Qualcomm 4Q Profit Nearly Doubles

Chipmaker Qualcomm Inc. reported Thursday that its fiscal fourth-quarter earnings nearly doubled, but heightened competition and legal troubles hurt profit forecasts _ and that sent its shares tumbling.

The stock slid 3.5 percent, or $1.43, to $39.76 during regular trading on the Nasdaq Stock Market, then plunged another $3.31 after hours.

The world's second-largest supplier of mobile phone chips said it expected a profit of between $2.03 and $2.09 a share in the next fiscal year, excluding certain items. That's 4 percent to 7 percent below the average expectation of $2.18 from analysts polled by Thomson Financial.
Qualcomm said it expected its first-quarter profit in fiscal 2008 to land between 50 and 52 cents a share, excluding certain items, compared to an average analyst estimate of 52 cents.
The soft predictions highlight both Qualcomm's struggles to maintain its enormously lucrative business collecting licensing fees and the entry of newer competitors, such as Broadcom Corp., which has scored a number of legal victories against Qualcomm this year.

The San Diego-based company makes chips and it licenses its technology to other handset makers. It has reaped huge profits from the licensing fees for a technology called code division multiple access, or CDMA, which is popular in the United States and Asia. Carriers that use CDMA include Verizon Wireless and Sprint Nextel Corp. Qualcomm dominates CDMA but has more a tenuous foothold in the newer fields it is entering, such as wideband CDMA, or WCDMA, which is spreading in Europe.

"Their business model is becoming less profitable," said Edward Snyder, an analyst at Charter Equity Research in San Francisco. "It's a great company, still doing very well, but they're going from an area where they had 100 percent to an area where they don't." Nokia Corp., the world's largest handset maker, and Qualcomm are locked in a high-stakes legal dispute over how much Qualcomm should get in licensing fees. Complaints from Nokia and other wireless industry heavyweights that Qualcomm's fees are too high have resulted in a slew of lawsuits and trade complaints that Qualcomm plays unfair.

The company said it would spend more than $200 million on legal fees in fiscal 2008, down from the previous year. Steve Altman, Qualcomm's president, said Wall Street's profit forecasts didn't take into account some anticipated payments to customers whose business may be disrupted by Qualcomm's legal battles. Altman offered no hope of a breakthrough with Nokia on licensing fees. "While we continue to speak with them on a fairly regular basis, there really has been no progress," he told analysts on a conference call. "We're pretty far apart."

The dour forecasts overshadowed a strong performance in the fourth quarter.
Qualcomm earned $1.13 billion, or 67 cents per share, during the three-month period ended Sept. 30, up from $614 million, or 36 cents per share, in the same period last year. The fourth-quarter earnings include a per-share charge of 2 cents from investments, another of 5 cents for stock-based compensation and a gain of 20 cents per share on tax items carried over from previous years.

Excluding those items, Qualcomm earned 54 cents per share. Analysts polled by Thomson Financial expected 53 cents per share. Revenue grew 15 percent to $2.31 billion from $2 billion, above analyst expectations of $2.26 billion.

For the entire fiscal year, Qualcomm earned $3.3 billion, or $1.95 a share, on revenue of $8.87 billion. That compares to a profit of 2.47 billion, or $1.44 a share, on revenue of $7.53 billion the previous year.