NEW YORK (CNNfn) - The stock of mobile communications equipment giant Qualcomm Inc. jumped Friday after the company beat lowered earnings expectations for its fiscal fourth quarter.
In midafternoon trading, Qualcomm (QCOM: Research, Estimates) was up $8.75 at $71.56, a 14 percent gain. The stock jumped even though the company's fourth-quarter revenue was lower than some analysts had expected and analyst reviews of the quarter's results were tepid.
After Thursday's close, Qualcomm reported that its fourth-quarter net income rose to $200.8 million, or 25 cents per share, from $182.9 million, or 24 cents, in the same period last year. That was 1 cent above the mean of analysts' expectations for the quarter, according to earnings estimate tracker First Call.
The San Diego, Calif.-based company said that its pro-forma fourth-quarter revenue declined 11 percent to $635 million from $716 million in the same period last year, largely because of lower sales in South Korea after that country's government eliminated phone handset subsidies. The revenue figure is pro forma because the year-ago total included revenue from its consumer handset business, which the company sold in the second quarter. Its revenue was below the $675 million that Merrill Lynch analyst Michael Ching had expected.
Qualcomm makes mobile phone chipsets based on Code Division Multiple Access, or CDMA, technology and also licenses that technology to other makers of mobile phones. The CDMA standard competes with one called Time Division Multiple Access or variations of TDMA known as Global System for Mobile Communications, or GSM.
The company's revenue from licensing agreements grew 26 percent in the fourth quarter to $186 million. However, revenue from chipset sales declined 25 percent to $269 million, largely because of South Korea, and sales of equipment to satellite phone and position reporting systems declined 28 percent, largely because of financial woes at the GlobalStar project, in which Qualcomm holds a 6 percent stake.
"Chipset sales declined 26 percent to $269 million, and operating margins dropped to 24 percent from 39 percent," wrote Merrill's Ching in a research note issued Friday. "Qualcomm shipped only 11 million chipsets in the quarter, down from 15 million in the preceding quarter and 13.5 million a year ago. This disappointing performance partially reflected continued weak demand in Korea."
On the positive side, Qualcomm's management said on a conference call that demand has begun to pick up in Korea, and that 2.5-to-3.0 million phones are likely to be sold in that country in the December quarter. The company estimates that 90 million CDMA phones could be sold in 2001, up 50 percent from the approximately 60 million phones expected to be sold in 2000.
However, that positive forecast wasn't enough to convince Ching to change his "neutral" rating on Qualcomm's stock.
"We are maintaining our fiscal 2001 earnings-per-share estimate at $1.25, reflecting a 19 percent increase from fiscal 2000," he wrote. "In our opinion, the stock price fairly reflects these intermediate-term growth characteristics."
CS First Boston's Marc Cabi also was unimpressed by Qualcomm's results, issuing a research note called "Where's the growth in the second half of 2001?".
"After this quarter's shortfall on already reduced guidance, we are cautious about the visibility for the December forecast," Cabi wrote. In addition, Qualcomm hasn't yet taken any reserves on $600 million in potential exposure to the troubled Globalstar project, Cabi noted.
Cabi said he estimates Qualcomm's stock to be worth $40 to $45, "although we believe the company will continue to get a premium for its license position and speculative potential." 
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