Qualcomm Inc. (QCOM) - Get Report shares traded sharply lower Thursday after the chipmaker said the coronavirus could have a 'material' impact on its near-term profit forecasts and disrupt global smartphone demand and supply chains.
The warning offset stronger-than-expected first quarter earnings, which showed Qualcomm posting a Street-beating bottom line of 99 cents per share on revenues of $5.07 billion for the three months ending in December xxx
Qualcomm said it sees current-quarter earnings in the region of 80 to 85 cents per share, with revenues rising to between $4.9 billion and $5.7 billion. Both of those forecasts topped Street estimates, as well, but the company cautioned that there is "significant uncertainty around the impact from the Corona virus on handset demand and supply chain" that forced it to widen and lower its expected guidance range.
"What we are factoring into our guidance is really looking at the demand that we have from the customers and the information we have from them when you look at -- on the MSM side," chief financial officer Akash Palkhiwala told investors on a conference call late Wednesday. "When you look at the overall EPS guidance, as you're aware, we typically guide a $0.10 range. And what we did to include the impact of the virus is to reduce the bottom end of the range by $0.05 to reflect the information we have at this point."
"We expect our third fiscal quarter performance to be in line with our second fiscal quarter, consistent with historical trends in our QCT business," he added. "We expect the next inflection point with the launch of additional 5G flagship handsets to be in the fourth quarter and extend into fiscal 2021."
Qualcomm shares were marked 4% lower in early trading Thursday tochange hands at $87.22 each, a move that would still leave the stock with a healthy six-month gain of around 30%.
Qualcomm also noted that while the coronavirus could notably impact markets in Asia, and slow the rollout of 5G networks in China, its chips would still find demand in markets such as Korea, Japan and the United States, all of which are planning and constructing next generation systems.
For the December quarter, QCT revenue, Qualcomm's main chip segment, came in at $3.618 billion, beating estimates of $3.385 billion. QTL revenue came in at $1.404 billion, missing estimates of $1.406 billion but rising 38% thanks to the return of licensing revenues from Apple Inc. (AAPL) - Get Report.
"Qualcomm surprised us and gave more than one quarter out guide but guided to flat June revenues equal to the March expectations. That was a disappointment. The Street expected an up June," said Chaim Siegel of Elazar Advisors LLC. "But previously the company had said the March and September quarters would be the inflection points. March is when 5G starts and September is when Apple kicks in. Apple should be huge. "
"So I think it's fair to step aside now and wait for this China epidemic to peak. But when it does I plan to reenter Qualcomm because I think they have a huge revenue ramp coming in the back half of this year," he added.