Qualcomm Soothes Street on Inventory Glut

A mixed quarter and soft outlook are forgiven after the CEO speaks of normal chip-supply levels.
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Updated from 5:23 p.m. EDT

Qualcomm

(QCOM) - Get Report

shares slipped modestly late Wednesday after the chip giant posted a mixed third quarter and made positive comments about its inventory situation.

The San Diego-based wireless technology company beat analysts' earnings expectations but fell a bit shy of revenue targets. Qualcomm also offered fourth-quarter guidance that was broadly in-line with Wall Street's estimates, though the company says seasonal slowness will result in a sequential revenue decline.

That said, Qualcomm's comments about its inventory situation could take the edge off for investors when trading resumes Thursday. CEO Irwin Jacobs opened a postclose earnings conference call with analysts by reporting that the inventory surplus that dampened the chip and handset business in Asia has subsided. Jacobs said that there was a "normal inventory supply" and that supply and demand in the distribution channels "will normalize" by fall.

As wireless investors are well aware, recent weeks have seen big phone makers like

Samsung

and

Motorola

(MOT)

blame an oversupply of phones and parts for their weak results in Asia and China in particular.

Arm-Weary

For the third quarter ended June 29, Qualcomm earned $192 million, or 23 cents a share, on revenue of $922 million. Excluding the results of the company's money-losing venture arm, which Qualcomm intends to shed, the chip giant earned $267 million, or 33 cents a share, on revenue of $891 million.

The earnings excluding the Qualcomm Strategic Initiatives unit beat the Multex consensus, which had called for profits of 30 cents a share. But revenue on that basis fell short of the Wall Street estimate of $900 million. A year ago the company lost $14 million, or 2 cents a share, on revenue of $770 million.

The earnings report comes just a week after Qualcomm boosted its quarterly dividend to 7 cents from 5. The company, which is the dominant player in developing chips for the fast-growing code division multiple access wireless standard, has become a cash-generating tech industry titan amid a broad pullback in corporate IT spending. But like many of its peers the company is now facing the prospect of slowing growth.

Things could be worse, though. In the latest quarter Qualcomm boosted its cash supply to $5 billion from $4.4 billion. Given the company's ample greeback generation, the San Diego wireless gear giant has opted to increase its dividend

at the expense of strategic investments, such as the failed QSI effort.

"Our business generates excellent positive cash flows at the same time revenues and earnings continue to grow," Jacobs said. "The China and India markets are gaining momentum, and we are encouraged by the performance of CDMA operators in the Americas, Japan and South Korea."

Qualcomm's fourth-quarter guidance calls for earnings excluding QSI of 28 cents a share, a penny short of the Multex consensus estimate, on 4% year-over-year revenue growth. That top-line target is in-line with analysts' expectations, but seasonally weaker sales in the fiscal fourth quarter will result in a 3% sequential decline.

After rising fractionally during regular trading Wednesday, Qualcomm shares slipped 33 cents to $35.91 in postclose action.