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Qualcomm stumbles on outlook, buys SnapTrack for $1 billion

Qualcomm (Nasdaq: QCOM) stumbled Wednesday after the company beat estimates by a penny, but delivered a so-so outlook. Analysts had mixed reactions to the results, but Qualcomm continued with business as usual, announcing the acquisition of SnapTrack Inc.

Qualcomm said it would buy SnapTrack, a maker of software that helps locate wireless phone users, for $1 billion in stock.

Investors, however, were more worried about Qualcomm's outlook. Shares were down 16 percent, or 23 11/16 to 125 5/16.

Qualcomm's fourth-quarter earnings of 25 cents a share missed unofficial "whisper numbers" of 27 to 28 cents a share. Qualcomm also said wireless chip sales would be down a bit in the first quarter because of "seasonal factors, inventory balancing by customers due to continued shortages of other phone components, and transition from older chips to the latest chips." Qualcomm also said handset sales will be lower in the first quarter because of the seasonal shift.

The company reassured investors it will meet or exceed estimates of 25 cents a share in the upcoming quarter, but that didn't comfort analysts.

Merrill Lynch dropped its rating on the stock from "accumulate" to "neutral," but maintained a long-term buy rating. Merrill cited challenges such as seasonal factors, inventory balancing, and a transition to newer chipsets, which will have a negative impact on sales. "We believe that the stock is now close to fairly valued given our current outlook for EPS," said analyst Michael Ching. Ching maintained an earnings estimate for 2000 at $1.04 a share.

Solomon Smith Barney also lowered its rating on the stock to "outperform" from "buy."

But Credit Suisse First Boston reiterated its "buy" rating on Qualcomm, and maintained a fiscal year 2000 earnings estimate at 94 cents a share.

In other news, Qualcomm said on Wednesday it would buy SnapTrack for $1 billion in stock. The companies' combined technology will enable the design of "smart" phones, handheld devices and pagers to help find wireless users making emergency calls. The deal is expected to close by mid-March.