Shares of Qualcomm (QCOM) jumped in morning trading after its fourth quarter earnings per share beat consensus estimates. Revenue for the quarter also exceeded estimates. The company noted that the results were bolstered by its licensing division, which included royalties from Apple (AAPL) and its contract manufacturers.
EARNINGS AND GUIDANCE: On Wednesday after the close, Qualcomm reported fourth quarter earnings per share of 78c, beating the 71c consensus. Revenue of $4.8B also beat estimates calling for $4.7B. Qualcomm previously forecast adjusted EPS for the quarter of 65c-75c and revenue of $4.3B-$5.1B. The company said it shipped 152M chips in the quarter, down 34% compared with the same quarter a year ago. The company said in a statement: "We delivered a strong quarter, with non-GAAP earnings per share above the high end of our guidance range, primarily on solid performance in our QTL segment. We exit the fiscal year having successfully executed on our strategic priorities: helping to drive the commercialization of 5G globally, completing a number of important anchor license agreements and executing well across our product roadmap. Our technology and inventions leave us extremely well positioned as 5G accelerates in 2020."
Looking ahead, Qualcomm forecast current quarter EPS of 80c-90c, with revenue of $4.4B-$5.2B, against analysts' current consensus estimates of 83c and $4.86B, respectively.
WHAT'S NOTABLE: Qualcomm also announced Wednesday that its board has appointed interim CFO Akash Palkhiwala to the role permanently. Palkhiwala has been serving the company as interim CFO since August. Former Qualcomm CFO George Davis left the company to become Intel’s (INTC) CFO in April.
HUAWEI/CHINA: Shares of chip stocks were under pressure in late September after Bloomberg reported on September 26 that the U.S. probably won't renew a temporary waiver that allows U.S. companies to do business with China's Huawei as the White House cracks down on Chinese companies. The exemptinon for U.S. companies supplying Huawei runs out on November 19, according to the report. Washington also isn't ruling out additional punishments for allies that refuse to ban Huawei equipment in 5G networks, in addition to possibly cutting them off from intelligence-sharing pacts, Bloomberg said at the time, citing Rob Strayer, the State Department's deputy assistant secretary for cyber policy. Since then, China has said that a consensus has been reached in principle with the U.S. on core trade concerns, after which the Financial Times reported earlier this week that some White House officials were discussing whether to cancel certain existing China trade tariffs as a concession to help facilitate a trade deal as soon as this month.
Qualcomm said in its earnings statement that the forecast for its first quarter excludes royalties on sales to Huawei. The company and Huawei for months had been working under an interim agreement for the Chinese company to pay royalties to Qualcomm as the two sides try to resolve a patent-licensing dispute, but that deal expired in the third quarter and Qualcomm on Wednesday said the two sides hadn’t agreed an extension. Qualcomm added that "If no agreement is reached, Huawei may continue to not make any other payments or may not make full payments due under the underlying license agreement. Our financial guidance for the first quarter of fiscal 2020 excludes QTL revenues for royalties due on sales of products by Huawei."
ANALYST COMMENTARY: Following Qualcomm's earnings report, several analysts raised their respective price targets on the shares, with Mizuho analyst Vijay Rakesh raising his price target to $80. Rakesh said the company's results came in "better than worries about handset weakness and Huawei share loss." While positive on 5G in 2020, the analyst expects a more attractive entry point into the name. Cowen analyst Matthew Ramsey raised his price target to $100, citing cited Qualcomm's settlement with Apple and the potential for 2020/2021 5G modem/RF chips selling prices to move sharply higher and boost out-year estimates. He said shares continue to demonstrate a favorable risk/reward.
RBC Capital analyst Mitch Steves also upped his price target on Qualcomm to $88, noting that its 5G unit shipment forecast of 175M-225M in 2020 implies a production ramp. The analyst kept his Sector Perform rating on the stock to reflect the continued FTC overhang and potential Apple modem chip in the future.
PRICE ACTION: In morning trading, shares of Qualcomm are up nearly 9% to $92.13.
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