QUALCOMM, Inc. (NASDAQ:QCOM) is scheduled to report its Q4 2017 earnings on Wednesday. Will this time be different?
Another quarter, another regulatory fine for the Steve Mollenkopf led smartphone chip giant QUALCOMM, Inc. (NASDAQ:QCOM). Just a few weeks ahead of its fourth quarter 2017 earnings, San Diego, California based chipmaker was fined nearly $800 million in Taiwan. There seems to be no respite for Qualcomm from its legal concerns. Qualcomm stock has suffered due to its legal concerns with Apple (NASDAQ:AAPL) and the regulatory bodies around the world. However, QCOM stock has shown some signs of life ahead of earnings rising marginally by nearly 6% over the last one month, though Qualcomm shares are yet to recover from a post-earnings sell of in July. Now, this brings us to the question: Is Qualcomm stock a good turnaround bet ahead of earnings? Can Q4 earnings help QCOM stock break out of its downtrend? Let's take a closer look.
Qualcomm Q4 Earnings Analyst Estimates
Wall Street consensus expects the mobile chipmaker to report an EPS of 81 cents a share on revenue of $5.8 billion. The consensus implies a 6% top-line decline and a massive 47 cents earnings worsening over the year-ago quarter. This earnings report will make Q3 the third straight quarter of revenue decline, after the hit on the company's lucrative licensing segment due to withholding of royalties from Apple and its suppliers. The Wall Street consensus falls around the midpoint of management's guidance. On the last quarter earnings conference call, the top management had issued a revenue guidance range of $5.4 billion to $6.2 billion and forecasted its non-GAAP earnings per share to be between $0.75 to $0.85 per share.
Qualcomm Earnings History and Q4 Earnings Whisper
Qualcomm has a strong earnings history, delivering an earnings surprise in all of the last 8 reported quarters. On the revenue front, the company has only missed consensus estimates once out of the last 8 reported quarters. Based on the recent earnings history as well as the management guidance, the smartphone chipmaker should deliver yet another earnings beat with both EPS and revenue coming above the midpoint of the management guidance. The case for an earnings beat is also strengthened by the Qualcomm Q4 earnings whisper number. The current whisper number expects Qualcomm to report earnings per share of 84 cents. The whisper number implies a 3 cent beat, or a 3.7% earnings surprise. However, an earnings beat will not suffice for the stock to resume its uptrend. QCOM stock needs more than earnings beat for a turnaround.
Set back in NXP acquisition progress could hurt QCOM stock.
Its been almost a year since Qualcomm announced its multibillion-dollar acquisition of Dutch automotive chipmaker NXP Semiconductor (NASDAQ:NXPI). This is also one of the key factors in the Qualcomm turnaround story. However, the acquisition progress has not been smooth. Qualcomm CEO, Steve Mollenkopf though did reiterate at a WSJ conference earlier this month that they are on track to close the deal in 2017. With the NXP stock presently trading well above the tender offer of $110 a share, this looks like a difficult one to pull off. And, if one goes by NXP CEO Rick Clemmer's recent commentary, who in the NXP latest quarter earnings call suggested that the timetable is very tight at the moment and there is good possibility that the deal closure could happen in early 2018. This is certainly not good news for Qualcomm shareholders. Qualcomm top management commentary on the NXP deal in the Q4 earnings call would be closely watched and any negative news on this front can have a negative impact on the share price.
Expect an earnings beat but not a turnaround.
Qualcomm would do well to deliver an earnings beat but a turnaround is still not in sight. Qualcomm's chip could yet again deliver better than expected results which gave a guidance of MSM shipments of 205 million to 225 million units up 15% sequentially. OEM product launches and continued traction with OEMs in China could result in yet another strong quarter of chip business but QTL segment would where the focus would be. Qualcomm had issued a revenue guidance range of $1.0 billion to $1.3 billion but hinted that segment's EBT margin could come under pressure on account of increased litigation-related expenses. The legal cases which do not seem to reach a conclusion anytime soon are likely weigh heavy on QCOM stock.
To sum up, QCOM stock has been on the rise of late due to much improved technical set up but lacks any major long-term catalysts. Qualcomm stock has found support at its 50-day simple moving average. The latest fines have made sentiment around Qualcomm stock overly negative and pessimistic. Given the high risks associated with QCOM stock now, investors should well avoid Qualcomm stock going into earnings. The company needs to address apprehensions related to its legal troubles associated with its licensing business. Hence, apart from the EPS/top line numbers, investors should keep a close watch on the guidance of the QTL segment and commentary on the outcome and resolution of the legal battles around the world.
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