SG Cowen downgraded Qualcomm ( QCOM) on Friday, saying it expects the company to offer a lower subscription outlook and weaker handset sales. Consequently, the company's shares were falling in mid-morning trading. The brokerage firm downgraded the wireless equipment company to market perform from outperform on the basis that slower subscription additions and excess chip inventories will pressure pricing, margins and chip units into 2004. Cowen also said it believes current Wall Street forecasts, $1.44 a share on revenue of $4 billion in 2004, don't factor in these possibilities. Recently, shares of Qualcomm were down 1.6% to $30.86 on the news. A surplus in chip inventory might make it a challenge for Qualcomm to decrease its inventory at the start of its new product cycle, especially after the outbreak of SARS, Cowen said. But Texas Instruments' ( TXN) entry into the market might have a more direct impact on chipset prices. Adding to the pressures, Cowen said, Nokia ( NOK) and Texas Instruments are likely to gain even more market share in 2004. Additionally, Cowen lowered its CDMA handset market forecast for 2003 to 104 million units from 106 million units, even though Qualcomm recently reiterated its expected 2003 forecast of 103 million to 111 million units. "
A slower subscription ramp in India and a more back-end loaded China come at a time when inventories in those regions are at above-normal levels," the brokerage firm said. Cowen also slightly lowered its 2004 handset expectations to 121 million from 125 million units. On the basis of these conclusions, Cowen lowered its pro forma 2004 earnings estimate to $1.32 a share. Meanwhile, 2003 estimates are "virtually the same" at $1.41 a share on revenue of $3.89 billion.