(QCOM - Analyst Report
) has been a Zacks #4 Rank Sell since late May when it was trading above $70. Since then, falling earnings estimates have pushed the stock into the cellar among thousands of stocks with better profit momentum.
In just the last 30 days, full-year 2015 EPS has dropped from $4.30 to $4.06 and 2016 projections have slid from $4.61 to $4.25.
And a big chunk of these downward earnings estimate revisions came in the last week since the company's Q3 FY15 report on July 22. The quarter offered generally in-line results, and even a 10% beat to the Zacks Consensus EPS, but the company provided significantly worse-than-expected guidance for the next quarter.
Negative Trends in View
Most of the shortfall was due to demand concentration at the high end, including the iPhone that only utilizes Qualcomms baseband and Samsungs GS6/Note 5, which increasingly uses home-grown chipsets.
While there was has been much discussion about "strategic realignment" and cost-cutting by the company and analysts, the real story might be on the top line. Qualcomm reported revenue of $5.832 billion, which was down 15.4% sequentially and down 14.3% year over year.
Yet Qualcomm also had to guide down for next quarter sales of $4.7-$5.7 billion, where the midpoint would represent negative 10.8% sequentially. And analysts remain cautious as problems with Qualcomms current generation products are viewed as creating a headwind for its chip division through the next several quarters.
Back to $1,000?
I remember when QCOM was the poster child of the Nasdaq Bubble, before we officially started calling it a "bubble" in perfect 20/20 hindsight.
The stock was on its way to $1,000 per share.
In the summer of 2014, QCOM shares made highs not seen since the dotcom euphoria peak in March of 2000. Apparently "mobile tech" was in a bubble too.
And we would have gotten close to that 4-figure peak again were it not for a couple of stock splits.
But since mid-2014, the trend has been a series of stair-steps downward. Below you can see how the proprietary Zacks Price & Consensus chart could have warned you of the impending pain for shareholders as EPS estimates led the way...
But Isn't QCOM the Gold Standard in Mobile Chips?
FBR Capital Markets recently commented on the QCOM quandary...
"Stepping back, we think QCOM remains the gold standard in todays cellular technology. However, as the mobile innovation treadmill slows, we acknowledge a growing trend among handset OEMs to 'roll their own' apps processors and baseband modems with the goal of reducing handset cost."
There is also concern that QCOM's position in the next big market, 4G LTE, is not significant enough to make a difference.
Since Gartner projects that over 5 billion handsets will upgrade from 3G over the next 2-3 years, there's still time for QCOM to adapt and reverse the top and bottom line slides.
Just keep your eye on the Zacks Rank to let you know when the turn is taking shape.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.