Qualcomm Earnings Soar with Caveats, Guidance Creates Concern

Qualcomm reported calendar Q1 2012 financial results on Wednesday, April 18.

Qualcomm reported a second consecutive quarter of record financial results with caveats. A $761 million gain on sale from discontinued operations, $0.44 GAAP EPS, was recorded in non-operating income. This caused the record net income and earnings per share, not but not operating income. Full-year EPS guidance was not raised at the top end and neither was total revenues guidance. That's how high expectations are for Qualcomm. CEO Paul Jacobs doesn't raise guidance, disappointment sets in.

There's more. Total revenues reached an all-time high, but operating income slightly decreased on a lower gross margin for equipment & services plus an increase in operating expenses. Net income and earnings per share nonetheless reached an all-time high boosted by the gain on sale from discontinued operations. 

Qualcomm revised its estimate of FY 2012 GAAP EPS to $3.41 to $3.56 from $3.36 to $3.56, including the $0.44 gain on sale of discontinued operations. FY 2011 GAAP EPS was $2.53. That's a +35% to +41% increase in annual EPS. Total revenues guidance remains $18.7 billion to $19.7 billion. The FY ends with the QE September.

However, excluding the one-time GAAP gain focuses more on the core business. Then the FY 2012 GAAP EPS increase over FY 2011 GAAP EPS is a smaller +15% to +19%. This is solid, but does not sustain the short-term spike or high expectations. That leaves upside surprises and subsequent higher earnings guidance to push the growth curve steeper. Some investors are questioning this hope.

Qualcomm Income Statement Calendar Q1 2012 Qualcomm reported record total revenues of $4.94 billion, record net income of $2.23 billion, and record earnings per share of $1.28. From the prior calendar quarter Q4 2011, these were +6%, +59%, and +58%, respectively. From the prior year calendar Q1 2011, these were +28%, +123%, and +117%, respectively. Gross margin on equipment & sales dropped to a multi-year low of 43.16%. Operating margin decreased both QoQ and YoY to 30.63%. Net margin soared QoQ and YoY from the non-operating gain to 45.11%. The operating expense ratio increased to 69.37%, which is just below the historical average.

Qualcomm Balance Sheet Calendar Q1 2012 Qualcomm continues incredibly liquid and well capitalized. Total assets reached an all-time high of $41.53 billion, up +10% QoQ. Qualcomm has $15.08 billion in short-term cash, cash equivalents, and marketable securities. Add noncurrent marketable securities and total reserves are $26.57 billion. Capital to assets reached a multi-year, if not all-time high of 76.74%. Return on assets spiked to +15.51% which is a multi-year, if not all-time, high.

Qualcomm Calendar Q2 2012 Business Outlook • GAAP & Non-GAAP Revenues: $4.45B - $4.85B • GAAP EPS: $0.67 - $0.73 • Non-GAAP EPS: $0.83 - $0.89