QUALCOMM, Inc. (NASDAQ:QCOM) delivered yet another earnings beat. Does that change anything for QCOM stock?
Shares of Steven Mollenkopf led smartphone chip giant QUALCOMM, Inc. (NASDAQ:QCOM) are on a recovery path following a solid earnings performance. Just a few days back, Qualcomm stock saw one of its biggest one day crash after the sell-off in January on account of sell on the news mood in the market. A WSJ report suggesting Apple's (NASDAQ:AAPL) plan to drop Qualcomm components from future iPhone models was the culprit. However, QCOM stock has almost made up for the crash after the earnings beat. The San Diego, California based mobile chipmaker has continued to deliver earnings beats after the Apple lawsuits came to the front at the beginning of the year. But QCOM stock has not gone anywhere since the January sell-off. The question now is, is Qualcomm stock a buy after the latest earnings beat? Has anything changed in the narrative of Qualcomm stock?
Qualcomm Q4 Earnings Overview.
Qualcomm reported revenue of $5.90 billion, down 4.4% year-over-year and $100 million over the Wall Street estimate. On the last quarter earnings conference call, the top management had issued a revenue guidance range of $5.4 billion to $6.2 billion. Coming to the bottom line, the smartphone chip giant reported a non-GAAP EPS of 92 cents per share, translating to a massive beat of 11 cents per share but still considerably lower than the EPS of $1.28 per share in the last year same quarter. Q4 earnings number comfortably beat the top end of the management's guidance, which put earnings expectations in the range of $0.75 to $0.85 per share.
Apart from the strong Q4 numbers, Qualcomm management also guided for Q1 2018 in line with the expectations, guiding for non-GAAP EPS to be in the range of $0.85 to $0.95, on a revenue of $5.5 to $6.3 billion. The midpoint of both of those estimates was in line with the Wall Street consensus, which was anticipating Q1 earnings per share of 90 cents on revenue of $5.9 billion, prior to the earnings call. The earnings guidance is significantly lower YoY while the lower end of the revenue guidance suggests YoY decline. The fourth quarter was a good one for Qualcomm's chip business as its QCT segment registered healthy 13% YoY revenue growth along with a decent 4% rise in shipments whereas the QTL segment saw drastic 36% drop in revenue from the year-ago same quarter on account of litigation with Apple and other licensees. The fiscal 2017 GAAP net income plunged 57% to $2.5 billion from 2016 on account of the South Korea and Taiwan regulatory body fines and the BlackBerry arbitration. The legal troubles have hurt Qualcomm profits and the stock badly.
Has the narrative changed for Qualcomm?
The ongoing litigation with Apple took another twist as the latest reports emerge that Qualcomm has filed a fresh new lawsuit against the iPhone maker on Wednesday for "breach of a contract that governs the use of software needed to make chips work with other parts of mobile phones and communicate with networks." The legal fight with Apple is only getting more uglier with reports of Apple dropping Qualcomm components from its future iPhone models. Apple is one of the major clients of the chipmaker and Raymond James analysts estimate that the Qualcomm's revenues would dwarf by 7.5% if they lose Apple as a client. However, that seems highly unlikely at the moment. Analysts also seem to echo similar thought as one QCOM bull Canaccord Genuity’s Mike Walkley suggests Apple cannot afford to dump Qualcomm with the approaching arrival of 5G wireless services in the years ahead where the chipmaker is believed to have the lead over the competition.
Another bull, Kevin Cassidy of Stifel Nicolaus stated the latest rumor could be a negotiation tactic by Apple as the company is known for keeping internal strategies very secret. Qualcomm CEO Mollenkopf too defended the company in the earnings call suggesting : "it's kind of hard for me to talk about rumors or any particular, let's say, media report. I will say that our road map and the positioning of, in particular, our modem road map, we feel very good about. Not only the ones that are already launched, but if you look at the upgrades that are going to occur to LTE upstream of 5G and then when you get to 5G, I think we're going to be – we feel very good about that positioning." The legal concerns are not going to be settled soon and would continue to weigh heavy on QCOM stock.
The Qualcomm stock fortunes are mostly entwined with the NXP Semiconductor (NASDAQ:NXPI) acquisition closure. The management acknowledged in the earnings call that the acquisition closure could slip to early 2018. The NXP deal is very vital to Qualcomm bull case. Any major setback here could hurt the QCOM stock further. Now, there are reports by Dow Jones’s Dana Mattioni and David Benoit that activist firm Elliott Management which is one of the major shareholders in NXP is in talks with bankers at UBS to find a new bidder for NXP. If the reports were to be true this doesn't bode well for Qualcomm.
Despite the strong earnings performance and solid outlook, Qualcomm stock is likely to be range bound until the NXP deal closure. One big positive from fiscal 2017 earnings could be the 25% YoY rise in QCT revenues to $3 billion which is a welcome development in the field of auto, networking and IoT diversifying from slowing smartphone sales worldwide. QCOM stock could head higher in near-term as Qualcomm stock technical chart has some bullish signals but the risks persist. In the last trading session, QCOM stock made a bullish crossover with its long-term 200-day moving average with Moving Average Convergence Divergence (MACD) indicator turning bullish. However, it would be better for investors to avoid Qualcomm stock till the NXP deal happens as the legal concerns outweigh any current positives making it a risky bet.
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