Qualcomm Inc. (QCOM - Analyst Report) reported strong financial results for the first quarter of fiscal 2015. Both the top and the bottom line steered past the respective Zacks Consensus Estimate. In the reported quarter, the company achieved record high revenues, adjusted operating income and shipment of MSM chipsets.    

However, Qualcomm lowered its financial outlook for fiscal 2015, especially the second half. Management took into account three factors before lowering guidance. Firstly, the company’s Snapdragon 810 microprocessor may not be used by a large customer in its flagship product (just a week ago, Bloomberg reported that Samsung decided to use its own microprocessor in its upcoming Galaxy S6 smartphone instead of Qualcomm’s chipset).

Secondly, a shift in the share among OEMs (original equipment manufacturer) at the premium tier has reduced Qualcomm’s near-term opportunity to sell integrated chipsets from the Snapdragon platform. Finally, there is intensified competition in the Chinese market where the company is currently facing monopolistic practice allegations. Currently, the Chinese regulatory authority is conducting an investigation related to this matter. These negatives led to an 8.27% drop in Qualcomm’s stock price to $5.87 in the aftermarket trade on the Nasdaq.

Net Income

On a GAAP basis, quarterly net income from continuing operations stood at $1,971 million or $1.17 per share compared with $1,444 million or 84 cents per share in the year-ago quarter. However, adjusted (excluding special items) earnings per share came in at $1.21, breezing past the Zacks Consensus Estimate of $1.11.

Revenue

Quarterly total revenue of $7,099 million was up 7.2% year over year, outpacing the Zacks Consensus Estimate of $6,968 million. Segment wise, Qualcomm CDMA Technologies businesses contributed $5,242 million of revenues in the first quarter, up 14% over the prior-year quarter. Quarterly EBT margin was 22%. Qualcomm Technology Licensing generated $1,816 million in revenues, down 4% year over year. Quarterly EBT margin was 87%.

Chipset Statistics

During the first quarter of fiscal 2015, Qualcomm shipped approximately 270 million CDMA-based MSM chipsets, up 27% year over year. This figure was significantly better than the company’s guidance of a mid-point of 260 million. Average selling price (ASP) of a mobile handset with an in-built Qualcomm chipset during the quarter was around $194-$200.

Operating Metrics

Quarterly operating income came in at $2,064 million compared with $1,493 million in the year-ago quarter. Quarterly operating margin was 29.1% compared with 22.5% in the prior-year quarter. Quarterly adjusted EBT was $2,759 million against $2,103 million in the year-ago quarter. In the reported quarter, the company returned nearly $700 million (42 cents per share) to its shareholders in the form of cash dividends and another $1.7 billion through buyback of 22.9 million shares of common stock.

Cash Flow

During the first quarter of fiscal 2015, Qualcomm generated $2,364 million of cash from operations compared with $2,781 million in the prior-year quarter. Free cash flow, in the reported quarter, was $2,111 million against $2,571 million in the year-ago quarter.

Liquidity

At the end of the first quarter of fiscal 2015, Qualcomm had $31,603 million of cash and marketable securities and no outstanding debt on its balance sheet compared with $32,022 million of cash and marketable securities and no outstanding debt at the end of fiscal 2014.

Second Quarter of Fiscal 2015 Financial Guidance

Second-quarter revenues are expected in the range of $6.5 billion - $7.1 billion. GAAP earnings per share are projected to be $1.08 - $1.20. Non-GAAP earnings per share are likely to range between $1.15 - $1.27 including 13 cents per share of stock-based compensation expense. Qualcomm is expected to ship 220 - 240 million MSM chipsets in the second quarter.

Fiscal 2015 Financial Guidance

The fiscal 2015 revenues are expected in the $26 billion - $28 billion range. The prior guidance was $26.8 billion - $28.8 billion. GAAP earnings per share are likely to be between $4.04 and $4.34 as against the previous guidance of $4.33 - $4.63. Non-GAAP earnings per share are forecasted in the band of $4.21 - $4.51 including 54 cents per share of stock-based compensation expense. The prior outlook was $4.50 - $4.80. ASP of mobile handset with an in-built Qualcomm chipset during fiscal 2015 is projected around $245 - $270.

Other Stocks to Consider

Qualcomm currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the wireless equipment developers industry include InterDigital Inc. (IDCC - Snapshot Report), Aruba Networks Inc. (ARUN - Snapshot Report) and Aviat Networks Inc. (AVNW - Snapshot Report). While both Aruba and Aviat carry a Zacks Rank #2 (Buy), InterDigital sports a Zacks Rank #1 (Strong Buy).