Qualcomm rides on European wireless wave

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The rapid growth of Europe’s high-speed wireless communications market, following years of delay, contributed to a 25 per cent increase in revenues at Qualcomm in the final quarter of last year.

However, despite a strong run-up in its stock price in recent months on hopes 2006 will see a much wider uptake of so-called 3G services, the US wireless technology company did not increase its financial guidance for the rest of its fiscal year, which ends in September.

With average selling prices (ASPs) of handsets falling as more manufacturers enter the 3G market, profit margins from its chips and licensing businesses could decline in the second half of this year, Qualcomm said. It added that an aggressive push to expand sales of chips for handsets based on the older CDMA technology in India and China, where prices are lower, will also contribute to the lower margins.

Falling prices, however, are likely to boost sales of handsets, company executives said, supporting Qualcomm’s revenue outlook. “As we bring the APSs down we break into a new range of handset models,” said Paul Jacobs, chief executive officer.

Qualcomm said that the rapidly falling prices of 3G handsets in Europe should also help support its defence against a complaint lodged with the EC by several big European technology companies accusing it of charging excessive royalties for its technology. Qualcomm sells its own chipsets for use in mobile handsets and also licenses other manufacturers to use of its technology, which is used in all forms of 3G.

In the latest quarter, sales volumes of WCDMA handsets – one of two forms of 3G – rose 24 per cent, with sales in Europe up 51 per cent, Qualcomm said. With competition from more manufacturers, average selling prices of WCDMA handsets fell 10 per cent, to $372, it added. Prices for low-end handsets dropped much faster, declining from $217 to $141, the company said.

In the latest quarter, Qualcomm’s chips business reported a 19 per cent increase in revenues to $1.033bn, while its higher-margin licensing business rose 41 per cent to $564m. Overall revenues, at 1.74bn, were marginally lower than Wall Street expectations, though pro-forma earnings came in slightly higher thanks to tighter control on operating expenses.

Reported net income rose 21 per cent, to $620m, or 36 cents a share.

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