Qualcomm shares fell despite a strong earnings and guidance print as the chipmaker warned that the coronavirus outbreak in China could have a "material" impact on its near-term profit forecasts.
Some analysts moved estimates higher, but highlighted concerns around margins and 5G volumes.
Qualcomm is RealMoney's Stock of the Day.
The stock was falling 3% to $88.20 a share on Thursday morning, after rising slightly immediately after the earnings release.
Earnings per share for the December quarter came in at 99 cents on an adjusted basis, beating analysts estimates of 85 cents and falling 18% year-over-year. Revenue was $5.08 billion, beating Wall Street estimates of $4.84 billion and growing 5%. Management said 5G device volumes partly drove revenue.
The company guided for current quarter revenue of between $4.9 billion and $5.7 billion, with the midpoint of $5.3 billion higher than analyst's estimates of $5.104 billion. The midpoint of QCT revenue guidance was $4.2 billion, better than Wall Street's expected $3.875 billion. The midpoint of QTL revenue guidance of $1.1 billion is $1 million lower than analyst's estimate of $1.12 billion. Management expects EPS of between 50 cents and 65 cents, with the midpoint of 87.5 cents higher than analyst's forecast of 86 cents.
Here's what analysts said:
Goldman Sachs, Neutral, Price Target Raised From $87 to $89
"Lower than expected 5G margin contribution the main takeaway from earnings. Fiscal year Q2 QCT EBIT margin guidance fell short of expectations implied by the revenue beat, raising concerns about 5G chip profitability. In our October 2019 report we flagged the increasing production cost for 5G modems and believed at the time that original equipment manufacturers like Apple or the consumer would bear the costs of increasing 5G. Qualcomm’s QCT EBIT guidance for Q2 suggests that supply chain participants like QCOM will also have to bear at least some of the cost of rapid 5G penetration in China. We calculate that FQ2 QCT guidance implies gross margins of 48% vs. the 52% we had originally forecast. We increase our fiscal year 2020 and 2021 revenue estimate by 3% and 1% respectively to $22.6 billion and $27.0 billion. Our 2020 EPS moves up by 6% to $4.19 driven by 15% beat in Q1 and our 2021 EPS moves up by 1% to $5.48."
- Rod Hall
JPMorgan, Overweight, Price Target Reduced From $108 to $105
"QCOM earnings report and guidance both tracked favorably relative to expectations and demonstrated a steeper ramp in 5G content, although the composition of the guide is likely to raise more questions from investors. Is the low unit outlook reflective of ]market] share loss? Fiscal year 2Q revenue guide exceeded investor expectations, but comprised much steeper content ramp (+30% quarter-over-quarter average selling price as per guidance) and a much softer volume outlook (negative 13% quarter-over-quarter), leading to concerns around share loss; 2) Are gross margins moderating, despite content ramp, led by aggressive pricing? Mid-point of 2Q revenue and EPS guide implies roughly 300 basis points of gross margin moderation quarter-over-quarter, leading to concerns around aggressive pricing to fend off competition. Rather than share loss, unit outlook is driven by market challenges in 2Q. We reduce our December 2020 price target a 17 times target price-to-earnings multiple on our new fiscal year 2021 EPS estimate of $6.20 ($6.30 prior)."
- Samik Chatterjee
Alliance Bernstein, Market-Perform, Price Target Raised From $72 to $80
"Taking a more constructive view of results would suggest that a beat and guide-up in the current smartphone environment is no mean feat, and the benefit of 5G to content increase is becoming abundantly clear. Perhaps one can hope that June-quarter implies conservatism. And the AAPL chipset ramp, while not unexpected, will drive a sharp inflection at year-end. That being said, the call yesterday went a bit south as questions over June-Q guidance, margin trajectory, and the unit environment began to take over; in particular QCT margin guidance (up 300 basis points) seems weak given the magnitude of average selling price/content upside expected. Overall market weakness is partially offsetting near term upside from 5G, and a significant amount of future upside centers on (potentially transitory) AAPL chipsets."
- Stacy Rasgon
Mizuho Securities, Buy, $100 Price Target Unchanged
"The QCT [operating] margin guide was soft, at 15-17% (versus long-term 20% margins). QCOM expects March quarter QCT revenues up roughly 16% quarter-over-quarter, driven by 5G average selling price increases and front-end RF360 [chips] wins, but soft March Q MSM shipments, down roughly 13% quarter-over-quarter (seasonal decline range 12%-21% quarter-over-quarter), affected by coronavirus and loss of Huawei. Adjusting estimates, maintaining our Buy and $100 PT, reflecting 5G growth and anticipating June quarter could benefit from deferred March quarter demand and initial iPhone builds."
- Vijay Rakesh