Qualcomm Grows Where Others Can't

NEW YORK (TheStreet) -- In what has been a tough semiconductor market, Qualcomm (QCOM) has continued to confound the skeptics who had rushed to proclaim the end of the chipmaker's growth story.

Other chipmakers, such as Intel ( INTC), NVIDIA ( NVDA) and Texas Instruments ( TXN), have been hurt by (among other things) weak demand, but on Wednesday Qualcomm beat estimates for revenue and earnings.

It also did what few rivals have been able to do: raise guidance.

A Great End to a Good Fiscal Year

For its fiscal fourth quarter, which ended Sept. 30, Qualcomm's profits surged 20% to $1.27 billion, or 73 cents a share, exceeding year-earlier results of $1.06 billion, or 62 cents a share. Results were boosted by an increase in smartphone shipments.

Excluding special items, the company reported EPS of 89, easily topping analysts' estimates of 82 cents.

Revenue was equally impressive, soaring 18% year over year to $4.87 billion, ahead of analysts' estimates of $4.67 billion. The company said that chip shipments reached 141 million, a 1% year-over-year increase.

Qualcomm ended the fiscal year with profits of $6.11 billion, or $3.51 per share. That's annual growth of 43%. Likewise, fiscal-year revenue of $19.1 billion was good enough to top fiscal 2011's by almost 30%.

The company was able to find growth while the sector as a whole suffered hardships as a result of weak demand.

Nevertheless, investors were still looking for confirmation that this story wouldn't change going forward, and in this regard Qualcomm also delivered.

For its first fiscal quarter, Qualcomm expects GAAP EPS of 90 cents to 98 and adjusted EPS of $1.08 to $1.16. The adjusted EPS range would mark a year-over-year increase of 11% to 20%. Revenue is seen coming in at $5.6 billion to $6.1 billion. The top range of the revenue guidance exceeded analysts' existing estimates by more than 13%. Management said the company is positioned for exceptional growth in the double-digit range.

Moving Forward

Qualcomm continues to affirm why it has not only one of the best businesses in the entire market, but also one of the best management teams.

The company understands what its goals are and has a pathway for achieving them. Remarkably, the company is able to do this as rivals are tugging at the chip market and trying to steal share. But as the company's management suggested, Qualcomm's market position is currently unlike any other.

For instance, the company's chips hold slots in phones from Apple ( AAPL), Google ( GOOG), Nokia ( NOK), Samsung and Microsoft ( MSFT).

Rivals will find it pretty challenging (if not) impossible to make a meaningful dent in this business, especially as Qualcomm continues to reinvest in R&D to ensure that its chip technology remains the top choice among these phone rivals.

What's more, Qualcomm is able to enjoy all of this success and yet still has a very lucrative licensing business, which continues to be underappreciated.

All of this said, I do wonder whether rivals such as Broadcom ( BRCM) and NVIDIA can become future threats to Qualcomm's business.

NVIDIA has been making great strides in securing new business from some prominent companies. Its Tegra 3 chip has become a key component inside both Microsoft's Surface tablet as well as Google's Nexus 7. What's more, as Nvidia is shoring up its footing in the realm of mobility to compete more effectively, Nvidia still has not forgotten its PC roots. Should Qualcomm be concerned?

Bottom Line

I love Qualcomm's business. Surprisingly, the company rarely gets mentioned in discussions of the best-run companies in the market today. Moreover, the company is in a fast-growing mobile market, which has yet to peak.

With management raising revenue guidance, there is a chance that fiscal 2013 might be an even bigger year for Qualcomm. From that standpoint, I would be adding shares at current levels until the company shows meaningful signs of slowing growth.

At the time of publication, the author was long AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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