NEW YORK-With production of handsets now hitting the current 300,000 capacity mark during some weeks, Qualcomm Inc. announced second-quarter earnings and revenues April 21 that showed dramatic growth, while gross profit margins declined.

Qualcomm, headquartered in San Diego, reported revenues of $586 million during the fiscal 1997 second quarter, ended March 30. This was nearly quadruple the $149 million in revenues for the same period one year earlier and 50 percent higher than revenues during the first quarter of fiscal 1997.

Net income for the second quarter increased to $16.7 million, or 23 cents per share, compared with $1.5 million, or 2 cents per share, for the second-quarter 1996.

Of total revenues, those derived from Qualcomm’s communication systems accounted for the vast majority, $508 million, and represented an increase of $404 million compared with the second quarter of fiscal 1996. Qualcomm attributed this revenue growth largely to the significant increase in sales of Code Division Multiple Access handsets and ASICs, as well as its recognition this past quarter of all revenue related to infrastructure equipment installed in major markets of the growing Sprint PCS CDMA network earned between August and March 30. Sprint PCS was Qualcomm’s first personal communications services contract, said Tony Thornley, chief financial officer.

“The C-block area (of PCS) has started somewhat slowly, but we hope it will pick up,” said Irwin Jacobs, chief executive officer. “We understand market conditions and are watching them closely,”

The longer term market prospects for CDMA remain solid because of the spectrum usage efficiencies the technology affords, he explained. “Even with all the C-through F-block players on, there will only be a 3.4 (times) increase in bandwidth, so things will pick up.”

Qualcomm’s communication systems’ gross profit was 18 percent during the second quarter of fiscal 1997, down from 24 percent during the same quarter a year earlier. “Our gross profit margins are down because of the growth in our subscriber (handset) business, which has lower margins than our historical business of OmniTracs,” Thornley said.

Qualcomm said it shipped more than 8,300 OmniTracs terminals during the latest second quarter to customers including Federal Express, Atlas Van Lines and Melton Truck Lines. However, company officials wouldn’t quantify the number of CDMA handsets produced or shipped.

“We don’t disclose the exact number of (handset) units, but we have achieved production capacity of 300,000 during a number of weeks,” Thornley said.

Jacobs said Qualcomm officials are exploring ways to boost handset manufacturing capacity with this objective: “The key is to build a Qualcomm phone and establish our own branding-a very critical next step for Qualcomm.”

The ASICs, or computer chips, component of Qualcomm’s communication systems business “on the infrastructure and subscriber side, has been quite good,” Thornley said. “We are balancing pricing with the desire to maintain market share, to make our licensees prefer to buy from us rather than making their own.”

Over the longer term, Qualcomm expects to see some manufacturers providing their own computer chips. “One of the surprises for us is that others haven’t yet introduced their own chips, although we’ve seen announcements that there will be some other chips introduced,” Jacobs said.

Qualcomm intends to make its chips smaller and more powerful to provide handset manufacturers with an edge and an incentive to use its ASICs.

“We have demonstrated the ability of our existing phones to make Internet connections,” Jacobs said. “There have been some interesting discussions about the next generation of CDMA to support higher data rates for information appliances, personal digital assistants based on telephones. The capabilities will improve.”

Research and development expenditures during the latest second quarter totaled $53 million, or 9 percent of revenues, compared with $35 million, or 24 percent of revenues, for the second quarter of fiscal 1996. Overall R&D expenditures in absolute dollars are expected to increase in future quarters, the company said.


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