Qualcomm Tumbles On Weak Q3 Sales, Issues Dismal Q4 View

Qualcomm Tumbles On Weak Q3 Sales, Issues Dismal Q4 View
August 2, 2019


US semiconductor and telecom equipment firm Qualcomm Incorporated (Nasdaq: QCOM) reported lower-than-anticipated revenues in the third quarter and a dismal outlook for the fourth quarter. Earnings, however, beat analysts’ estimates. Following weak results and disappointing Q3 forecast, the stock lost $1.96 or 2.68% to close at $71.20.

San Diego, California-based company, reported fiscal 2019 third-quarter GAAP revenue of $9.60 billion. Non-GAAP revenues were $4.90 billion, down 13% from $5 billion in the similar period last year. The Wall Street analysts had anticipated revenues of $5.03 billion for the third quarter.

For Q3 2019, the company’s profit totaled $2.10 billion, or $1.75 per share, compared with $0.70 billion, or $0.55 per share, in the year-ago period. Excluding charges, Qualcomm posted adjusted earnings of $1 billion or $0.80 per share for the quarter ended September. In the comparable period last year, the company reported adjusted earnings of $1 per share. The Wall Street analysts had anticipated the company to report earnings of $0.75 per share for the reported quarter. The company has exceeded the market’s earnings expectations in all the past four quarters.

Segment-wise, Qualcomm Technology Licensing (QTL) revenues were $1.29 billion, down 10% on a y-o-y basis.  The company’s other business segment, QCT (Qualcomm CDA Technologies) posted revenues of $3.57 billion, a decline of 13% from last year. Specifically, in that segment, MSM chip deliveries declined 22% y-o-y to 156 million.

Regarding Q3 2019 results, CEO Steve Mollenkopf said, “We delivered another solid quarter operationally in the midst of slower demand for 4G devices as the market prepares for the global transition to 5G. Our 5G design wins have doubled over the last three months, leaving us extremely well-positioned as 5G ramps in early calendar year 2020.”

Commenting on the results, Qualcomm said: “In the third quarter of fiscal 2019, we recognized licensing revenues of $4.7 billion resulting from the settlement, consisting of a payment from Apple and the release of certain of our obligations to pay Apple and its contract manufacturers customer-related liabilities.”

Notably, the Q3 numbers do not include a single bullet payment of about $4.70 billion, or $3.23 per share, from Apple. The payment was made as a legal settlement between two firms concerning a chip licensing deal.

Qualcomm further stated that Apple had settled royalty payments during the quarter, but not for fiscal 2018 or the initial two quarters of Qualcomm’s fiscal 2019. Qualcomm stated that it would not begin recording revenue from selling chipsets to Apple until the second half of 2020.

During the June quarter, federal courts have issued a decree against Qualcomm in a case filed by the FTC about the former’s licensing business practices. Qualcomm stated that it did not believe the ruling had any material impact on the company’s licensing revenue.

For the upcoming quarter, Qualcomm forecasts earnings in the range of $0.65 to $0.75 per share on revenues of between $4.30 billion and $5.10 billion. Analysts are anticipating earnings of $1.08 per share on revenues of $5.63 billion for the September quarter.

Qualcomm also stated that it is downwardly revising its FY19 forecast for global 3G/4G/5G gadget shipments by 100 million units to a range of between 1.7 billion and 1.80 billion. The weak outlook was based on China-related issues and transition to 5G.

Commenting on the poor results and weak outlook, Bernstein analyst Stacy Rasgon wrote “Typically, a Qualcomm earnings report is complicated. This time around, the report was “not complicated, merely awful.” Rasgon has given a “market perform” rating for the stock with a target price of $72.

The decline in revenues and the weak fourth-quarter outlook is anticipated to keep the stock bearish in the short-term.

Technically, the stock has started declining after facing resistance at 75. The Stochastic indicator is making lower highs. As a result, we can anticipate the stock to remain bearish in the short-term.

qcom - technical analysis - 2nd August 2019

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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