Qualcomm Shares Cut to Sell at Goldman on Chip-Demand Concern

Goldman analysts downgrade Qualcomm's shares to sell, expressing concern about demand for chips from smartphone makers due to the coronavirus pandemic.
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Qualcomm  (QCOM) - Get Report shares dipped in an up market Friday, after Goldman Sachs downgraded the semiconductor company's shares to sell from neutral.

Goldman analysts expressed concern about chip demand from smartphone makers due to the coronavirus pandemic.

Qualcomm, San Diego, designs and markets semiconductors mostly for mobile-communications equipment.

“[Weakening] smartphone demand negatively impacts both the [Qualcomm CDMA Technologies] and [Qualcomm Technology Licensing] segments and drives earnings below consensus for 2020 and 2021,” the Goldman analysts, led by Rod Hall, wrote in a report.

“We are reducing our calendar year 2020 and 2021 3G/4G units estimate by 12.5% and 10.0%, respectively, … due to the anticipated impacts from covid-19 and weakening consumer confidence, which we believe reduces smartphone replacement rates.”

These reduced estimates led the Goldman analysts to cut their 2021 earnings per share forecast by 10% to $5.04, putting them 16% below consensus, they said.

The analysts slashed their share-price target for Qualcomm to $61 from $77, using a price-to-earnings multiple of 12. The previous target was based on a 13.6 multiple.

“We are reducing our assumed multiple to reflect materially increased earnings uncertainty, as we now forecast much lower smartphone demand and see risk to QCOM content in higher-end devices,” the analysts wrote

The new p-e estimate of 12 is at the low end of the range that has prevailed since Qualcomm ended its dispute with Apple  (AAPL) - Get Report over patents and royalties in April 2019, they said.

Qualcomm shares recently traded at $76.31, down 0.7%, while the S&P 500 was up 1.5%. The stock has slid 17% in the past three months, compared with a 15% drop for the S&P 500.