Qualcomm Incorporated QCOM reported healthy third-quarter fiscal 2018 (ended Jun 24, 2018) results with solid performance in the licensing business and income tax benefits. Diligent execution of operational plans and stringent cost management efforts also contributed to the strong quarterly results.

Net Income

On a GAAP basis, quarterly net income improved to $1,219 million or 82 cents per share from $866 million or 58 cents in the year-ago quarter, primarily on top-line growth and income tax benefit. Adjusted earnings (excluding the Qualcomm Strategic Initiatives segment and certain share-based compensation, acquisition-related items, and restructuring-related charges) were $1.01 per share compared with 83 cents in the year-earlier period. The bottom line comfortably surpassed the Zacks Consensus Estimate of 71 cents.

QUALCOMM Incorporated Price, Consensus and EPS Surprise

 

QUALCOMM Incorporated Price, Consensus and EPS Surprise | QUALCOMM Incorporated Quote

Revenues

Quarterly GAAP revenues of $5,599 million increased 4.2% year over year, largely due to an interim payment of $500 million from other licensees that were in dispute with the company. The top line surpassed the Zacks Consensus Estimate of $5,200 million.

Segment-wise, Qualcomm Code Division Multiple Access Technologies (“QCT”) revenues remained relatively flat at $4,087 million, as strong demand from Chinese OEMs was offset by lower demand from Apple Inc. AAPL. EBT (earnings before tax) margin increased to 15% from 14% on higher volume and cost-control initiatives backed by strong operational performance in China and higher modem shipments.  

Qualcomm Technology Licensing revenues were $1,465 million, up 25% year over year. EBT margin was 72% compared with 73% in the prior-year quarter.

Chipset Statistics

During the quarter, in QCT, Qualcomm shipped 199 million MSM (Mobile Station Modem) chipsets, up 6% year over year, owing to stronger-than-expected demand in China, particularly 700 and 800 series Snapdragon solutions.

NXP Deal Update

Qualcomm decided to terminate the agreement to acquire NXP Semiconductors N.V. NXPI as it failed to get the regulatory approval from the State Administration for Market Regulation in China. The transaction was stuck in the red tape for about 21 months and continued uncertainty, heightened by the U.S.-China trade war, forced the company to abort the deal.

Cash Flow & Liquidity

During the third quarter of fiscal 2018, Qualcomm generated $2,053 million of cash from operating activities compared with $171 million in the prior-year quarter, bringing the respective tallies for the first nine months to $4,331 million and $2,577 million.

As of Jun 24, 2018, Qualcomm had $35,619 million of cash and cash equivalents with long-term debt of $15,378 million.

Stockholders’ Wealth

During the quarter, Qualcomm returned $1.9 billion to stockholders. This included $911 million (62 cents per share) of cash dividends and $1 billion through repurchase of 17.4 million shares. The company further revealed its plans to implement a new stock repurchase program worth $30 billion on the termination of the NXP acquisition to reward its shareholders with risk-adjusted returns.   
 
Fourth-Quarter Fiscal 2018 Outlook

Revenues for the fourth quarter of fiscal 2018 are estimated in the range of $5.1-$5.9 billion. GAAP earnings are estimated between 58 cents and 68 cents per share. Non-GAAP earnings are projected between 75 cents and 85 cents per share. Qualcomm is expected to ship 205-225 million MSM chipsets in the ongoing quarter.

Going ahead, the company is expected to progress well with the execution of its $1 billion cost plan.  

Qualcomm currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the industry is Comtech Telecommunications Corp. CMTL, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech Telecommunications has an expected long-term earnings growth rate of 5%. It has exceeded earnings estimates in each of the trailing four quarters, with an average of 123.7%.
   
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