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Can a chip resurgence re-energise the Qualcomm share price?

The Qualcomm [QCOM] share price began the year by building on 2020’s 75% gain, hitting an all-time high of $167.94 on 20 January before the shares slipped back, closing at $124.62 on 12 May. Since that low, however, the Qualcomm share price has moved broadly higher, closing up 4.74% last week at $144.88 on 23 July.

Looking at the wider industry theme on Opto’s performance scanner, the Semiconductors ETF, represented by the iShares Semiconductor ETF [SOXX], finished up 4.40% last week, with a year-to-date gain of 60.96% as of close on 23 July. With a 5.68% weighting, Qualcomm is the fourth largest of 30 stocks in the ETF, behind Nvidia [NVDA], Broadcom [AVGO] and Intel [INTC].

75%

Qualcomm's share price gains in 2020

 

After positive results in its second-quarter earnings update and with the semiconductor sector tipped to outperform in the second half of the year, can the Qualcomm share price benefit?

 

What could move the Qualcomm share price post-earnings?

The semiconductor theme is set to perform well in the remainder of 2021, with makers of wireless chips for smartphones poised to benefit, according to Raymond James analyst Chris Caso, who says handset demand is the key driver, “due to what we believe to be favourable demand trends, low inventory and relatively lower valuations for handset semi suppliers relative to the broader group”. Caso reckons the trend is positive for Qualcomm’s share price as well as its peers, reports Investor’s Business Daily.

The volume of Apple’s [AAPL] orders for its upcoming iPhone 13 handsets is “favourable for both Apple and its suppliers”, said Caso, while wireless chipmakers also should benefit from Huawei's difficulties, after US trade restrictions cut off China’s Huawei from the latest chips, pushing extra business to Qualcomm. Caso reiterated his ‘buy’ rating on Qualcomm, with a price target of $190, which would represent a 31.14% increase on its 23 July close and above the consensus estimate for the Qualcomm share price.

Referring to the Huawei situation, new Qualcomm CEO Cristiano Amon said: “It’s going to be one of the largest growth drivers for our mobile business”. In fact, Qualcomm could net up to $10bn in additional revenue, reports Light Reading. Another potential growth opportunity for the business is the transition to 5G, which should help propel demand for new handsets.

“It’s going to be one of the largest growth drivers for our mobile business” - Qualcomm CEO Cristiano Amon on Huawei

 

A sector-wide semiconductor chip supply shortage, owing to higher-than-expected demand and supply problems during the height of the global COVID-19 pandemic, hasn’t helped Qualcomm, but Amon said in its last earnings update, that “supply conditions will improve at the end of the year”. Investors and analysts will be keeping an eye on any timeline updates for an easing of the chip shortage.

 

What happened in last quarter's earnings?

Qualcomm beat earnings and revenue estimates in its second-quarter earnings on 28 April. Earnings per share (EPS) came in at $1.90, above the forecast $1.69 and $0.65 in the second quarter of 2020, while revenue at $7.9bn was ahead of the consensus estimates at $7.62bn.

On a year-on-year basis, earnings soared 116%, while sales increased 52%. CFO Akash Palkhiwala said that Qualcomm’s most recent quarter would have been “much better off” without the industry-wide chip shortages.

 

When is Qualcomm reporting Q3 earnings?

1.45 pm (EDT), Wednesday 28 July.

“The company is poised to benefit from multiple tailwinds in second-half 2021, including an earlier iPhone launch and improving supply situation” - Goldman Sachs analyst Rod Hall

 

What is Wall Street expecting?

According to The Wall Street Journal, the consensus EPS forecast for the quarter ending June 2021 is $1.68. This compares favourably with Q3 2020, when EPS of $0.86 beat estimates at $0.71. In its Q2 update, Qualcomm offered guidance for Q3 EPS of $1.55 to $1.75, on revenue between $7.1bn and $7.9bn.

Reinforcing Caso’s upbeat take, Goldman Sachs analyst Rod Hall also recently upgraded Qualcomm from ‘sell’ to ‘neutral’. Hall similarly forecasts an improving industry outlook during the latter six months of this year, saying: “The company is poised to benefit from multiple tailwinds in second-half 2021, including an earlier iPhone launch and improving supply situation.”

Overall, the 26 analysts offering 12-month price forecasts for the Qualcomm share price have a median target of $175, which represents a 20.79% increase from 23 July close at $144.88. And with 17 buy ratings, two outperform and 10 hold ratings, the current consensus among 29 polled investment analysts is to buy the Qualcomm share price.

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