QCOM 3Q11 results implications ::Macquarie Research

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QCOM 3Q11 results implications
Event
 QCOM reported its 3Q FY11 revenue of US$3.62bn, down 6% QoQ or up
34% YoY, above the street’s consensus of US$3.5bn and meeting the high
end of the guidance. EPS came in at US$0.73, ahead of consensus and
management guidance of US$0.68-0.72.
 QCOM’s comments on increasing penetration of low-end smartphones in
emerging markets supports our view that rising volume through the
proliferation of low-to-mid end smartphones will directly benefit the Taiwan
upstream sector, particularly TSMC (25-30% revenue contribution from
mobile-centric customers) and ASE (25-30%).
Impact
 Positive guidance for 4Q FY11 and raises full year FY11. QCOM guided
4Q FY11 revenue of US$3.86-4.16bn, or up 7-15% sequentially, compared to
street’s expectation of 9% QoQ growth. Company’s guidance of FY4Q EPS of
US$0.60-0.65 is also in line with consensus of US$0.63.
 FY11 ASP higher but 4Q FY11 shipment slightly missed. After raising the
expected ASP from US$190-200 to US$199-209 in the last quarter,
Qualcomm again raised the expected ASP for FY11 to US$204-210 as the
company continues to see low-end smartphones penetrating into emerging
markets, replacing feature phones. QCOM shipped 120m units of MSM
(snapdragon/SoC) in 3Q FY11, higher than its original guidance of 115-119m
units. Qualcomm expects shipment to reach 120-125m units this quarter,
which is slightly below the street’s 130m expectation, citing inventory
correction in Europe, which shouldn’t be a surprise given the concerns the
market has been discussing on HTC recently, in our view.
 Expect inventory level to decline. While Qualcomm’s inventory days
increased from 41 days to 54 days, the company expects the level to decline
this quarter. Earlier this week, Altera reported its 2Q11 results and saw its
inventory days down to 74 days from 88 days in 1Q11. This trend supports
our view that semiconductor inventories are likely to peak in 2Q and decline
and potentially bottom in 3Q as the supply chain goes through a correction,
which effectively would lead to recovery in orders to foundries and OSAT.
 Shipment of 28nm product by year end. QCOM indicates that it will start
shipping products based on 28nm by year end. This also supports our view
that the increasing adoption of the 28nm will benefit TSMC and become a
strong revenue driver in 2012, given its 40-50% ASP premium over 40nm.
 Continue to be the reliable partner in China smartphone. QCOM
reiterated its commitment to the rising low-end smartphone market and its
strong relationship with China manufacturers and operators. Paul Jacobs,
QCOM’s CEO, also stated after its return from China Unicom's supplier forum
that operators require a reliable supplier to lead the industry direction. This
echoes our view that operators are unlikely to adopt MTK smartphone
solutions massively due to lack of track record, and market expectation for
MTK smartphone in 2012 is too high (50-70m units).