Qualcomm Clears Clouds of Doubt in Its Fiscal Q3 2018 Earnings



July 25 marked the end of the Qualcomm-NXP deal

On July 26, Qualcomm (QCOM) stock rose 7% while NXP Semiconductors (NXPI) stock fell 5.7% a day after the two companies announced the end of their 21-month merger talks and released their earnings for the June quarter.

On its fiscal third-quarter earnings call, Qualcomm’s management stated that it was withdrawing from the NXP deal because it had not secured approval from China’s (MCHI) State Administration for Market Regulation. Qualcomm ended the uncertainty surrounding the deal by paying a $2 billion termination fee to NXP. It also announced that Apple might not use its modems in its 2018 iPhones.

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Why Qualcomm stock rose

Despite these negative factors, Qualcomm stock rose 7% to $63.58, a level it last reported when Broadcom (AVGO) made a hostile bid to acquire it. Qualcomm stock rose as it announced a $30 billion stock buyback, the receipt of partial payment from Huawei over a disputed licensing fee, and ten design wins for its 5G (fifth-generation) modems, which are expected to start generating revenue in 2019. Moreover, it also announced a better-than-expected fiscal third-quarter earnings figure.

On its earnings call, Qualcomm’s CEO, Steven Mollenkopf, stated that the company would focus on opportunities and remove uncertainties.

Why did NXP stock fall?

On the other hand, NXP stock fell 5.7% to $92.8, a level it hadn’t seen since before Qualcomm’s bid in October 2016. The stock fell because the merger, which had increased its price, was canceled, and it also reported weak second-quarter earnings. To compensate shareholders for the canceled deal, NXP announced a $5 billion share buyback.

Now that the merger has been canceled, Qualcomm has to prove to shareholders that it can diversify beyond smartphones, and NXP has to prove that the deal did not affect its growth prospects. In this series, we’ll look at Qualcomm’s businesses.

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