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There’s an old saying in business, “You don’t want to stand in front of a freight train.” But there’s another rule that matters just as much. You don’t want to stand underneath falling earnings estimates. That’s where today’s Bear of the Day sits. Estimates creeping down lower even as record earnings numbers continue to pile in for the rest of the S&P 500. When those estimates creep down, unfortunately, price has a tendency to follow.
Today’s Bear of the Day is Zacks Rank #5 (Strong Sell) Qualcomm ((QCOM - Free Report) ). Qualcomm remains one of the biggest names in wireless semiconductors, and there are absolutely pieces of the business working. Automotive is growing. IoT is growing. Edge AI provides another potential long-term opportunity. The problem is that the engine that has historically paid the bills, handsets, is sputtering.
Fiscal third-quarter revenue came in at $9.95 billion, down 4% year over year. Non-GAAP earnings were $2.21 per share, down a much uglier 20%. The headline underneath the headline was handset revenue, which dropped 20% to $5.09 billion. Revenue down 4%. Earnings down 20%.
You don't need a PhD in semiconductor engineering to figure out what that says about the margin picture. Higher input costs have been squeezing profitability, while Qualcomm's QCT business has been dealing with a weaker mix and softer handset demand. Management guided fiscal Q4 adjusted EPS to just $2.05-$2.25, with QCT EBT margins expected at 23%-25%.
Then there's the elephant in the room. Apple. Apple's transition toward its own modem technology is happening faster than Qualcomm previously expected. Qualcomm said its modem share in the upcoming iPhone generation would be materially below its previous 20% assumption. That's premium business walking out the door, and Qualcomm now has to replace it somewhere else.
Analysts don’t see it yet. Over the last sixty days, 11 analysts cut their estimates for the current year while 13 have done so for next year. The bearish moves have dropped our Zacks Consensus Estimate for the current year from $10.79 to $10.55 while next year’s number is off from $10.88 to $10.02.
Qualcomm is in the Electronics – Semiconductor industry which ranks in the Top 18% of our Zacks Industry Rank. There are several stocks within this industry that are in the good graces of our Zacks Rank. These include Zacks Rank #1 (Strong Buy) stocks AXT ((AXTI - Free Report) ) and FormFactor ((FORM - Free Report) ).
View the Zacks #1 Rank List
Image: Bigstock
Bear of the Day: Qualcomm (QCOM)
There’s an old saying in business, “You don’t want to stand in front of a freight train.” But there’s another rule that matters just as much. You don’t want to stand underneath falling earnings estimates. That’s where today’s Bear of the Day sits. Estimates creeping down lower even as record earnings numbers continue to pile in for the rest of the S&P 500. When those estimates creep down, unfortunately, price has a tendency to follow.
Today’s Bear of the Day is Zacks Rank #5 (Strong Sell) Qualcomm ((QCOM - Free Report) ). Qualcomm remains one of the biggest names in wireless semiconductors, and there are absolutely pieces of the business working. Automotive is growing. IoT is growing. Edge AI provides another potential long-term opportunity. The problem is that the engine that has historically paid the bills, handsets, is sputtering.
Fiscal third-quarter revenue came in at $9.95 billion, down 4% year over year. Non-GAAP earnings were $2.21 per share, down a much uglier 20%. The headline underneath the headline was handset revenue, which dropped 20% to $5.09 billion. Revenue down 4%. Earnings down 20%.
You don't need a PhD in semiconductor engineering to figure out what that says about the margin picture. Higher input costs have been squeezing profitability, while Qualcomm's QCT business has been dealing with a weaker mix and softer handset demand. Management guided fiscal Q4 adjusted EPS to just $2.05-$2.25, with QCT EBT margins expected at 23%-25%.
QUALCOMM Incorporated Price and Consensus
QUALCOMM Incorporated price-consensus-chart | QUALCOMM Incorporated Quote
Then there's the elephant in the room. Apple. Apple's transition toward its own modem technology is happening faster than Qualcomm previously expected. Qualcomm said its modem share in the upcoming iPhone generation would be materially below its previous 20% assumption. That's premium business walking out the door, and Qualcomm now has to replace it somewhere else.
Analysts don’t see it yet. Over the last sixty days, 11 analysts cut their estimates for the current year while 13 have done so for next year. The bearish moves have dropped our Zacks Consensus Estimate for the current year from $10.79 to $10.55 while next year’s number is off from $10.88 to $10.02.
Qualcomm is in the Electronics – Semiconductor industry which ranks in the Top 18% of our Zacks Industry Rank. There are several stocks within this industry that are in the good graces of our Zacks Rank. These include Zacks Rank #1 (Strong Buy) stocks AXT ((AXTI - Free Report) ) and FormFactor ((FORM - Free Report) ).