Oppenheimer has lowered its fiscal 2011 earnings forecast for chip maker Qualcomm (Nasdaq:QCOM), saying that margins at the company's CDMA unit will decline to drive share gains.
San Diego, California-based Qualcomm makes chips and software that power cell phones and licenses its technology to other makers of chips and handsets.
The brokerage trimmed its fiscal 2011 profit estimate to $2.84 a share from $2.87 a share. Wall Street expects the company to earn $2.78 a share for 2011, according to analysts polled by Thomson Reuters.
There's a clear near-term trade-off as Qualcomm CDMA Technologies (QCT) margins will decline to drive share gains. Thus, we're tweaking our aggressive margin assumption down and trimming FY11 EPS estimates slightly to stay closer to FY11 guidance. We believe consensus is also potentially too optimistic on QCT margins with downward revisions possible, analyst Ittai Kidron wrote in a note to clients.
However, Kidron is positive on Qualcomm and believes share gains, new wireless markets (tablets, e-books...) and Mirasol display technology could drive significant earnings upside in 2011-13.
Thus, the analyst reiterated his outperferform rating and $54 price target on the Qualcomm stock.
While we're taking down EPS, we like Qualcomm's aggressive strategy for long-term share gains in smartphones, tablets and an increasingly mobile-oriented PC market. This could be particularly positive in FY12 EPS as new, more cost-effective products ramp, Kidron added.
Shares of Qualcomm closed Thursday's regular trading at $48.49 on Nasdaq. In the pre-market hours on Friday, they lost 47 cents to trade at $48.02.