Qualcomm Inc has upgraded its forecast for its fourth quarter and full year as the company with the richest IP portfolio in mobile communications continues to benefit from the rapid take-up of broadband cellular services.
However, Qualcomm shares got hammered after the company said it may alter the way that royalties are recognized to a more conservative basis, which is likely to lower earnings in the short term.
It now expects fourth-quarter revenue to show a 60% to 62% increase over last year’s level while earnings per share will be in the range of $0.28 to $0.30, compared with its earlier estimate of $0.26 to $0.28. As is usual, the figures exclude the figures from its investment arm Qualcomm Strategic Initiatives.
For the full year, Qualcomm expects revenue excluding QSI to show a 33% to 34% increase while earnings per share will be in the range of $1.09 to $1.10, compared with its earlier estimate of $1.06 to $1.07. The QSI results will contribute an estimated loss of $0.01.
Qualcomm has a reputation for conservative forecasts and the reason for the improvement in its expected figures is that it anticipates the CDMA phone market will be between 170 to 176 million units for the year, compared with its prior estimate of 161 to 168 million units.
Its shares dropped 5.59% to $38.14 on the news after the market was rattled by a possible change in accounting procedures that could cut $298m from fourth quarter pre-tax income.
Up to now, Qualcomm has estimated and recognizes the royalties it earns each quarter, though licensees only tell it the precise figures in the following three months. But as the CDMS market develops and diversifies, Qualcomm is worried that it may be no longer able to reliably estimate royalties.
If it makes the change to a more conservative stance, Qualcomm said it would not have any effect on its cash flow, nor would it change the underlying economics of its licensing business.
The San Diego, California-based company said it expects to be sitting on cash and marketable securities worth $7.6bn by the end of the year.