Qualcomm takes large charge, cuts '09 rev target

NEW YORK (Reuters) - QUALCOMM (QCOM.NQ)Inc posted a lower quarterly net profit that was halved by a charge for investment losses and cut its full year revenue TARGET (TGT.NY)on weak demand for cell phone chips, sending shares down 6 percent.

Qualcomm said it expects customers to keep cutting chip inventory levels into the summer due to the weak economy.

While chip demand would improve in the second half of fiscal 2009 versus the first half, much of the growth will come from cheaper phones used in markets such as China, it said.

Qualcomm took a charge of 21 cents a share for the first fiscal quarter ended December 28, due to a loss of $388 million related to marketable securities.

The company, which said it has $1.1 billion of unrealized investment losses, also warned that it could see further charges if the securities market does not improve. As a result it did not to give a forecast for earnings per share for its fiscal year ending in September.

"Their biggest concern looks to be the impairment of some of their (investment) assets," said Charter Equity Research analyst Ed Snyder. "It's a little discouraging on the forecast but it's a smart move to lower guidance now."

Qualcomm, which holds about 13 percent of its roughly $13 billion cash and equivalents in stocks, said the unrealized losses in marketable securities between December 28 and January 23. may also hurt future earnings. It did not give earnings per share estimates for fiscal 2009 due to market volatility.

Qualcomm, the biggest maker of cell phone chips, said net profit fell to $341 million, or 20 cents per share from $767 million, or 46 cents a share, in the same quarter a year ago.

Revenue rose to $2.52 billion from $2.44 billion, and was ahead of analysts' average estimate of $2.419 billion according to Reuters Estimates.

But the company cut its 2009 revenue target to a range of $9.3 billion to $9.8 billion from the $10.2 billion to $10.8 billion forecast in November.

WEAKNESS EXPECTED

But some investors said the lower outlook was not surprising after disappointing reports from rival Texas Instruments Inc , the No. 2 maker of chips for mobile phones, and Nokia , the world's No. 1 phone maker.

"People maybe would have hoped they could have fared better but there's probably a lot of confusion," related to the investment losses said Pacific Crest analyst James Faucette.

Qualcomm shares fell to $34.57 in after-hours trading after closing at $36.82 in the regular Nasdaq session.

It forecast second-quarter revenue falling to a range of $2.25 billion to $2.45 billion, compared with analyst estimates for $2.4 billion, according to Reuters Estimates.

Qualcomm said it expects sales of phones based on its CDMA wireless technology, used widely in the United States and some other countries, to increase by 20 percent in 2009, down from its previous estimate for 25 percent growth.

"The end consumer demand for phones we think is holding up quite well," Qualcomm's Chief Financial Officer Bill Keitel said in an interview with Reuters.

But he noted that phone makers and service providers would cut inventory for several more months before improving.

"In a soft economy, as we're obviously in, the less inventory your holding the less risk you have of not being able to sell it," he said. "We're looking for that to bottom out sometime this summer and to improve from there."

Keitel said he expects an improvement in demand the second half of fiscal 2009 but noted that this would skew heavily toward chips for cheaper phones in regions such as Africa and Asia, where China is upgrading to high-speed networks.

Qualcomm, which settled a long legal battle with Nokia last year over a fight about technology licensing terms, said on Wednesday that it expects this year to extend a technology licensing agreement with a customer it declined to name.

Keitel said that because Qualcomm outsources a lot of operations such as manufacturing it does not expect to make widespread job cuts, unlike rival TI, which announced 3,400 job cuts on Monday.

(Reporting by Sinead Carew; editing by Richard Chang and Carol Bishopric)