Earnings Outlook: Qualcomm earnings: Looking for clues on 5G smartphone expectations

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Investors curious about 5G smartphone sales in 2020 should pay attention to Qualcomm Inc. earnings.

Analysts expect that Qualcomm’s outlook QCOM, -2.81%  when it reports fiscal first-quarter earnings Wednesday will include the first quarter of smartphone launches capable of handling the long-awaited upgrade to 5G cellular networks. After strong results and guidance from fellow chip suppliers Qorvo Inc. QRVO, -5.30%  and Skyworks Solutions Inc. SWKS, -2.65%  , expectations are running pretty high.

“With recent strong results and guidance from Skyworks and Qorvo bearing proof to the robust pipeline of 5G smartphone launches planned by the OEMs as well as to the content opportunity in 5G smartphones, we are increasingly positive relative to Qualcomm shares heading into the earnings announcement where we expect a strong guide for the March quarter,” J.P. Morgan analyst Samik Chatterjee, who has an overweight rating and a $108 price target, wrote in a preview.

Read: CES 2020: The long-promised ‘Year of 5G’ arrives with more promises and little 5G

With most of the 5G volume driven by China, however, the J.P. Morgan analyst said any impact from the coronavirus needs to be taken into account. Heightened fears about the spread of the virus out of China tanked the broader stock market on Friday.

“We will continue to monitor the coronavirus-related risk to our 5G unit forecasts but will view that as a temporary push out to the replacement cycle,” Chatterjee said.

What to expect

Earnings: Of the 22 analysts surveyed by FactSet, Qualcomm on average is expected to post adjusted earnings of 85 cents a share, up from 83 cents a share expected at the beginning of the quarter but down from $1.20 a share reported in the year-ago quarter. Qualcomm forecast 80 cents to 90 cents a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 90 cents a share.

Revenue: Wall Street expects revenue of $4.84 billion from Qualcomm, according to 19 analysts polled by FactSet. That’s down from $4.86 billion forecast at the beginning of the quarter, but up from $4.82 billion reported in the year-ago quarter. Qualcomm predicted revenue of $4.4 billion to $5.2 billion. Estimize expects revenue of $4.86 billion.

Stock movement: As of Friday’s close, Qualcomm stock is only up 0.8% since its last earnings report in early November. In comparison, the S&P 500 index SPX, -1.77% has gained 4.8%, the tech-heavy Nasdaq Composite Index COMP, -1.59% has grown 8.8%, and the PHLX Semiconductor Index SOX, -3.55% has increased 4.3% in that time.

What analysts are saying

Mizuho analyst Vijay Rakesh, who has a buy rating and a $100 price target, said he sees Qualcomm positioned well for the year, especially if 5G ramps faster than expected, radio frequency front end and extremely high frequency (mmWave) technologies gain traction in marquee phones like Apple Inc.’s AAPL, -4.43%  iPhone, and the company hammers out a settlement with Huawei by the second half of 2020.

Read: Apple may not get the big 5G bump investors expect, analyst says in downgrade

Susquehanna Financial Group analyst Christopher Rolland, who has a positive rating and raised his price target to $105 from $102, said Qualcomm continues to dominate the mobile landscape, holding on to 63% market share of applications processors in new handsets, taking share away from MediaTek Inc. 2454, +1.17%, which has about 20% share.

“We note several positive trends for Qualcomm, including increasing processor share, growing 5G adoption, and strong processor mix,” Rolland said.

Read: For chip companies, stocks soared as sales slumped in 2019 — what does that mean for 2020?

Of the 28 analysts who cover Qualcomm, 16 have buy or overweight ratings and 12 have hold ratings, with an average price target of $100.91, according to FactSet.

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