Qualcomm (QCOM), the world’s largest mobile chipmaker, flexed its muscles on Wednesday, delivering an estimate beating FQ3 report.
The semiconductor giant reported revenue of $4.9 billion, roughly flat year-over-year (+0.2%) yet beating the estimates by $100 million. Non-GAAP EPS of $0.86 handily beat Street expectations by $0.15.
A higher mix of 5G smartphones and improving macro trends were the primary drivers behind the upside. While a smartphone market declining by 20% year-over year might sound bad at first, the figure beat Qualcomm’s expectation for a 30% decline, as stronger 5G sales made up for softer trends in upcoming markets.
Arguably, the earnings call’s highlight was reserved for an inked deal with Huawei. Qualcomm announced it had signed a longer-term patent licensing agreement with the Chinese telecom giant. As part of the agreement Qualcomm will receive $1.8 billion in past licensing fees.
Looking ahead to FQ4, Qualcomm said it expects handset shipments to be down by 15% year-over-year, partly because of the delay to a customer’s (Apple?) global 5G phone launch.
However, due to the Huawei settlement, in addition to strong QCT guidance, Qualcomm said it expects adjusted earnings of between $1.05 to $1.25, notably higher at the mid-point than the street’s call for $1.09 a share.
The quarterly statement was met with widespread approval on Wall Street, as evidenced by share gains of 13% in afterhours trading. Canaccord Genuity analyst Michael Walkley was among those impressed, and expects the upcoming 5G cycle to pave the way for further growth.
The 5-star analyst said, “Despite the uncertain times, Qualcomm is well positioned for a faster return to growth than most our coverage companies and the broader hardware and semiconductor technology landscape. With up to a 50% increase in dollar content for a 5G phone versus a 4G smartphone due to a combination of its modem leadership position plus its growing RF front end dollar content, the steady move to global 5G smartphones in the mix, Huawei returning to paying royalties, and returning modem sales to Apple for up to 4 new 5G iPhones anticipated later this year should enable Qualcomm to post strong earnings growth in F2021. Given these strong underlying trends as 5G ramps, we view Qualcomm as a company that could have a nice return for investors.”
Along with reiterating a Buy on QCOM shares, Walkley raised his price target from $115 to $137. Upside from current levels is a meaningful 47%. (To watch Walkley’s track record, click here)
Overall, TipRanks points to analyst sentiment split between confidence and caution on Qualcomm shares. QCOM’s Moderate Buy consensus rating is based on 12 Buy ratings, 7 hold and 1 Sell. With an average price target of $114.82, the analysts forecast upside of nearly 9% from current levels. (See Qualcomm stock-price forecast on TipRanks)
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