A day after Qualcomm announced a 56% decline in its first-quarter net profits, the company is crossing its fingers that it won't be hit by the second half of a double whammy that will likely impact its profits additionally if Congress extends the analog-to-digital switch to June.
While the House of Representatives torpedoed a plan to extend the DTV switch from Feb. 17 to June, Democratic congressmen were marshaling their troops, hoping for another vote that would pass the legislation. Qualcomm is ready to go with its MediaFLO mobile broadcast TV product on Feb. 18 and a delay to June, it says, will cost it "tens of millions of dollars." The company is planning to aggressively launch MediaFLO in four cities.
The MediaFLO problem would be tacked onto the negative losses the company already cited in its financial report Wednesday when it said the deteriorating economic situation, as well as a decline in the value of securities it holds, hit its first-quarter earnings. The company predicted its operating income will likely fall as much as 38% in the current quarter, along with a revenue drop of as much as 14%.
"The CDMA inventory channel has contracted as we expected," Qualcomm CEO Paul E. Jacobs said in a statement, "and the business environment continues to remain uncertain. Reduced visibility in the marketplace makes it difficult to forecast future inventory levels or predict when a recovery will begin."
For the quarter, Qualcomm reported revenue of $2.5 billion -- up from $2.4 billion in the previous year's quarter -- while net income dropped to $341 million from $767 million in the year-earlier quarter.
Qualcomm reported operating cash flow of $3.5 billion for the quarter. That amount included a $2.5 billion payment from Nokia for intellectual property rights. The one-time payment concluded the companies' bitter litigation over standards patents and covers a 15-year agreement.
Jacobs pointed out that Qualcomm has a strong balance sheet that will enable it to continue investing in future products. The company said its cash, cash equivalents, and marketable securities add up to about $13.1 billion.
Jacobs said Qualcomm has been experiencing "healthy growth in the CDMA-device market" but because of the reduced visibility of the current business situation, the company is finding it difficult to predict when a recovery will begin.
In the meantime, Qualcomm is ready to crank up its MediaFLO, even as it must prepare to pause the service if the DTV switch is delayed until June. The company is paying for expensive infrastructure, which won't be of much use until the DTV switch takes place. The mobile broadcast television service is still largely unknown to consumers, and Qualcomm is hoping that an aggressive launch will help MediaFLO take off. Both AT&T and Verizon Wireless have been experimenting with MediaFLO.