Qualcomm Inc. QCOM is scheduled to release first-quarter fiscal 2018 (ended Sep 30, 2018) results, after the closing bell on Jan 31.
The company’s bottom line surpassed the Zacks Consensus Estimate in two of the previous four quarters. Earnings met the consensus estimate in the remaining two, resulting in an average beat of 6.31%.
Let’s see how things are shaping up prior to this announcement.
Factors at Play
Qualcomm operates in a highly competitive global mobile semiconductor market with incumbents like Broadcom Inc. AVGO, Analog Devices Inc. ADI and Intel Corp. INTC. Stiff competition in the wireless baseband chipset market has forced the largest mobile chipset manufacturer in diversifying into the lucrative IoT market.
In August 2017, Qualcomm announced the acquisition of Scyfer B.V., a company affiliated with the University of Amsterdam and which focuses on cutting-edge machine learning techniques. It specializes in building Artificial Intelligence (AI) solutions for companies worldwide and in a number of different industries, such as manufacturing, healthcare and finance. The acquisition of Scyfer will aid Qualcomm to advance its AI research and development.
In July 2017, the company made available the Qualcomm Snapdragon Neural Processing Engine software development kit for developers from multiple industries—mobile, automotive, healthcare, security and imaging—to acquire tools for delivering on-device neural network-driven user experiences. With such booming prospects and strategic ideas, Qualcomm visualizes a world where AI would make devices, machines, automobiles and make things more intelligent, simplifying and enriching people’s daily lives.
2017 has been a mixed year for Qualcomm. The company has been trying to retain its leadership in 5G, chipset market and mobile connectivity with, multiple technological achievements and launches. Management has taken significant steps to reduce cost by $1 billion per annum.
Buoyed by such tailwinds, Qualcomm’s shares have gained 26.42%, outpacing the industry’s growth of 16.05% over the past three months.
On the other hand, Aggressive competition in the mobile phone chipset market may hurt Qualcomm’s profits in the future. The company is facing severe competitive threat from its closest rival, Intel, which has been redesigning its chipsets for the mobile computing market. Intel started delivering multi-mode LTE baseband modem. Competition is also likely to emanate from formidable rivals like Broadcom and Nvidia.
Broadcom already introduced its LTE baseband chipset in the market, while Nvidia launched Tegra 4i, its LTE-integrated application processor. Also, opposition emanates from low-cost chip suppliers like Mediatek of Taiwan, VIA Technologies of China and Spreadtrum Communications. Although the global smartphone market is expected to maintain its momentum in the next 4–5 years, a major part of this growth is likely to come from the low-cost emerging markets, which may exert pressure on Qualcomm’s margins.
The $1 billion lawsuit related to licensing royalty payments, filed by tech giant Apple Inc. (in January 2017) against Qualcomm with the U.S. District Court for the Southern District of California, is getting uglier day by day. Since January 2017, there had been a number of counter attacks from either side. Initially, Apple had accused Qualcomm of overcharging for chips and refusing to pay some $1 billion in promised rebates.
Meanwhile, Apple has garnered the support of Silicon Valley biggies and its suppliers in its nasty legal spat with Qualcomm. Apple’s suppliers have filed a lawsuit in the U.S. District Court for the Southern District of California, accusing Qualcomm of “violating” the U.S Antitrust Law. They have claimed that Qualcomm continues to extract additional licensing money over assembling of iPhones. With so many twists and turns, we remain eager to see how this dispute actually pans out in the coming days.
Earnings Whispers
Our proven model does not conclusively show that Verizon is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Qualcomm has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 90 cents. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.
Zacks Rank: Qualcomm has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company has not witnessed any estimate revisions.
QUALCOMM Incorporated Price and EPS Surprise
Key Pick
Analog Devices has the right combination of elements to post an earnings beat. It is expected to report first quarter of fiscal 2018 results on Feb 21. Analog Devices has an Earnings ESP of +0.96% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, resulting in an average beat of 16.34%.
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