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Chip supplier Qualcomm ( QCOM ) posted better than expected fiscal second-quarter earnings after the market close Wednesday, but its EPS guidance lagged estimates, and shares were down nearly 3% in after-hours trading. Qualcomm reported revenue of $5.6 billion for the quarter that ended March 27, down 19% from the year-earlier quarter but beating the consensus estimate of $5.34 billion. Earnings per share minus items fell 26% to 1.04, but that number topped the 96-cent consensus estimate of analysts polled by Thomson Reuters. For its fiscal third quarter, Qualcomm guided to sales of $5.2 billion to $6 billion; the midpoint, $5.6 billion, was down 4% from the year-earlier quarter, but it was slightly ahead of the analyst consensus estimate of $5.56 billion for the quarter that ended March 27. Still, Qualcomm projected Q3 EPS in the range of 90 cents to $1.00, vs. 99 cents last Q3 and below the consensus of $1.02. Qualcomm CEO Steve Mollenkopf pointed to the quarter’s bright spots. “We delivered a stronger-than-expected quarter as we continue to execute our strategy for the next phase of growth,” Mollenkopf said in the company’s earnings conference call. “2016 is a transition year for Qualcomm, and we are making good progress.” He said that progress includes in its licensing business, but he said that stronger than expected performance across all of Qualcomm’s chipset and licensing businesses drove the Q2 beat. Tough contract negotiations have stunted Qualcomm’s licensing revenue growth, along with a royalty dispute with South Korea-based LG. Last year, there were a number of lawsuits globally related to Qualcomm’s licensing business. Investors are also concerned about the under-reporting of device sales among China vendors. The completion of new licensing deals has helped to alleviate those concerns. With its earnings results, Qualcomm announced that it had resolved a licensing dispute with LG “through good faith negotiations” that provides LG access to Qualcomm’s broad portfolio of patented technologies. “We are continuing to build momentum into the second half of our fiscal 2016 with traction for our Snapdragon processors in the premium and high tiers and strong execution of our strategic realignment plan,” Mollenkopf said. The Snapdragon chips are in such phones as Samsung’s new Galaxy S7 and S7 Edge. China Remains A Priority For Qualcomm As part of its transition, Qualcomm has focused on a $1.4 billion cost reduction plan, boosting cash flow and profit, bolstering research and development, positioning for industry growth and making China licensing a top priority, among other steps. The company says that it’s on track to realize at least $700 million in savings in fiscal 2016, an increase of $100 million from its original estimate. Mollenkopf said that Qualcomm has more than 100 licensing deals with companies in China and is in active discussions with others. The company has made notable progress signing China license agreements, Michael McConnell, an analyst with Pacific Crest Securities, said in a research note prior to the earnings report. It’s inked four of the top five China smartphone makers, led by Lenovo, to new license agreements, he wrote. Qualcomm said that its MSM (Mobile Station Modem) chip shipments reached 189 million, down 19% year over year but above the midpoint of its guidance range. For Q3, it expects MSM shipments of about 175 million to 195 million units, down 13% to 22%. Its MSM chipsets target higher-end smartphones. Sales of cellphones based on Qualcomm chips totaled $70.1 billion, down 8% but above the midpoint of the company’s guidance. Qualcomm ended the year with $30 billion in cash and equivalents. In fiscal Q2, Qualcomm’s chip technology unit, called QCT, reported revenue of $3.3 billion, down 25% year over year. Its licensing unit, QTL, reported revenue of $2.1 billion, down 12%. Mollenkopf said that growth markets for Qualcomm include automotive, wearable devices and the Internet of Things. Scalper1 News
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