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Qualcomm revenue rises on cell phone chip sales

The wireless technology provider reports that third-quarter earnings rose 23 percent, in line with analyst expectations, as cell phone chip sales met shipment goals.

Qualcomm, a wireless technology provider, today reported that third-quarter earnings rose 23 percent, in line with analyst expectations, as cell phone chip sales met shipment goals.

Pro forma net income for the period was $218 million, or 27 cents per share, on revenue of $713.5 million. That compares with earnings of $155.6 million, or 22 cents per share, on revenue of $644.6 million in the same period last year.

Analysts expected Qualcomm to earn 27 cents per share, according to a survey by First Call/Thomson Financial. However, some analysts expected slightly higher revenue figures.

At 1 p.m. PST, the close of regular market trading, Qualcomm shares were down $2.13, or more than 3 percent, to $63 ahead of the news. The earnings report was issued after the close of regular trading. In after-hours trading, Qualcomm shares were down about $2.

Qualcomm chief executive Irwin Jacobs attributed the in-line report to record cell phone chip sales and to new technology licenses.

"Our chip business met its third-quarter goal of shipping a record number of MSM phone chips, while aggressively preparing for and investing in new areas of growth including third-generation and HDR (High Data Rate) products," Jacobs said in a statement.

"Our technology licensing business signed numerous license agreements during the quarter, and we're seeing momentum build in requests for both new license agreements and (third-generation) extensions by existing licensees."

Qualcomm reported results on a pro forma basis due to the exclusion of acquisition-related and employee stock option-related write-offs, as well as to the previous sale of certain business units no longer contributing to the company?s revenue.

The earnings report follows a major patent victory for Qualcomm in Japan and Europe. The company, which depends heavily on royalty fees it collects from handset makers and other wireless companies that use its code division multiple access (CDMA) technology, could have been severely affected in the future if not for the regulatory ruling.

The stock's wild ride--Qualcomm was one of the best-performing stocks last year and has performed dismally comparatively this year--has been tied closely to news in Asia.

Qualcomm has tried on several occasions to persuade the Chinese government and government-run communications carriers to use the company's CDMA technology in their wireless networks. China, with its huge population, growing economic status and outmoded telecommunications infrastructure, is a potentially giant market for wireless services.

But the future remains uncertain for Qualcomm's technology in China. Meanwhile, the company's largest market, Korea, cut phone subsidies, which led Qualcomm to warn that cell phone chip sales, the other half of the company's business, could dip there.

Executives said the company?s quarterly chip sales totaled 15 million units, up from 11 million a year ago and 11 million last quarter. But the company warned that the end of Korean handset subsidies, which kept phone costs low for consumers, could hurt the company in the future.

Qualcomm chief operating officer Rich Sulpizio said the company expects chip sales to slip by between 2 million and 3 million units during the September quarter, unless other markets offset Korean declines, though the December quarter is expected to be up sequentially.

"Although chip sales have been and continue to be impacted by the end of subsidies in Korea, CDMA continues to make progress as the wireless industry looks beyond voice capabilities to wireless Internet access," Irwin said.

Other concerns about whether Korean carriers would use Qualcomm's so-called third-generation technology or a competing one may also have affected the stock in recent weeks.

Executives said, however, that Qualcomm expects to garner the same royalty fees whether carriers use CDMA 2000 or W-CDMA, a competing but similar version of the wireless technology.

Some analysts were concerned with falling average selling prices on the company?s chips, but executives said declines were in line with expectations and that upcoming new chips with advanced features and functions will offset any current declines.