Qualcomm (QCOM) is set to report fiscal third-quarter earnings after the bell on Wednesday. Estimize is currently more bullish than Wall Street, calling for an EPS number of $0.99 a share compared to $0.94 for Wall Street and $.93 for company guidance. EPS is expected to decrease by ~30% from last quarter’s EPS of $1.40. Revenue growth for the tech company has remained positive for the last eight quarters. Last quarter, revenue hit $6.894B, representing YoY growth of 8%. This quarter, Estimize predicts revenues of $5.883B, with Wall Street forecasting a lower revenue of $5.769B. Company guidance is at $5.410B. For the last two quarters, Qualcomm has beat consensus and guidance for both EPS & revenue.Why the significant revenue decline from last quarter?
1. San Diego-based Qualcomm’s chip was left out of Samsung’s new Galaxy S6 phones
- Last quarter Qualcomm CDMA Technologies (QCT) revenue declined 16% sequentially
- Underscores how important the wireless chip business has become to the company’s success
2. In March, rumors swirled that Intel’s baseband modem would replace Qualcomm modems in the 2016 iPhone in parts of Asia and Latin America
- If true, Qualcomm’s revenue from Apple would fall going forward
3. China’s anti-monopoly investigation
- Qualcomm paid a $975M fine and agreed to charge royalty rates of 5% for 3G and 3.5% for 4G devices
- The royalty base via which the fees were charged was reduced from 100% to 65% of the net sales price
- Qualcomm cut its royalty fees by about 35%
With so many negative factors, where are the bright spots?
1. Strong fundamentals
- Qualcomm still has ~18B in cash on the balance sheet with zero debt and another $8B in operating cash flow
- Sold off its L-band spectrum in the U.K. which should boost the company’s cash position significantly
- Therefore, Qualcomm’s fundamentals aren’t as dire as its stock indicates.
- Chip placement in Apple and Samsung devices
- A big player in the realm of the Internet-of-Things– this segment already generates $1B in revenue annually
3. Looking out for investors
- Signing of ASR agreements with two financial companies to buy back $5B of its common stock demonstrates efforts to maximize investor value
- Therefore, EPS should be bolstered this quarter
Tomorrow’s earnings results could go either way, as highlighted by the varying positive and negative factors involved. Do not miss out on this one, as it will be very telling of investors confidence and the company’s future.
(Photo Credit: Qualcomm)