* Reports results 4Q 2019 on Wednesday, November 6, after market closure
* Income expectation: $ 4.75 billion
* EPS expectation: $ 0.71
Qualcomm (NASDAQ 🙂 shares have risen by 30% since the end of May, by more than 16% in the preceding five months. This dramatic turnaround strongly suggests that investors are optimistic about the chip maker, hopeful that it will be seen the worst in the current downward cycle and that the next phase will bring a revival in demand. However, whether the San Diego-based company meets these expectations is not yet guaranteed.
For his fourth quarterly fiscal report, which will be released tomorrow, Chief Executive Officer Steve Mollenkopf has already warned of a drastic sales slowdown, hurt by slowing down the demand from mobile phone manufacturers who are the company's biggest customers. .
Phone manufacturers are releasing new high-end phones based on current technology and consumers are postponing their purchases until the fifth-generation debut, or 5G, mobile services, Mollenkopf said in July, adding that this temporary silence will hurt do the short-term income prospects of the company.
For the quarter ending September 30, Qualcomm expects revenues of $ 4.3 billion to $ 5.1 billion. The forecast is a 12% to 26% decrease in sales compared to the previous year.
But the price action in Qualcomm shares during the past months means that investors look beyond the fourth quarter and focus on the positive developments that prefer buying Qualcomm shares when it is low. The shares rose 1.8% to $ 85.09 yesterday, after winning 3.5% during Friday's session.
Legal misery
By contributing in a major way to the increase in Qualcomm in recent months, the resolution of various legal battles of the company has brought investors much relief. In August, a court of appeal granted Qualcomm a postponement of the earlier order of a lower court demanding the chip manufacturer to re-execute its contracts worldwide, as well as the way it licenses its intellectual property to competitors such as Huawei Technologies in China .
And for that victory, Apple (NASDAQ 🙂 also ended its two-year legal battle with Qualcomm, in a billions of dollars in technology licensing fees that threatened the chipmaker's future revenues. As part of the settlement, Apple has also entered into a multi-year agreement whereby Qualcomm supplies chips and licenses its technology to the iPhone maker in exchange for royalty payments.
The removal of these obstacles has again given Qualcomm a competitive edge when it comes to delivering chips designed for the so-called fifth generation or 5G technology. Qualcomm is the market leader in 5G, with which phones and tablets can download videos & music much faster than the current 4G LTE standard allows. It is also presented by mobile companies as a major breakthrough that can support a large number of new devices and services, such as automated homes and driverless cars.
Signs that the US and China are getting closer to resolving their trade conflict is another positive for the company. US Secretary of Commerce Wilbur Ross said this weekend that licenses for US companies to do business with Chinese telecom giant Huawei Technologies will soon be available.
Qualcomm stopped doing business with Huawei in May, when the US banned shipments to the Chinese company, which accounted for approximately 3% of Qualcomm's income before the ban.
Bottom Line
With the improved environment for chip companies and after some solution to legal problems, the enthusiasm of investors for Qualcomm shares is justified. But for the shares to support this rally, the company must tomorrow offer an improved outlook for the next fiscal year, when 5G-related demand is expected to boost sales and profitability.
