Cell phone chip supplier Qualcomm Inc
Shares of Qualcomm rose as much as 7.8 percent on Monday morning, also helped by the wireless chip company's settlement of a long-running patent battle with archrival Broadcom Corp
Qualcomm agreed to pay $891 million to Broadcom over four years to end their licensing battle dating back to May 2005.
While the settlement led to a hefty legal charge that helped push Qualcomm into the red in the March quarter, Wall Street was relieved the courtroom battle was over and focused on the company's positive outlook.
A pickup in component ordering suggests handset makers are uncomfortable that inventory levels had become too lean and they feel more comfortable with their business going forward, said Jefferies analyst Adam Benjamin. That would suggest end-market demand is coming back.
Qualcomm posted a net loss of $289 million, or 18 cents per share for its fiscal second quarter ended March 29, compared with a profit of $766 million, or 47 cents per share, in the same quarter a year earlier.
Excluding items, its loss would have been 3 cents per share compared with analyst expectations for a profit of 40 cents per share, according to Reuters Estimates.
Revenue fell about 6 percent to $2.46 billion from $2.6 billion in the year-earlier quarter, but exceeded average analyst expectations of $2.35 billion, according to Reuters Estimates.
Despite what the EPS says, I think we had a strong quarter, Qualcomm Chief Executive Paul Jacobs told analysts on a conference call. We're happy to see the inventory stabilizing, reaffirming device demand.
Jacobs said global demand for advanced phones was strong despite the weak economy. He said that China was one area where customers were replenishing inventories, as operators there are building high-speed wireless networks.
Chief Financial Officer William Keitel also pointed to stronger European demand for chips used in data cards that wirelessly connect laptop computers to the Internet.
Despite a very lackluster and difficult economic environment there are certain pockets that are performing quite well, Keitel said in an interview.
Qualcomm raised its revenue target for fiscal-year 2009 to a range of $9.85 billion to $10.25 billion from its earlier estimate for revenue of $9.3 billion to $9.8 billion. Analysts were looking for $9.796 billion, according to Reuters Estimates.
The outlook is further evidence that demand may have hit a bottom after handset makers drastically cut inventories in the recent quarter due to the weak economy.
Qualcomm's rival Texas Instruments
Qualcomm shares were up 6 percent or $2.50 at $43.86 on the Nasdaq in late morning, off an earlier high at $44.59. Broadcom shares were up 1.1 percent at $24.48, off an earlier high at $24.95.
Collins Stewart analyst Ashok Kumar said investors were relieved that under the settlement Qualcomm can still charge Broadcom's handset customers licensing fees even though it agreed not to charge Broadcom going forward.
It does not change Qualcomm's licensing models. That's important, Kumar said.
(Reporting by Sinead Carew; Editing by Derek Caney, Brian Moss and Matthew Lewis)