Qualcomm Outlook Cloudy Despite Raising 2010 Forecast

Qualcomm’s stock fell $3.43, or 8 percent, in after-hours trading today, following the release of its second-quarter financial results that provided a mixed outlook for the year.
Qualcomm (NSDQ: QCOM) was able to raise its 2010 forecast because of a strong Q2 performance that beat analysts’ expectations, but then, warned that the third quarter would be hurt as the competition pushes chip set prices lower. Separately, the San Diego-based company said it was bullish on strong 3G handset sales.
Second-quarter revenues totaled $2.66 billion, up from $2.46 in the prior year; profits equaled $774 million, compared to the prior year’s loss when it had to pay a large settlement to Broadcom. Qualcomm reported earnings per share of 46 cents. When adjusted for special items, Qualcomm reported 59 cents a share in earnings, which beat Wall Street estimates of 56.5 cents, according to Reuters.
Since Qualcomm makes chips for devices, it’s often used as a test to see how the overall industry is performing. The company raised its guidance for the year based on the strong second quarter, but said its third fiscal quarter could be hurt by the competition, which is pushing prices lower. The company expects fiscal 2010 revenues to fall between $10.4 billion and $11 billion, and for the average price of all its CDMA handsets in the market to cost between $182 and $188. The midpoint of of $185 is slightly lower than their original estimate of $187, and is much lower than previous quarters when devices had a mid-point around $200.
One of the company’s subsidiaries, FLO TV, continued to be a drain on its bottomline. Expenses for the “QSI” division increased 133 percent year-over-year, primarily due to an increase in selling and marketing expenses related to FLO TV. FLO is building a mobile broadcast TV network, and just recently has been marketing it directly to consumers rather than relying on carrier partners, like AT&T (NYSE: T) and Verizon Wireless. As part of the push to educate consumers about mobile TV, it bought three commercial slots during the Super Bowl to promote the service. Expenses related to flow and the whole QSI division totaled $134 million during the quarter, which contributed a 5 cent diluted loss on GAAP results.
Release (PDF) | Earnings Call.