Qualcomm reported after the market closed on February 3, 2021, it earned $2.12 per diluted share in the quarter that ended on December 27, 2020, up 165 percent from earnings of $0.80 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Non-GAAP earnings rose 119 percent to $2.17 per share from $0.99 one year earlier, a not quite as robust change than the GAAP percentage. The principal exclusions contributing to the $0.05 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Strategic initiatives [$0.13 per share], Share-based compensation [($0.20) per share], and Other items [$0.02 per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by Qualcomm to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by Qualcomm's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Qualcomm makes chips and licenses mobile communications technologies that are used in many advanced wireless devices. The transition to 5G mobile networks, which is just beginning, should benefit Qualcomm as the technology will motivate consumers to upgrade (again!) to newer, more capable phones. Qualcomm's licensing business has been criticized on anti-trust grounds by government regulators in multiple countries and also by phone manufacturers. This threat eased significantly when Qualcomm settled all litigation in April 2019 with Apple and Apple's contract manufacturers. More progress was made in 2020 when Qualcomm and Huawei settled their disputes and reached a new long-term, global patent-license agreement. Anti-trust concerns did end up scuttling the company's planned acquisition of NXP Semiconductors for $44 billion.
The following table is a simplified version of Qualcomm's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided to facilitate comparisons.
Revenue in the December 2020 quarter totaled $8.2 billion, 62 percent more than last year. The CDMA Technologies business was responsible for 79 percent of overall revenue, and this unit's revenue grew by 80.6 percent compared to the year-earlier result. The Technology Licensing business contributed 20 percent of revenue, and this unit's revenue increased by 18.2 percent.
I was expecting Qualcomm to report revenue of $8.2 billion for the December 2020 quarter. The actual amount surpassed my estimate by a mere $35.0 million (0.4 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $3.5 billion in the latest quarter, which translates into a Gross Margin of 57.6 percent of revenue. Since it was lower than the 58.4 percent Gross Margin achieved in the year-earlier quarter, it's a sign that Qualcomm sold its products and services at less profitable prices relative to production costs. I was expecting the Gross Margin to be 63.0 percent in the December 2020 quarter, and Qualcomm missed that prediction by 5.4 percent.
Qualcomm spent $1.7 billion on Research and Development in the latest quarter, up from $1.4 billion one year ago. I had estimated that R&D expenses would be $1.7 billion. R&D was 20.1 percent of Revenue.
Sales, General, and Administrative expenses totaled $567 million in the December 2020 quarter, up 7.4 percent from one year ago. SG&A expenses decreased from 10.4 percent to 6.9 percent of quarterly revenue, which shows Qualcomm spent less per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 7.5 percent of revenue, and the actual percentage turned out to be lower than the prediction.
Qualcomm's Operating Income was $2.5 billion in the quarter, up 145.2 percent from the year-earlier period. Operating Income fell short of my $2.9 billion estimate by $325 million.
Interest and other non-operating items summed to a net income of $78 million. My estimate for non-operating items was $225 million.
The effective income tax rate rose by 3.4 percent to 5.7 percent, which had a negative effect on net income. I expected the tax rate to be 16.0 percent.
Net income attributable to Qualcomm was $2.5 billion, $2.12 per share in the quarter ending December 2020. The figures for the year-earlier quarter were $925 million, $0.80/share. My earnings estimate for the latest quarter was $2.2 billion ($1.92/share), so Qualcomm earned $0.21 per share more than I had predicted.
In conclusion, the following list shows where the reported results differed from my expectations:
– Better than expected: SG&A + SG&A/Revenue + Misc non-operating items + Income tax rate
– Worse than expected: Gross Margin + Interest
– Near expectations: Revenue growth + R&D
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#qualcomm #qcom #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
No comments:
Post a Comment