Qualcomm slides as 'weakening' smartphone market concerns grow
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Qualcomm (NASDAQ:QCOM) shares slid more than 5% Thursday after the communications chipmaker offered weaker-than-expected fourth-quarter guidance as the "weakening" smartphone market is finally hitting the company.
UBS analyst Timothy Arcuri, who has a neutral rating on Qualcomm's (QCOM) stock, lowered his fiscal fourth-quarter estimates on the company to a profit of $3.13 a share, on revenue of $11.43B, from a prior forecast of $3.35 a share, on $12.35B in sales. Arcuri noted that "headwinds are likely to persist" after the company lowered its 5G smartphone guidance by roughly 75M units.
"Comps in China are bottoming, but these demand headwinds in general are likely to persist and there is the potential that in an effort to avoid leaving [money] on the table again like it did earlier this year due to component shortages, [Apple] sets a high bar for the supply chain and a final shoe could drop late this year," Arcuri wrote in a note to clients.
Arcuri, who also lowered his full-year 2022 estimates on Qualcomm (QCOM), noted that the company continues to diversify away from Apple (NASDAQ:AAPL) and "materially" expanded its business with Samsung (OTCPK:SSNLF). On Wednesday, Qualcomm (QCOM) extended its licensing agreement with Samsung (OTCPK:SSNLF) through 2030, and will supply the South Korean electronics giant with chips for premium Galaxy handsets, PCs, tablets, extended reality devices and other electronics.
And while other businesses such as automotive and internet of things continue to grow, the company is still largely reliant on smartphones, as an estimated 70% of revenue is "directly tied" to modem and chipset revenue and licensing over the next few years, Arcuri added.
Bank of America analyst Tai Liani, who has a buy rating and a $180-a-share price target on Qualcomm's (QCOM) stock, also cut fourth-quarter and 2023 estimates, noting that even as premium handsets are "resilient," there is still overall weakness, citing the low to mid-tier.
"The deflating handset demand is a risk, yet we believe it is already reflected in expectations, and remain confident in the companyâs long-term revenue opportunities and diversification strategy beyond handsets," Liani said.
Oppenheimer analyst Rick Schafer noted that the mid-point of Qualcomm's (QCOM) fourth-quarter guidance came in at $11.4B, with earnings per share of $3.15, or roughly 5% below Wall Street estimates, due to the aforementioned handset weakness and continued worries over a weakening global economy.
Schafer said that he was still cautious about Qualcomm's (QCOM) efforts to diversify more into areas such as automotive and Internet of Things technologies, and away from its strong connection to Apple (AAPL).
Qualcomm (QCOM) and several other chip companies may decide to oppose the $52B CHIPS Act on grounds that the legislation does not do enough to support them and heavily favors manufacturers.