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Qualcomm ups outlook for chips

The company reports strong demand for its advanced cell phone chips but has been unable to shake concerns about sustaining its growth.

Qualcomm on Monday raised its forecast for shipments of cell phone chips in the current quarter, based on strong demand for its advanced chips that allow users to surf the Internet at high speeds.

Shares of Qualcomm, however, closed down 94 cents, or about 2 percent, to $34.24 on the Nasdaq composite index, where it was one of the most-actively traded stocks, as investors continued to worry about the company's long-term growth prospects.

"It doesn't resolve the issue that I think a lot of people have, which is that this company has had a lot of strength but it's increasingly going to be harder for them to keep growing at the same rate," said Alex Vallecillo, senior portfolio manager for Armada Funds.

But Vallecillo said Monday's forecast was "good news, because we know they're not going to miss this quarter."

San Diego-based Qualcomm said it expected to ship about 28 million phone chips during its fiscal second quarter ending March 30, above its previous estimate of 27 million. Last year, the company shipped about 14 million units in the second quarter.

The company also said it expected to ship 23 million to 25 million phone chips in the third quarter, up from 16 million a year before.

While other telecommunications equipment companies have been hurt by the sluggish economy and lower industry spending, Qualcomm has managed to outperform its peers and post profits on the strength of its CDMA (code division multiple access) technology, the dominant wireless technology in U.S. networks and the second most common mobile phone technology in the world.

Qualcomm owns most of the patents to CDMA. It licenses its technology and provides more than 90 percent of the chips for CDMA phones.

In January, the company reported a 73 percent jump in net profit for its fiscal first quarter, as demand in Asia helped boost revenue by 57 percent. It also raised expectations for chip shipments in 2003.

Qualcomm has continued to post strong results and give upbeat forecasts, but it has been unable to shake persistent concerns about sustaining its growth.

Analysts are skeptical about whether Qualcomm's results truly reflect consumer demand for the phones themselves. They are particularly worried that chips are building up in China and India, where the company believes the majority of its growth will originate this year.

"We expect Qualcomm stock to be volatile over the next few months as news flow from China and India will likely be mixed," said Tim Long, wireless analyst with Credit Suisse First Boston, in a research note.

Jeffrey Schlesinger, wireless equipment analyst with UBS Warburg, said in recent research notes that China's No. 2 mobile phone carrier China Unicom added CDMA customers at a significantly slower rate in January compared with the previous month.

He also believes Qualcomm's chip sales in India reflect a buildup in phone inventory, as operators there start offering CDMA wireless service.

"Given the reliance on China and India for growth, it's going to be hard for the stock to move higher until the end market shows better visibility," Schlesinger said.

Story Copyright  © 2003 Reuters Limited.  All rights reserved.