With a lot of moving parts in play, smartphone chip supplier Qualcomm (QCOM) is scheduled to report earnings for its December quarter after the market close Wednesday.
The consensus estimate for Qualcomm’s fiscal second quarter is for revenue of $5.34 billion, down 22% year over year and the fourth quarter in a row of revenue deceleration. Analysts polled by Thomson Reuters expect earnings per share minus items of 96 cents, down 31% and also the fourth straight quarter of deceleration.
Tough contract negotiations have previously stunted Qualcomm's licensing revenue growth, along with a royalty dispute with South Korea-based LG. Last year, there were a number of lawsuits globally related to Qualcomm’s licensing business. Investors also are concerned about the under-reporting of device sales among China vendors. The completion of new licensing deals has helped to alleviate those concerns.
Qualcomm continues to make notable progress signing China license agreements, says Michael McConnell, an analyst with Pacific Crest Securities, in a research note. Since Qualcomm issued fiscal 2016 guidance, it has inked four of the top five China smartphone OEMs to new license agreements, with Lenovo being the highlight signing, he wrote. McConnell has a buy rating on Qualcomm stock, and a price target of 63.
Qualcom stock is trading near 52 ahead of Wednesday's open, rising a fraction Tuesday and down 4% for 2016.
Samsung Galaxy S7 Helping Qualcomm
Credit Suisse analyst Kulbinder Garcha, in a research note, said he does not see the fundamental outlook for Qualcomm’s smartphone business improving. Still, he says improved execution at Qualcomm, a recovery at Samsung, rising revenue diversity and further compliance from Chinese vendors should give a boost to the earnings outlook. He reiterated an outperform rating on Qualcomm stock, with a price target of 67.
“While we do see some potential weakness at Apple (APPL), i.e. weak shipments and potential share loss to Intel (INTC), we believe the early success of the (Samsung) Galaxy S7 indicate that our forecasts are sufficiently conservative,” he wrote.
Canaccord Genuity analyst Michael Walkley recently maintained a buy rating on Qualcomm stock and a price target of 65. He wrote that while Intel might take some chip-unit share from Qualcomm for the Apple iPhone 7, Qualcomm will maintain its majority position.
"Overall, we are impressed by Qualcomm’s long-term technical roadmap, believe more optimistic long-term technology licensing growth targets are achievable, and appreciate the new focus of the management team to streamline the business and cost controls,” Walkley wrote.
Of the 35 analysts that follow Qualcomm, as reported by Thomson Reuters, seven rate the stock a strong buy and 12 a buy. Another 15 have holding ratings, and there is one underperform rating.
Intel late Tuesday said it would cut about 11% of its workforce, some 12,000 positions, as it restructures to put less emphasis on the fading PC business and more on rising areas such as the Internet of Things. Despite years of efforts, Intel so far has had minimal success in getting its chips into smartphones and other mobile devices, but many observers say it will likely have chips inside the next Apple iPhone, expected to be released in September.
