Today Qualcomm [QCOM] posted their earnings figures for fiscal 3Q 2012, representing the calendar 2Q 2012. Qualcomm reported GAAP earnings of $0.69 EPS which derives from a net income of $1.21 billion on $4.63 billion. Qualcomm, however, reported a non-GAAP EPS of $0.85 as a result of excluding Qualcomm Strategic Initiatives and reporting a non-GAAP net income of $1.49 billion.
Any way that you try to cut these figures, they clearly indicate a slow-down in terms of Qualcomm’s growth, which can be attributable to a certain set of factors. These factors have been causing quite a bit of pain for many players in the semiconductor industry as the major issues lie within European and Chinese market demand as well as the lack of global 28nm fab capacity.
Looking at the same quarter a year ago, Qualcomm’s revenue was up to $4.6 billion from $3.6 billion a year ago, up 28 percent while being down 6 percent sequentially when compared to fiscal 2Q 2012 (calendar 1Q 2012). Additionally, Qualcomm’s net income was up to $1.21 billion, up from $1 billion a year ago. When you consider that Qualcomm’s revenue grew 28% over the same quarter a year ago and profit only 21%, you begin to question why the 7% erosion of profit. Especially, when you take into account that Qualcomm reported $2.2 billion in revenue for fiscal 2Q 2013.
Looking at these figures, it is quite evident that Qualcomm is suffering at the hands of a supply shortage of their highest ASP parts. Qualcomm has been making the change over to 28nm for all of their high-end parts and as a result, they cannot deliver all of them to customers. In some cases, like with HTC, Qualcomm was forced to ship Qualcomm Snapdragon S3 chips to HTC some markets outside of North America instead of S4 chips in order to deliver something to a customer rather than lose the sale entirely. This is a result of the fact that there is simply not enough 28nm capacity in TSMC’s fabs in order to supply companies like NVIDIA, AMD, Qualcomm and others that have all made the simultaneous switch to 28nm.
So, what is Qualcomm doing to remedy it? As we’ve reported before, Qualcomm is working on obtaining additional capacity from other fabs that are also manufacturing on the 28nm process. In Qualcomm’s case, they have openly admitted to finding other partners to expand their capacity, however they will not specify with whom. We do know, however, that their added operating expenditures as a result of additional tape-outs at other fabs have been mostly attributed to taping-out with Globalfoundries. During their earnings call today, they also mentioned that they are working with four different players to expand their 28nm capacity. However, Qualcomm is not standing still with just expanding to Globalfoundries, according to our sources within the financing community, the company is investing in chip manufacturing tools in order to secure future supply, especially at the 20nm node. After getting burned as hard as they did by this 28nm shortage, there is no doubt that Qualcomm does not want to eve let this happen again and is taking the necessary measures to ensure that.
Qualcomm also made revisions to their outlook for fiscal 4Q 2012 (calendar 3Q 2012), revising their expectations for demand to be more ‘back-end loaded’ as they expect more new devices to be launched for the holiday season which only begins towards the end of calendar 3Q 2012/early 4Q 2012. They also reduced their outlook for semiconductor volumes in the fiscal 4Q (calendar 3Q 2012) from their prior expectations indicating that they still do not have their supply situation to be resolved until the and of this calendar year, fiscal 1Q 2013.
Qualcomm also mentioned that they would be changing their Mirasol business to a more licensing model rather than one where Qualcomm manufactures the majority of the displays. Currently, Qualcomm has one Mirasol display fab located in Taiwan and based upon this development, they likely will not be building any more. Qualcomm does need to ramp up the adoption of Mirasol, though, in order to earn back the over $1 billion investment in the fab itself. If Qualcomm can get other partners to adopt their Mirasol technology, there is a good chance that Qualcomm could end up getting of of their licensees to simply purchase their fab away.
As a result of this news, Qualcomm is up $3.19 (5.69%) in after hours trading after being up 2.92% ($1.59) in regular trading and will be holding a conference call about their earnings today at 1:45 PST.