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Qualcomm’s 1Q profit exceeds analysts’ estimates

Qualcomm Inc., the largest maker of mobile-phone chips, reported fiscal first-quarter profit that topped estimates, countering concerns that slowing smartphone growth would crimp earnings.

Profit excluding some costs in the quarter that ended Dec. 29 was $1.26 a share, the San Diego-based company said Wednesday in a statement. Analysts on average had predicted $1.18, according to data compiled by Bloomberg. Sales climbed 10 percent to $6.62 billion, compared with estimates for $6.68 billion. The company also boosted its forecast for profit for the year.

Qualcomm (Nasdaq: QCOM) is benefiting as more consumers worldwide choose phones that use its technology to connect to high-speed data networks, like the new long-term evolution systems, boosting its license revenue and chip sales. Smartphone market-share gains at Qualcomm customers such as Huawei Technologies Co. and Lenovo Group Ltd. are helping bolster sales even as demand slows at industry leaders Apple Inc. (Nasdaq: AAPL) and Samsung Electronics Co.

“Apple had everybody prepared for things moving in the wrong direction, and they didn’t,” said Alex Gauna, an analyst at JMP Securities LLC in San Francisco. He recommends buying Qualcomm shares. “Apple is not the only customer out there. Samsung is not the only customer out there. We’re starting to see the Samsung and LGs of tomorrow emerging out of China.”

Qualcomm shares climbed to $73.25 in extended trading following the report. The stock, which gained 20 percent last year, had fallen 1.2 percent to $71.12 at the close.

Net income in the first quarter fell 2 percent to $1.88 billion, or $1.09 a share, from $1.9 billion, or $1.09 a share, a year earlier.

For the current fiscal year, Qualcomm said profit excluding certain costs will be $5 to $5.20 a share, higher than a previous forecast for $4.95 to $5.15 per share. In November, Qualcomm forecast fiscal 2014 sales of $26 billion to $27.5 billion, an increase of 5 percent to 11 percent from the prior 12 months, and on Wednesday it reiterated that projection.

“There’s more growth going forward that we’re projecting in the emerging regions,” Chief Executive Officer Paul Jacobs said in a telephone interview. “Around the world you’re seeing consumers want to move to a higher-end device. People want to buy up.”

Qualcomm is projecting that emerging markets will grow about 20 percent compared with a gain of about 6 percent in developed regions, he said.

License revenue

The chipmaker gets the majority of its sales from processors and radio chips used to run software in handsets and connect them to cellular networks. The bulk of its profits come from licensing its code-division multiple-access technology, a standard that’s become central to most modern high-speed data phone systems. That licensing income is paid by phone makers one quarter later, meaning Qualcomm’s second-quarter forecasts reflect its customers’ results for the December period.

Earlier this week, Apple said sales in the current period may decline from a year earlier, in what would be the first quarterly drop since 2003. For its first quarter ended Dec. 28, Apple said it sold 51 million iPhones, missing analysts’ estimates of 54.7 million handsets.

South Korea’s Samsung, the world’s largest mobile-phone maker, said last week that fourth-quarter operating income at its mobile unit was 5.47 trillion won ($5.1 billion), little changed from a year earlier and down from a record 6.7 trillion won profit in the quarter ended Sept. 30.

The lackluster performance at two companies that account for almost half the smartphone market by units created concern that their suppliers, including Qualcomm, might suffer a drop in orders. China’s Lenovo and Huawei made market-share gains in the fourth quarter, according to market researcher IDC. Huawei, the world’s third-largest maker of smartphones, shipped 16.4 million phones in the fourth quarter, an increase of 57 percent. Lenovo, which is in the fourth spot, had a 47 percent increase in unit sales from a year earlier, IDC said.

Qualcomm Chief Operating Officer Steve Mollenkopf, who will succeed Jacobs in March, is taking over in a year when the company is predicting growth will slow from the more than 30 percent average revenue gain it has posted over the past three years.

Mollenkopf’s push to jump-start growth will center on the company’s efforts get more licensing revenue from makers of phones that work on China Mobile Ltd.’s network. The world’s largest wireless carrier is upgrading to LTE, which Qualcomm says will help its chip sales and license revenue. At the same time, Qualcomm is facing a Chinese government agency investigation, a challenge that some analysts have said may limit gains in the country.

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