NEW YORK (TheStreet) -- Qualcomm (QCOM) - Get QUALCOMM Incorporated Report shares hit a new 52-week-low after the chipmaker lowered its outlook for the second half of 2015 for its semiconductor business, noting it recently lost a position in what's been widely reported as Samsung's (SSNLF) new flagship smartphone, the upcoming Galaxy S6.
Qualcomm lowered its 2015 earnings per share forecast to $4.04 to $4.34 a share compared to $4.33 to $4.63 previously. Revenue is also projected to come in a bit softer than previously estimated, ranging from $26 to $28 billion. The company made the projections during its fiscal first-quarter earnings report.
The company blamed the softened outlook on a "shift in share among OEMs at the premium tier, which has reduced our near-term opportunity for sales of our integrated Snapdragon processors and has skewed our product mix towards more modem chipsets in this tier." It also said that its Snapdragon 810 processor "will not be in the upcoming design cycle of a large customer's flagship device."
Shares were down 11% to $63.15 at last check. More than 35 million shares had changed hands on Thursday -- triple its three-month average daily trading volume. Here's what analysts said.
Kulbinder Garcha, Credit Suisse (Outperform, $80 PT)
"Qualcomm reported results for Q1FY15 ahead of expectations with revenue of $7.1 billion (versus CS at $6.8bn) and EPS of $1.34 (versus CS at $1.28). However, the results were overshadowed by a weak QCT outlook causing another reduction to estimates. We lower EPS by 24 cents, or 5% for FY2015. We do believe that this should be nearing the trough of EPS estimates and the end TAM remains healthy for Qualcomm. However, it may take time to rebuild credibility. We lower our TP to $80.
Qualcomm still believes that the addressable market will grow some 15% this year; however, it seems its TDRS will grow only around 6% in FY15. Positively, the company attained resolution with one of the major licensee, but is still struggling with under-reporting for the vast parts of the Chinese market. We believe, given the company's inherent IP strength, QTL will ultimately prevail, and do not include it in our current estimates. However, as the timing remains uncertain, we have removed it from FY15/FY16. We assume QTL revenues of $7.6bn/$7.8bn."
Sjui Desilva, Topeka Capital Markets (Hold, $70 PT)
"QCOM reported FY1Q15 (Dec.) revenue above consensus but guided FY15 revenue and EPS below consensus reflecting increasing China competition, content loss at a flagship application processor customer and unfavorable chipset mix shift. While QCOM signed a wayward China licensee this quarter, the company provided no update on the on-going China investigation and continues to see other China licensees continue to under-report. While chipset units grew nicely in the quarter, we believe blended pricing is coming under pressure as well. We have lowered our FY15 forecast to reflect the increased uncertainty inherent in the above discussed issues. Accordingly, we are lowering our price target and maintain our Hold rating."
Ittai Kidron, Oppenheimer (Outperform; $75 PT)
"Qualcomm reported a good 1QFY15 and 2Q outlook, but a convergence of multiple elements is negatively impacting its FY outlook and will likely weigh on the shares. Headwinds/challenges include a missed design at Samsung and FX headwinds (newer pressure points), and ongoing issues such as unfavorable vendor/device market share shifts (hitting ASPs), China NDRC/under-reporting issues, and competitive uncertainties. Some of these elements are here to stay such as the mix issues, but several can improve including China resolution, under-reporting, design gaps/product cycles, and FX. Despite Qualcomm's weakened positioning, experience suggests this is the time to buy (after the shares reset), especially considering its financial levers (~2.5% div. yield/ buybacks). We'd stay the course for now."
Blayne Curtis, Barclays (Overweight; $77 PT)
"QCOM delivered another mixed bag. On the positive side, near-term results and guidance were ahead and they settled with the disputing customer (Lenovo), but on the downside their FY15 forecast moves lower (again) as they are removing the GS6 (may prove too conservative), see increased competition in China (32-bit S210 likely not as competitive vs. 64bit MTK), and mix shift to thin modems (AAPL share gains). Sticking with QCOM has proven painful as the company continues to find ways to lose with profitability and execution misses yet does too little to curb spending and/or meaningfully increase buybacks (still no debt). We are tempted to throw in the towel, but with the stock closer to $60 (a likely bottom given almost $20 in net cash), we are holding on with an NDRC settlement hopefully a step finally in the right direction.
CQ1 Revenue Slightly Below, but EPS Ahead: Guided revenue $6.5-7.1B (-8% to flat Q/Q) vs. Street of $6,740M (-2.9% Q/Q), as QCT is seasonally weaker. MSM shipments are guided -15% Q/Q at the midpoint, but we estimate this is partially offset by higher ASPs (+2% Q/Q - mix away from Apple thin modem). QTL device sales are guided to $69.5-75.5B (+23-34% Q/Q) - above our expectations as QCOM settled with its disputing customer (Lenovo). Opex is guided up 6-8% (~$1.71B) but below Street of $1.78M (though QCT OpM is guided to just 15-17%) and along with implied GMs in the 62% range (vs. Street 60.7%) yields PF EPS of $1.28-$1.40, ahead of Street of $1.28."
Michael Walkley, Cannaccord Genuity (Buy; $84 PT)
"Qualcomm reported Q1/F2015 results with pro forma EPS of $1.33 above our $1.29 estimate due to strong QCT unit sales due in part to strong sales into Apple's record December quarter iPhone sales. Despite the beat and Q2/F2015 guidance above our expectations, Qualcomm lowered F2015 guidance primarily due to stronger share in the high-end smartphone market to Apple that uses modem only solutions versus higher-ASP integrated Snapdragon solutions, lower content share in the high-end Samsung Galaxy S6 due to the Snapdragon 810 not winning anticipated market share, and increased competition from China in part due to performance with chipset for the mid-to-high-tier. With Qualcomm trading in the premarket at roughly 11.5x or 8x ex-cash our updated F2016 pro forma EPS estimate, we believe the valuation is compelling for longer-term investors. We reiterate our BUY rating but lower our price target to $84."
Alex Gauna, JMP Securities (Market Outperform; $85 PT)
"We are maintaining our Market Outperform rating and $85 price target on Qualcomm after it reported upside F1Q15 revenue of $7.1B (+6% q/q, +7% y/y, Street $6.95B) that drove a non-GAAP EPS beat of $1.34 (JMP $1.30, Street $1.26). The company also guided to better than expected F2Q15revenue of $6.5-$7.1B (midpoint +7% y/y, Street $6.7B), and EPS of $1.28-$1.40 (Street $1.28), with theoutlook in part benefiting from the resolution of a licensing dispute with a major Chinese handset OEM.Unfortunately, the company also guided down full-year FY15 revenue and EPS on concerns over high-endhandset mix, the loss of a design win in the upcoming Galaxy S6 refresh, and heightened competitionin China, leading the shares of QCOM to trade down ~10% in aftermarket reaction.
We view this as anattractive opportunity to aggressively buy the stock because: 1) our industry sources inform us that thefinal chapter has not been written in terms of its position within upcoming Samsung refreshes; 2) Samsungis increasingly less relevant as it loses share to Apple (MO, $150 PT, PE based), and high-quality Chinesecompetition such as Xiaomi that is fully embracing Qualcomm technology; 3) we understand Qualcommhas taken actions to address and correct product deficiencies; 4) recent checks suggest Qualcomm hashit an Internet-of-Things home run in its CSR acquisition and this is not included in its revised FY15outlook; and 5) Qualcomm is trading at an extreme PE discount to the S&P 500 multiple that we believeundervalues its above-average growth and recurring royalty revenue streams."
TheStreet Ratings team rates QUALCOMM INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate QUALCOMM INC (QCOM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins, growth in earnings per share and compelling growth in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- QCOM's revenue growth has slightly outpaced the industry average of 5.9%. Since the same quarter one year prior, revenues slightly increased by 3.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, QUALCOMM INC's return on equity exceeds that of both the industry average and the S&P 500.
- The gross profit margin for QUALCOMM INC is rather high; currently it is at 64.21%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 28.30% is above that of the industry average.
- QUALCOMM INC has improved earnings per share by 29.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, QUALCOMM INC increased its bottom line by earning $4.40 versus $3.91 in the prior year. This year, the market expects an improvement in earnings ($5.20 versus $4.40).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Communications Equipment industry average. The net income increased by 26.2% when compared to the same quarter one year prior, rising from $1,501.00 million to $1,894.00 million.
- You can view the full analysis from the report here: QCOM Ratings Report
- Written by Laurie Kulikowski in New York.