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Qualcomm Is Set to Meet Its Fiscal 2019 EPS Target

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Qualcomm’s fiscal 2018 EPS

Qualcomm’s (QCOM) profitability is being affected by licensing and patent lawsuits from Apple and its increasing investments in noncore assets. 

However, the company’s growing revenue from its chipset business has helped it to improve its profit margins slightly.

Qualcomm’s non-GAAP (generally accepted accounting principles) EPS rose 26% sequentially to $1.01 in the fiscal third quarter, beating analysts’ estimate of $0.71 and its own guidance of $0.70. This $0.31 increase in EPS came from the partial payment of a licensing fee by Huawei, which added $0.26 to QCOM’s EPS, and a favorable tax rate, interest expenses, and licensing mix, which added $0.05 to its EPS.

For the fiscal fourth quarter, Qualcomm expects its non-GAAP EPS to fall to $0.80 at the midpoint, excluding the $2 billion termination fee it paid to NXP Semiconductors (NXPI), as it will be reflected in the company’s GAAP EPS.

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Fiscal 2019 EPS

Qualcomm’s fiscal 2018 non-GAAP EPS are expected to stand at $3.59, and the company expects to increase this amount by $1.66 to $5.25 in fiscal 2019. It plans to do so by executing a major portion of its $30 billion stock buyback amount and cutting costs by $1 billion.

Qualcomm’s seasonality changes in fiscal 2019

A major portion of Qualcomm’s profit comes from its licensing business. Until now, Qualcomm has realized the licensing revenue for smartphones it sold in the fiscal first quarter (which ends in December) in the fiscal second quarter (which ends in March), as that is the quarter in which it receives payment. Thus, the fiscal first and third quarters have been seasonally strong for Qualcomm’s licensing business.

However, this could change in fiscal 2019 as Qualcomm adopts a new accounting standard that requires it to report licensing revenue for smartphones sold in the fiscal first quarter in the same quarter. Thus, its fiscal first and third quarters will be strong for its overall earnings, as both its chipset and licensing businesses will report their seasonal earnings in these quarters. However, the accounting standard won’t affect the overall year’s earnings. 

Next, we’ll look at Qualcomm’s licensing business.

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