Qualcomm Earnings: What to Watch

By Ted Greenwald 

Qualcomm Inc. is scheduled to announce results for its fiscal third quarter after the market closes Wednesday. Here's what to look for:

EARNINGS FORECAST: For the quarter, which ended in June, analysts expect Qualcomm to report earnings of 81 cents a share on an adjusted basis that omits items including stock-based compensation, according to a survey by Thomson Reuters, down 30% from $1.16 the same quarter a year earlier.

REVENUE FORECAST: Analysts expect total revenue of $5.3 billion for the quarter, down nearly 12% from $6.0 billion the same quarter a year earlier.

WHAT TO WATCH:

APPLE ROYALTIES: Uncertainty over the continuing impact of Qualcomm's dispute with Apple Inc. threatens to overshadow any positive results the chip maker may report. The latest quarter was the first in which Qualcomm received no royalties for the use of its patents in iPhones and iPads, cutting deeply into its highest-margin revenue stream. Qualcomm already restated its forecast for the quarter in April, lopping off more than a fifth of projected adjusted earnings per share, after Apple indicated that it no longer would reimburse its contract manufacturers for royalties owed on devices they build. Analysts will be looking at how the actual numbers fit with their expectations. "There could be upward or downward revisions depending on how the Street took out Apple either correctly or incorrectly," said Mike Walkley of Canaccord Genuity Group Inc.

iPHONE CHIP SHARE: Apple puts Qualcomm's communications chips in roughly half of its iPhone 7 phones, the other half of which use chips from Intel Corp. Anticipation is high for an upcoming, presumably a premium-priced iPhone celebrating the brand's 10th anniversary, as well as updates of the earlier version.

Fourth-quarter guidance for chip shipments, which Qualcomm typically reports with its results, and for smartphone average selling prices, which may be mentioned in the conference call, could offer clues on whether Qualcomm will retain its share, according to Tom Sepenzis of Northland Securities Inc. If projections for the September quarter exceed the 200 million units Mr. Sepenzis expects by a few 10s of millions, and if the smartphone price forecast is substantially above the $204 to $210 Qualcomm reported in March, "that's a good sign" that Qualcomm chips will have a strong position in the iPhone, he said.

The converse doesn't necessarily hold, though. Some iPhone watchers anticipate delays in Apple's new phone rollout, and lower chip shipments and average prices may reflect weakness in the market for Android phones rather than lack of a place in the new iPhones.

NXP ACQUISITION: Qualcomm has been consistent in expressing its expectation that its $39 billion bid to buy NXP Semiconductors NV will close by the end of the year. Many investors are optimistic that the deal would bolster Qualcomm by combining its expertise in digital processing with NXP's in automotive chips, and hedge against threats to the patent licensing business. U.S. regulators have approved the tie-up, but European authorities recently suspended their in-depth inquiry while waiting for Qualcomm to deliver information they had requested and may start fining the company $665,000 for every further day of delay. Meanwhile, rumors have surfaced that some NXP shareholders are pushing to raise the price. Analysts and investors will be looking for any clues to Qualcomm's attitude toward both issues.

(END) Dow Jones Newswires

July 19, 2017 08:14 ET (12:14 GMT)

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