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Qualcomm’s Q1 2019 Earnings to Reflect Lost Orders from Apple

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Nov. 20 2020, Updated 4:50 p.m. ET

Qualcomm’s fiscal 2019 first-quarter earnings estimates

So far, we have seen that semiconductor companies with exposure to the smartphone market are set to report weak earnings for the fourth quarter of 2018, whereas those with exposure to the data center and 5G (fifth generation) are set to report strong earnings. One company that is in the middle of smartphones and 5G is Qualcomm (QCOM), and it is set to report weak earnings for the fiscal 2019 first quarter, which ended in December 2018.

However, Qualcomm’s weak earnings would largely be because Apple (AAPL) ditched the former’s modems in its 2018 iPhone models in favor of Intel’s (INTC) modems. Qualcomm also saw a decline in Apple’s orders for RFFE (radio-frequency front end) solutions.

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In the fiscal 2019 first quarter, Qualcomm expects its revenue to fall 15.5% sequentially and 19% YoY to $4.9 billion at the midpoint. Qualcomm’s chief executive Steve Mollenkopf stated that over 50% of this decline is because of Apple. Qualcomm’s chief financial officer George Davis told Reuters that the absence of Apple’s orders reduced fiscal 2019 first-quarter modem unit sales by over 50 million. Apple launches its flagship iPhones in September. The December quarter is seasonally strong for Apple and its suppliers, as it includes full quarter sales of new iPhones.

Qualcomm is also in a legal battle with Apple and various countries’ regulators who have attacked the former’s licensing model. The high cost of litigation from these lawsuits and the loss of revenue from Apple is expected to reduce Qualcomm’s non-GAAP (generally accepted accounting principles) operating margin to 19% in the first quarter of fiscal 2019 as compared to 26% last year.

Qualcomm’s three priorities in fiscal 2019

In fiscal 2019, Qualcomm’s priorities are to transition to 5G, settle the dispute with Apple, and diversify its revenue streams. Qualcomm is progressing fast in 5G (fifth generation) technology and ramping up its RFFE business. The company has expanded in other components of smartphone and adjacent markets like IoT (Internet-of-Things) and connected car. It will start realizing the benefits of these efforts in the latter half of fiscal 2019 as 5G adoption grows, which would help Qualcomm expand its non-Apple business, thereby reducing the impact of losing Apple as a customer.

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