billion. For the full year 2009, revenue was down 3.6% to $4.5 billion and net income was down 69% to $65.3 million. Q3 analysis is available here.
For the first quarter, Broadcom expects revenue to be flat to up 5% sequentially. The stock is currently trading around $29 with market cap of about $14 billion. It hit a 52-week high of $32.49 on January 4.