Qualcomm shares drop 5% on 'sluggish' smartphone outlook
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Qualcomm (NASDAQ:QCOM) shares slumped more than 5% Thursday as a negative outlook about the mobile handset market sent investors into selling mode following the company's latest earnings report.
Late Wednesday, Qualcomm (QCOM) lowered its fiscal third-quarter earnings and sales outlooks below both its own prior estimates, and those of Wall Street analysts. Chief Executive Cristiano Amon said one of the main factors for Qualcomm's (QCOM) outlook was a mobile-phone market that remains "challenging."
After Wednesday's stock market close, Qualcomm (QCOM) said that it expects to earn between $1.70 and $1.90 a share, excluding one-time items, on revenue between $8.1B and $8.9B for its fiscal third quarter. Wall Street analysts had earlier forecast Qualcomm (QCOM) to earn $2.13 a share on $9.12B in sales for the quarter that ends in June.
"Qualcomm's guidance was disappointing and well below normal seasonal [trends], reflecting ongoing sluggishness in the smartphone market," said UBS analyst Timothy Arcuri. "Most of the weak guidance, though, appears largely specific to Qualcomm.
Arcuri, who has a neutral rating on Qualcomm's (QCOM) stock, cited an Apple (AAPL) "hangover" behind Qualcomm's (QCOM) issues. Qualcomm (QCOM) has said it is working to diversify its mobile-phone customer base, and that sales to Apple (AAPL) will significantly decline through the rest of 2023. Arcuri estimates that Apple (AAPL) makes up about $5B of Qualcomm's (QCOM) annual sales.
"Even as the [smartphone] market recovers, there are some large chunks of revenue that are going away or potentially at risk, including, of course, Apple," said Arcuri, who added that there have been reports that Qualcomm's (QCOM) recent gains with Samsung (OTCPK:SSNLF) "could be temporary."
Arcuri also trimmed his price target on Qualcomm's (QCOM) stock to $120 a share from $125.
At Barclay's, analyst Blayne Curtis said that Wall Street was expecting a Qualcomm (QCOM) to give a "flat outlook" with regards to its Google Android (GOOG) business, but the Apple (AAPL) situation and "soft margins" add to the headwinds going against Qualcomm (QCOM) right now.
"The handset market keeps getting worse," Curtis said. While he added that the current pullback in Qualcomm's (QCOM) stock price presents "an interesting entry point" for investors, "there will need to be better evidence of a bottom in the mobile market before the stock can work."
Seeking Alpha contributor JR Research said Thursday that while Qualcomm's (QCOM) efforts to diversify its customer base are encouraging, the moves aren't enough to mitigate issues facing the company in the near term. 
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