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Qualcomm Q1 Earnings Reflect Growing 5G Adoption
by Daniel Newman | February 5, 2020

The News: Wireless chipmaker Qualcomm (QCOM) late Wednesday cleared Wall Street’s estimates for the December quarter and guided higher for the current period. But QCOM stock slid in extended trading despite the strong earnings news.

The San Diego-based company earned an adjusted 99 cents a share on sales of $5.08 billion in its fiscal first quarter ended Dec. 29. Analysts expected Qualcomm earnings of 86 cents a share on sales of $4.86 billion. On a year-over-year basis, Qualcomm earnings fell 17.5% while sales rose 5%. Read the full news piece on Investor’s Business Daily.

Analyst Take: The wave of 5G is just beginning and Qualcomm was always set to be one its biggest beneficiaries. For its fiscal first quarter the company is off to a solid start with revenue up from the year before and earnings outpacing the street’s expectation. Having said that, 5% growth isn’t by any means massive and the slight downturn in margin will be something to keep an eye on going forward.

The forward looking guidance was also encouraging as the company expects to outperform the analyst expectations in its fiscal Q2. I attribute this to continued momentum in the 5G space and a plethora of devices that should be entering the market during Mobile World Congress. The only potential risk factor that I see is the continued uncertainty around Coronavirus and impacts it could have on device sales in China.

It’s Early Days for 5G–4G Is Still Very Important

The good news is that I think we are still in very early days for overall 5G adoption. This means an uptick in revenue for the company’s modem business, but also a lot of upside for the company’s profitable licensing business, which benefits from Qualcomm’s significant contributions to various standards from 3G/4G/5G. The bigger spikes related to the 5G business should be seen in the next 8 quarters, but I expect it to be a gradual ramp for those two years, which will lead to significant growth.

The 4G business is still very important too and its worth calling out that the company has continued to innovate and support 4G platforms. Earlier in the month, the company announced three new Snapdragon platforms for 4G–Which emphasizes that 5G is still early days and better 4G solutions aren’t trivial.

Adjacent Products  in Qualcomm Business Are Important

Beyond the typical license and modem businesses that most people pay attention to. I’m also focused on seeing how Qualcomm’s business in areas like mobile compute, extended reality, IoT and Autonomous Vehicles grow. The company has seen those businesses yield significant sales over the past two years and I believe the diversification is important and will be correlate to new revenues for Qualcomm as mobile moves beyond devices to power smart cities and vehicles as well as use cases for connected devices in industries like retail and manufacturing.

Overall Impressions of Qualcomm’s Earnings

Qualcomm delivered to expectations in the first quarter. With a lot of complex litigation behind the company and a tailwind from 5G, I expect the remainder of 2020 to be at or above expectations.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.

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Image Credit: Qualcomm
Daniel Newman
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