The News: Qualcomm reported second-quarter earnings after the bell on Wednesday.
The stock was up more than 3% after hours, in addition to a nearly 5% rise during trading on Wednesday. Here’s how it did:
- EPS: $0.88
- Revenue: $5.21 billion
Wall Street had anticipated earnings per share of $0.78 on revenue of $5.025 billion based on Refinitiv consensus estimates. However, it’s difficult to compare reported earnings to analyst estimates for Qualcomm’s Q2, as the coronavirus pandemic continues to hit global economies and makes earnings impact difficult to assess.
Revenue for Qualcomm was up 7% year-over-year and diluted EPS was up 14% year-over-year. Read the full news item on CNBC
Analyst Take: Qualcomm’s results for this quarter were solid. To some extent, right now, amidst this pandemic, any sort of on target or earnings beat is seen as terrific. However, I feel the need to keep reminding readers that the earnings data that we are being fed is for the past quarter, which was only partially impacted by the Covid-19 lockdown here in the states. Having said that, for Qualcomm, which sells a lot of its technology through chips and licensing into devices that are sold in China, this period was meant to be quite difficult. Based upon the results, it wasn’t as difficult as thought, but there were challenges and still are some headwinds for the company.
Demand for Wireless Phones Did Take a Hit and Will Next Quarter Too
While the earnings and revenue growth YoY for the quarter was impressive, there were a few numbers that drew caution. The company said that the coronavirus pandemic reduced demand for phones in the second quarter about 21% compared to its previous expectations and on a year-over-year basis, primarily driven by China. It also warned of lower phone shipments in the quarter ending in June, as the pandemic has had a significant impact on economies outside of China.
5G Numbers Stay in Tact
One particular data point that gave confidence was the company’s solid commitment to its forecasts for 5G devices for the year. The target of 175-225 Million devices was kept in tact. In an analyst Q&A with CEO Steve Mollenkopf, I asked him to reiterate this commitment where his overall sentiment was that there could be some variance in timing but based upon the economic data and where the economy is at the company didn’t see a reason to adjust the target.
A Look to the Fiscal 3rd Quarter
The company’s guidance was cautious as it sees about a 30% reduction in handset shipments against the original projections. The data from China’s recover thus far was used to extrapolate the estimate and this more cautious guidance is going to be something to pay attention to when Qualcomm reports its third quarter late in July.
With the temporary depressed sales volumes due to coronavirus, the company is also decreasing estimated EPS by $.30 to $.60 to $.80 per share while giving a broad revenue forecast of $4.4-$5.2 Billion.
With so many companies pulling guidance as a whole, I think the market reacted positively to the company providing guidance, which overall is still sound given our current economic condition.
Overall Impressions of FY 20 Q2 Qualcomm Earnings.
Qualcomm is in great shape. The fundamentals of the company are terrific and the revenue streams are diversified well between the technology and the licensing business. The short term decrease in earnings, will likely be offset in the following two quarters as early indications of a strong economic recovery have been evident as we’ve watched strong earnings come in from a broad range of companies. But again, the next quarter will likely be less friendly for all businesses as the U.S. will have seen major changes in spending patterns throughout the quarter.
Having said that, Qualcomm’s role in 5G makes the company a tough one not to like. The next two years should be tremendous as adoption picks up and even Apple finally gets around to launching a 5G device.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.