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Say It Isn’t So! Qualcomm’s Results Could Disappoint

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Dec. 4 2020, Updated 10:52 a.m. ET

Qualcomm’s fiscal 4Q16 earnings preview

In the previous part of this series, we discussed Qualcomm (QCOM) being hit by strong competition from MediaTek and Intel (INTC) in fiscal 4Q16. After reporting its first YoY (year-over-year) revenue growth in six quarters in fiscal 3Q16, the company is set to report flat or lower revenue growth in fiscal 4Q16. Let’s look at what investors can expect from Qualcomm’s fiscal 4Q16 earnings.

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Revenue

For fiscal 4Q16, Qualcomm expects to report revenue in the range of $5.4 billion–$6.2 billion, in line with the analyst estimate of $5.8 billion. While this represents a 3.8% sequential decline, it’s a 6.4% YoY growth. The declines in the chipset business could be partially offset by an increase in licensing revenue.

The chipset business could be hurt by Samsung’s (SSNLF) decision to stop production of the Note 7, as some versions of the device featured Qualcomm’s Snapdragon 820. Moreover, losing some of Apple’s (AAPL) business to Intel could further hurt Qualcomm’s chipset business.

Over the past six quarters, Qualcomm has beaten analysts’ revenue estimates by an average of 4%. Considering the average figures, the company is likely to report revenue of ~$6 billion in fiscal 4Q16.

Earnings per share

For fiscal 4Q16, Qualcomm expects to report non-GAAP (generally accepted accounting principles) earnings per share (or EPS) in the range of $1.05–$1.15. Analysts expect the company to report EPS of $1.13, which represents a 2.6% sequential decline but a 14% rise on a YoY basis. The EPS has grown significantly over the past two quarters, as the company has increased its revenue from the more profitable licensing business and reduced its costs through restructuring efforts.

In fiscal 3Q16, as Qualcomm realized $100 million in licensing revenue from LG after the dispute was resolved, there was a huge gap between the estimated and actual EPS. If we exclude fiscal 3Q16 and take the average surprise factor over the previous five quarters, actual EPS have surpassed estimated EPS by an average of 6%. If a similar trend is maintained, the company could post EPS of $1.20 in fiscal 4Q16. Next, we’ll discuss how the aforementioned factors could impact Qualcomm’s fiscal 4Q16 profit margins.

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