Qualcomm Inc. Beats the Street, but Shares Fall on Gloomy Guidance

By Markets Fool.com

Semiconductor design giant Qualcomm just reported results for the second quarter of fiscal 2015. Strong sales of wireless communications products helped the company beat analyst expectations on both the top and bottom lines. However, Qualcomm's Q3 forecast fell short of Wall Street's preliminary targets. Qualcomm shares fell about 3% in the first hour or so after the report was released.

Continue Reading Below

For the just-reported quarter, sales increased 8% year over year to $6.9 billion. Analysts were expecting a slightly lower revenue figure of roughly $6.8 billion.

On the bottom line, adjusted earnings per diluted share rose by 7%, to $1.40. Analysts would have settled for a flat earnings curve at $1.31 per share.

Qualcomm CEO Steve Mollenkopf. Image source: Qualcomm.

CEO Steve Mollenkopf liked the traction his company is gaining in high-growth wireless markets such as China.

Continue Reading Below

"We continue to see robust global demand for 3G/4G devices, including in China where our licensing business is now better positioned to participate in the rapidly accelerating adoption of our 3G/4G technology," Mollenkopf said in a prepared statement.

That being said, Qualcomm also lowered the full-year sales forecast for its semiconductor division. Mollenkopf pointed to declining orders from an unidentified "large customer," probably indicating major client Samsung , which is depending less on Qualcomm's Snapdragon chips and more on its own Exynos solution.

Looking ahead, Mollenkopf outlined a sweeping review of Qualcomm's operating costs, with the ultimate goal of increasing operating profit margin.

Qualcomm estimates that global 3G/4G chip sales were underreported by as much as 14% in 2014, due to certain Chinese device builders allegedly trying to avoid full payment of their technology license royalties. These issues are being worked out in cooperation with Chinese authorities, but are nowhere near resolved at this point. Hence, Qualcomm won't provide a firm unit sales estimate for 2015, and warned that the third-quarter forecast includes some loose assumptions about these underreporting problems.

So Qualcomm's Q3 guidance ranges are very wide, with the sales estimate ranging from $5.4 billion to $6.2 billion -- a 14% gap between the upper and lower ends. The non-generally accepted accounting principles earnings guidance figures run from $0.85 to $1 per share, which works out to a 17% top-to-bottom difference.

However, analysts have already set their sights for earnings near $1.14 per share on approximately $6.5 billion in sales for the next quarter.Qualcomm's most optimistic estimates still fall short of these Street projections.

The article Qualcomm Inc. Beats the Street, but Shares Fall on Gloomy Guidance originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.