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What Should Investors Expect from Qualcomm’s Fiscal 3Q16 Earnings?

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Dec. 4 2020, Updated 10:53 a.m. ET

Qualcomm to release its fiscal 3Q16 earnings

The three major semiconductor companies—Intel (INTC), Advanced Micro Devices (AMD), and Qualcomm (QCOM)—are due to announce their quarterly earnings next week. This fiscal quarter, which ended on June 30, 2016, is likely to bring some renewed optimism in the PC and mobile space.

Qualcomm is expected to report slightly improved revenue in fiscal 3Q16 as the design wins for its Snapdragon 820 chip are reflected in the earnings. However, the margins are likely to contract due to seasonal weakness in its Licensing business.

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Qualcomm earns revenue from its QTL (Qualcomm Licensing Technology) and QCT (Qualcomm CDMA[1. code division multiple access] Technologies) segments. Fiscal 1Q and 3Q are seasonally strong for the Chip segment but weak for the Licensing segment. On the other hand, 2Q and 4Q are seasonally strong for the Licensing business, as licensing revenue is realized on the number of mobile phones sold.

QCT

According to third-party researchers, the smartphone market is slowing and the demand is shifting from high-end phones to mid-end phones. Qualcomm launched the Snapdragon 820 processor for high-, mid-, and low-end phones.

The success of Snapdragon 820 encouraged the company to launch Snapdragon 821. The company is also making inroads in the VR and AR (virtual and augmented reality) space by making its Snapdragon processors VR- and AR-ready.

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QTL

Qualcomm signed licensing agreements with more than 100 Chinese handset makers under the renewed terms with the Chinese authorities to settle antitrust issues. Recently, it filed a patent lawsuit against Alibaba-backed (BABA) Chinese handset maker Meizu, which refused to pay a royalty for using Qualcomm’s technology.

Qualcomm is also at the forefront of the 5G revolution and aims to dominate the 5G device market in both QCT and QTL segments.

Adjacent markets

Because the smartphone market is slowing, Qualcomm’s long-term success depends on its ability to tap its adjacent markets—automotive, IoT (Internet-of-Things), and data center. Qualcomm looks to leverage its ARM designs in these areas, but it faces tough competition from established players Intel and NVIDIA (NVDA).

In this series, we’ll look at factors that could be reflected in Qualcomm’s fiscal 3Q16 earnings.

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