Apple said it sold 74.5 million phones in the October to December quarter, up 46% from last year's quarter, with the release of the iPhone 6 and iPhone 6 Plus. Qualcomm's chips power smartphones and tablets to make them last longer and give them functions, such as Internet connectivity and GPS. Analysts say Qualcomm could boost its March-quarter guidance from Apple's increased phone sales.
Qualcomm is expected to report flat December-quarter earnings of $1.25 a share after market close Wednesday. Revenue is expected to rise 5% to $6.94 billion, according to Thomson Reuters.
Shares were rising 1.5% to $72.88 before the markets opened. Here's what analysts said.
Tim Long, BMO Capital Markets (Outperform; $83 PT)
Apple has reported December-quarter results, and we see potential upside to Qualcomm's Total Reported Device Sales (TRDS) based on the strong iPhone numbers.
Compared with the numbers used in our QCOM model, the stronger Apple figures imply December TRDS, to be reflected in QCOM's March quarter guidance, as much as approximately $4 billion higher. However, in the past we have seen the QCOM TRDS coming in below our calculations when AAPL has really big revenue quarters. Regardless, QCOM estimates for the March quarter need to move even above our $1.35 estimate, which is $0.07 above consensus.
Additionally, Microsoft MSFT reported handset revenues for the December quarter yesterday, and we believe the numbers reflect a $130 million hit to December TRDS, as most of the unit beat came from higher feature phone numbers, where 3G penetration and ASPs are lower.
James E Faucette, Morgan Stanley (Equal Weight; $75 PT)
With all of the recent noise around some of the newest chipsets, some may have lost track that result of China investigation matters most to long-term earnings potential.
We believe that the company's top-line results and outlook for the December and March quarters respectively are likely to be near or even slightly above the top-end of guidance, given the likelihood of better than expected shipments and mix from most of the largest handset makers. Additional spending needed to overcome the challenges of bringing the newest Snapdragon products to market may hamper QCT margin expansion for the time being. Our current estimates for the December and March quarters are $7.0b / $1.25 and $6.6b / $1.19 vs. consensus of $6.9b / $1.25 and $6.7b / $1.28 and vs. the midpoint of
December quarter guidance of $6.9b and $1.24. We do not expect the full year guidance of $26.8b - $28.8b and $5.05 - $5.35 to change much at this point even on the back of strong results given that the company has consistently indicated that the upper end of the guidance range is at least partially tied to a favorable resolution with China's NDRC.
Richard Whittington, Drexel Hamilton (Downgrade to Hold on Jan. 16; $75 PT)
Reducing our Qualcomm rating to Hold from Buy and price target to $75 from $100 as process and competitive questions reduce visibility. High-end baseband lead intact, falling mobile app. processor prices bring the question of whether such suffices to sustain chipset margins. Intel INTC moving quickly to 14nm Trigate, leading-edge Qualcomm parts are still coming out on 20nm planar processes, older ones on 28nm planar Tier-one foundries slow to efficaciously ramp 14nm/16nm FinFET limit QCOM ability to reduce power consumption while upping performance. Intel also appears set on commoditizing low-mid-range LTE for incorporation in their mobile processor offerings, conjuring a price war
Intel looks to incorporate its lesser but increasingly capable LTE baseband into now essentially free, or even subsidized, app. Processors Add these factors to still unresolved licensing and legal atmospherics, the QCOM shares have more questions to resolve than we have answers.
Blayne Curtis, Barclays (Overweight; $80 PT)
QCOM remains 2 years+ ahead of competition on the modem side while its platform approach (baseband SoC plus pwr, audio, ET, WLAN/BT, GPS, and RF) creates increasing barriers to entry form point baseband solutions. QCOM is also starting to ramp its low-cost SD210 (ASP <$10), which can compete even at the lowest tiers of the China handset market with an LTE modem that is a generation ahead of competition.
The stock materially lagged semi peers in 2014 (flat for the year vs. 28% gain for the SOX), and currently trades at 12-13x our CY15 EPS estimate (just 9x ex. cash). Even under conservative assumptions we think the license business plus cash is worth over $60/shr (assumes 10 year DCF on QTL FCF plus ~$19 net cash per share). We also see potential for increased capital returns in 2015 and could even see borrowing to fuel buybacks or dividend growth.
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.