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Will Higher Revenues Buoy Qualcomm's (QCOM) Q4 Earnings?

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Qualcomm Incorporated (QCOM - Free Report) is scheduled to report fourth-quarter fiscal 2020 results, after the closing bell, on Nov 4. In the last reported quarter, the company delivered an earnings surprise of 19.4%, surpassing the Zacks Consensus Estimate by 14 cents. In the fiscal fourth quarter, consolidated revenues are likely to have improved significantly year over year, despite coronavirus-induced headwinds due to continued 5G chip designs for innovative 5G system solutions.

Factors at Play

During the fiscal fourth quarter, Qualcomm unveiled the Snapdragon 732G Mobile Platform featuring Elite Gaming and 4th-generation AI Engine for intuitive interactions and predictive user experiences. Designed to deliver immersive gameplay powered by an upgraded GPU and CPU compared with the preceding generation, it offers outstanding LTE download and upload speeds in addition to Wi-Fi performance. The company also launched next-generation connected smartwatches — Wear 4100+ and Wear 4100. Based on ultra-low power hybrid architecture to deliver super-fast performance and connectivity, the products are likely to capitalize on the solid growth trend of the wearables industry. These are likely to have translated into incremental revenues for the company in the quarter under review.

In a concerted effort to augment the benefits of 5G technology, Qualcomm joined forces with Ericsson and successfully concluded interoperability tests, which demonstrate the feasibility of 5G connectivity on the back of much talked-about carrier aggregation technology. This pioneering achievement of industry forerunners marks a significant milestone in an era when telecom companies are automating operations, while making seamless migrations from 4G to 5G technology. In addition, Qualcomm along with Ericsson and United States Cellular Corporation completed an extended-range data call test leveraging 5G NR millimeter Wave technology to augment broadband connectivity while effectively bridging the digital gap between rural and urban areas in the United States. Such technology collaborations are likely to have boosted the quarterly performance.

Qualcomm achieved the world’s first large-bandwidth 2x30MHz 5G data call demonstration on the 700 MHz Frequency Division Duplex spectrum band through collaboration with China Broadcasting Network. The company also joined forces with San Diego Regional Proving Ground to start an autonomous vehicle communications research and testing program to promote vehicle safety on the roads of San Diego, CA. Qualcomm’s C-V2X (Cellular vehicle-to-everything) solutions have been specifically designed to support next-gen vehicle-to-everything communications with a connected infrastructure and 5G technology.

However, the company expects a significant negative impact on device shipment due to the lengthening of handset replacement rates stemming from the adverse economic impact of the coronavirus pandemic. This, in turn, is likely to have affected unit volumes. For the fourth quarter of fiscal 2020, Qualcomm expects non-GAAP revenues of $5.5-$6.3 billion as the virus outbreak is likely to result in a 15% reduction in handset shipments compared to prior expectations. The Zacks Consensus Estimate for the same is pegged at $5,935 million. The company recorded revenues of $4,814 million in the year-earlier quarter. Management anticipates non-GAAP earnings of $1.05-$1.25 per share. The consensus mark for earnings is currently pegged at $1.19 per share. Qualcomm recorded non-GAAP earnings of 78 cents per share in the prior-year quarter.

Q4 Developments

During the quarter, Qualcomm inked an agreement with Reliance Jio Platform, a wholly owned subsidiary of Indian multinational conglomerate Reliance Industries Ltd., to acquire a 0.15% equity stake in the technology firm for $97 million. The strategic deal will help Qualcomm rollout advanced 5G infrastructure and services across the subcontinent, while gaining a foothold in the budding technology enterprise.

In a major relief to an adverse antitrust ruling against it, Qualcomm secured a landmark judgment when the U.S. Ninth Circuit Court of Appeals reversed an earlier ruling by federal judge Lucy Koh. The favorable decision validated its patent licensing business and reinforced the fairness of the competitive marketplace. Additionally, the higher court vacated an injunction against Qualcomm that mandated the chipmaker to change its intellectual property practices and redo its licensing deals with firms like Apple and Samsung Electronics Co.

Earnings Whispers

Our proven model predicts an earnings beat for Qualcomm this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +5.26%, with the former pegged at $1.25 and the latter at $1.19. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

QUALCOMM Incorporated Price and EPS Surprise

QUALCOMM Incorporated Price and EPS Surprise

QUALCOMM Incorporated price-eps-surprise | QUALCOMM Incorporated Quote

Zacks Rank: Qualcomm currently has a Zacks Rank #3.

Other Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

T-Mobile US, Inc. (TMUS - Free Report) is set to release quarterly numbers on Nov 5. It has an Earnings ESP of +23.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Lumen Technologies, Inc. (LUMN - Free Report) is +9.68% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Nov 4.

The Earnings ESP for Watts Water Technologies, Inc. (WTS - Free Report) is +8.07% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 4.

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