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Can Solid Chip Revenues Drive Qualcomm (QCOM) Q4 Earnings?

Qualcomm Incorporated QCOM is scheduled to report fourth-quarter and fiscal 2021 results on Nov 3, after the closing bell. In the fiscal fourth quarter, it is likely to have recorded solid growth in revenues from the Qualcomm CDMA Technologies (“QCT”) segment owing to a ramp-up in 5G-enabled chips and strength in its Snapdragon portfolio. 

Factors at Play

The QCT segment includes CDMA-based integrated circuit devices (chips) that are used mainly in smartphones, wireless data access cards and infrastructure equipment, and system software for wireless voice and data communications and GPS products.

The company is likely to have recorded strong demand in emerging product categories such as XR and wearables along with 4G and 5G mobile broadband devices and rapid adoption of Wi-Fi 6. During the fiscal fourth quarter, Qualcomm inked an agreement with chipset manufacturer GlobalFoundries to manufacture state-of-the-art 5G multi-gigabit speed RF front-end products owing to their increasing demand. The firms extended their RF collaboration to offer sturdy low-power semiconductor solutions with high cellular speeds, maximum power efficiency, and enhanced coverage. These innovative offerings are specifically designed to power 5G-enabled connected devices with revolutionary coverage and ubiquitous mobility. This is likely to get reflected in the upcoming results.

During the quarter, Qualcomm partnered with Google and Renault Group to create an immersive in-vehicle experience for Renault’s next-generation electric vehicle — Mégane E-TECH Electric. The automobile manufacturer will capitalize on Qualcomm’s 3rd Generation Snapdragon Automotive Cockpit Platforms and built-in Google apps and services to power the vehicle’s infotainment system and in-vehicle customer applications. It also collaborated with a leading digital health and IoT-enablement platform, Zyter, to accelerate the adoption of AI-based IoT technologies for enhanced construction safety. The alliance is enabled through the Qualcomm Smart Cities Accelerator Program and Qualcomm IoT Services Suite that deliver comprehensive, end-to-end, IoT as a Service solutions, enabling the digital transformation of smart cities and connected spaces. Such technology collaborations are likely to have translated into top-line growth.

Moreover, Qualcomm announced the launch of the world’s first drone platform and reference design to offer 5G and AI capabilities. The Qualcomm Flight RB5 5G Platform will help accelerate the development of commercial drones and unlock innovative possibilities for industries to adopt high-performance drone solutions. Built with enhanced autonomy and intelligence features, it offers powerful computing at low power with AI, 5G, and long-range Wi-Fi 6 connectivity. Powered by the Qualcomm QRB5165 processor, its heterogeneous computing at ultra-low power consumption provides efficient inference at the edge for AI and ML, enabling fully autonomous drones. Such innovative products are likely to have translated into higher revenues in the quarter.

However, the company expects an impact on device shipment due to the lengthening of handset replacement rates stemming from the chip shortage and supply chain disruptions. This, in turn, is likely to have affected unit volumes to some extent. Nevertheless, the company expects the smartphone shipments to grow in the high single digits for 2021, including 450 million to 550 million 5G handsets.

Q4 Developments

During the quarter, Qualcomm submitted an offer to acquire Veoneer, Inc. in an all-stock deal for $37.00 per share. The transaction is likely to give Qualcomm a firmer footing in the emerging market of driver-assistance technology, as it aims to extend the Snapdragon Ride Advanced Driver Assistance Systems portfolio. The deal was subsequently inked in October along with New-York based investment firm SSW Partners, which will first acquire all the shares of Veoneer and then sell its Arriver business to Qualcomm while retaining its other Tier-1 supplier businesses until it finds strategic partners to offload the same.

Overall Expectations

The Zacks Consensus Estimate for revenues from QCT segment is pegged at $7,287 million, indicating a significant improvement from $4,967 million reported in the year-ago quarter. Management expects QCT revenues in the range of $7 billion to $7.5 billion. Segment income before taxes is pegged at $2,180 million, implying more than a two-fold rise from $1,015 million reported in the prior-year quarter.

For the fourth quarter of fiscal 2021, Qualcomm expects GAAP revenues of $8.4-$9.2 billion. The Zacks Consensus Estimate for the same is pegged at $8,877 million, indicating 6.4% growth from $5,077 million reported in the year-earlier quarter. Management anticipates non-GAAP earnings of $2.15-$2.35 per share. The consensus mark for earnings is currently pegged at $2.26 per share. Qualcomm recorded non-GAAP earnings of $1.45 per share in the prior-year quarter.

Earnings Whispers

Our proven model predicts an earnings beat for Qualcomm for the fiscal fourth quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.35% with the former pegged at $2.27 and the latter at $2.26. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

QUALCOMM Incorporated Price and EPS Surprise

QUALCOMM Incorporated price-eps-surprise | QUALCOMM Incorporated Quote

Zacks Rank: Qualcomm has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Anterix ATEX is set to release quarterly numbers on Nov 3. It has an Earnings ESP of +1.47% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for CommScope Holding Company, Inc. COMM is +7.89% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Nov 4.

The Earnings ESP for T-Mobile US Inc. TMUS is +22.03% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 2.

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