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Qualcomm Inc. (QCOM - Free Report) , the largest manufacturer of wireless chipsets based on baseband technology in the U.S., reported mixed financial results for the second quarter of fiscal 2017 (ended Mar 31, 2017) wherein the bottom line outshined the Zacks Consensus Estimate but the top line missed the same.

Net Income

On a GAAP basis, quarterly net income came in at $749 million or 50 cents per share compared with $1,164 million or 78 cents in the year-ago quarter. Adjusted earnings per share (excluding special items) were $1.20, ahead of the Zacks Consensus Estimate of $1.05. Moreover, the bottom line plunged 34.83% on a year-over-year basis.

Revenue

Total quarterly revenue of $5,016 million not only decreased 9.64% year over year, but also failed to beat the Zacks Consensus Estimate of $5,876.8 million.

Segment-wise, Qualcomm Code Division Multiple Access (CDMA) Technologies contributed $3,676 million to revenues in the second quarter of fiscal 2017 compared with $3,337 million in the prior-year quarter and reported EBT margin of 13%. Qualcomm Technology Licensing generated $2,249 million in revenues, up 5% year over year, and reported quarterly EBT margin of 87%, which was flat year over year.

Chipset Statistics

During the fiscal second quarter, Qualcomm shipped approximately 179 million CDMA-based MSM (Mobile Station Modem) chipsets, reflecting a decline of 5% year over year. The company shipped 398–402 million 3G/4G handsets in the reported quarter, up 19% year over year. The average selling price of a 3G/4G handset with an in-built Qualcomm chipset during the quarter was around $204–$210, flat year over year.

Operating Metrics

Quarterly operating income came in at $729 million compared with $1,415 million in the year-ago quarter. Quarterly operating margin was 14.5% compared with 25.5% in the prior-year quarter. Quarterly adjusted EBT was $857 million compared with $1,470 million in the year-ago quarter.

Cash Flow

During the second quarter of fiscal 2017, Qualcomm generated $815 million of cash from operating activities versus $737 million at the end of Mar 2016.

Liquidity

At the end of second-quarter fiscal 2017, Qualcomm had $28.9 billion of cash, cash equivalents and marketable securities compared with $30.0 billion a year ago and $29.8 billion at the end of first-quarter fiscal 2017.

Total outstanding debt was $12,380 million at the end of the reported quarter compared with $10,903 million at the end of Sep 2016.

Dividend Payment to Stockholders

During the second quarter of fiscal 2017, the company returned nearly $1.1 billion to stockholders. This included $782 million (53 cents per share) of cash dividend and another $283 million through repurchases of 4.8 million shares of common stock.

On Apr 12, 2017, the company announced a quarterly cash dividend of 57 cents per common share, payable on Jun 21, 2017, to stockholders of record at the closure of business on May 31, 2017. This dividend payment is based on the 7.5% hike in the last quarterly dividend declared on Mar 8, 2017.

QUALCOMM Incorporated Price, Consensus and EPS Surprise

 

QUALCOMM Incorporated Price, Consensus and EPS Surprise | QUALCOMM Incorporated Quote

Third-Quarter Fiscal 2017 Outlook

Third-quarter fiscal 2017 revenues are estimated in the range of $5.3–$6.1 billion. GAAP earnings per share are estimated between 67 cents and 92 cents. Non-GAAP earnings per share are estimated between 90 cents and $1.15. Qualcomm is expected to ship 180–200 million MSM chipsets in the ongoing quarter.

Bottom Line

Qualcomm’s updated Snapdragon processors and applications to retain its leadership in the global wireless baseband chipset market looks impressive. The company also moved one step closer to acquire NXP Semiconductors N.V. (NXPI - Free Report) , with the approval of Snapdragon’s shareholders on Jan 27, 2017. This buyout is expected to close by the end of 2017, subject to regulatory approvals.

Patent license network deals, tie-up with AT&T Inc. (T - Free Report) and Ericsson (ERIC - Free Report) for 5G network trials and the launch of China’s first end-to-end data call are positives for Qualcomm. Moreover, the company’s foray into areas like automotive, networking and mobile computing auger well.

However, the company faces severe competitive threats from its closest rival, Intel Corporation (INTC - Free Report) , which has been redesigning its chipsets for the mobile computing market. Aggressive competition in the mobile phone chipset market and regulatory proceedings might have acted as dampeners for Qualcomm’s profits.

Zacks Rank & Price Performance

Qualcomm currently carries a Zacks Rank #4 (Sell).

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

The price performance of Qualcomm is depressing. Shares of Qualcomm underperformed the Zacks classified Wireless Equipment industry’s growth over the past three months. The stock witnessed a loss of 13.7% compared with the industry’s decline of 5.4%.

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