uploads///Series  A

Trouble Looms for Qualcomm’s Chipset Business

By

Updated

Qualcomm optimistic about chipset business

In the previous part of this series, we saw that Qualcomm’s (QCOM) QCT (Qualcomm CDMA Technologies) segment reported strong earnings according to the company’s guidance. However, the overall scenario is bleak, with strong YoY (year-over-year) declines. Let’s look at the company’s guidance for its QCT business.

Article continues below advertisement

QCT guidance for fiscal 3Q16

For fiscal 3Q16, Qualcomm’s (QCOM) expects MSM shipments to be between 175 million–195 million units, the same guidance as reported for fiscal 2Q16. However, this represents a 13%–22% decrease from fiscal 3Q15 as the smartphone demand slows in 2016.

The company has lowered its fiscal 3Q16 growth estimates for 3G and 4G device shipments from 10%–8%. This growth is likely to be offset by reduced demand for thin modem products used by Apple (AAPL) and low-tier chipsets where MediaTek has a larger market share.

On the profitability front, Qualcomm expects to improve QCT’s operating margin from 5% in fiscal 2Q16 to a range of 9%–10% in fiscal 3Q16. This improvement should be driven by the Snapdragon 820 design wins and the reduced manufacturing costs as the company shifted production to Samsung’s (SSNLF) 14nm (nanometer) FinFET[1. fin-shaped field effect transistor] technology.

Long-term guidance

Qualcomm (QCOM) expects to maintain its QCT operating margins at 16% and above in fiscal 4Q16. It aims to increase it to more than 20% in the long term.

During the fiscal 2Q16 earnings call, Qualcomm’s chief executive officer, Steve Mollenkopf stated that the company’s margin guidance has “factored in a range of second sourcing assumptions at our large customers.” This statement raised questions from analysts if this meant that the company is losing a portion of modem orders for Apple’s iPhone 7 to Intel (INTC). We will shed more light on this later in this series.

The iShares Russell 1000 ETF (IWB) has exposure to large-cap stocks in various industries, including technology. IWB has 0.38% exposure in QCOM, 2.93% in AAPL, and 0.72% in INTC.

Advertisement

More From Market Realist