As the lockdown continues, Qualcomm’s [QCOM] share price has dropped along with consumer appetite for the latest Smartphone. But will 5G innovation see it bounce back in Q1 earnings?
Qualcomm's share price has come under pressure in the coronavirus-triggered sell-off. A maker of semiconductors used in smartphones, the company is vulnerable to any drop in consumer demand. And with jobs being cut and businesses closed, people are no longer prioritising buying the latest smartphone.
Yet, Qualcomm’s investment in 5G technology and technological innovation could still see a bump in earnings this quarter, and a post-earnings share price bounce perhaps.
So, what should Qualcomm’s share price investors expect of the firm’s Q1 earnings performance?
What's happening with Qualcomm's share price?
Qualcomm's share price is down over 15% so far this year. Unsurprisingly, those losses came in February as coronavirus fears took hold. Back then the company touched an all-time high of $96.17. Since closing at $60.91 on 20 March, Qualcomm's share price has rallied over 23%. Investors in Qualcomm’s share price will be hoping Q1 earnings continue this recovery.
When does Qualcomm report Q1 earnings?
Why should investors care?
Growing 5G adoption
Qualcomm delivered the innovative Snapdragon Ride during the quarter. This technology lets car manufacturers turn their vehicles into self-driving AI rides. Qualcomm also introduced the third-generation of its 5G modem - the X60. The chip boosts network performance and is in use in high-end smartphones. These releases and 5G adoption are likely to benefit earnings this quarter.
Global smartphone sales plummet
2020 is set to see mobile phone sales plummet to their lowest levels in a decade, according to analyst CCS Insights. Smartphone sales are expected to come in at 1.26 billion, down from the 1.41 billion seen in 2019. The closure of retail stores and the lockdown mean upgrading to the latest handset is no longer a priority for consumers.
As a smartphone chip maker, this will impact revenues in 2020. Yet things look brighter next year as CCS expects sales to strengthen in line with an economic recovery. For 2021, it reckons sales will be up 12 per cent and back to their 2019 levels. While 2022 will see sales bounce back with up to 2 billion phones sold worldwide.
Expected smartphone sales - drop from 1.41bn in 2019
Goldman Sachs downgrades Qualcomm
April saw Goldman Sachs reduce its rating for Qualcomm to Sell. Analysts at the bank cited weakening customer demand caused by the coronavirus outbreak. In a note to investors, Goldman analysts, said:
“We are reducing our calendar year 2020 and 2021 3G/4G units estimate by 12.5% and 10.0%, respectively, … due to the anticipated impacts from COVID-19 and weakening consumer confidence, which we believe reduces smartphone replacement rates.”
Goldman's cut its 2021 earnings forecast 10% to $5.04 a share. It also slashed its 12-month price target from $77 to $61.
“We are reducing our calendar year 2020 and 2021 3G/4G units estimate by 12.5% and 10.0%, respectively,...due to the anticipated impacts from COVID-19 and weakening consumer confidence, which we believe reduces smartphone replacement rates” - Goldman analysts
What are analysts expecting?
Analysts are expecting Qualcomm to post earnings of $0.79, marginally better than the $0.77 seen in the same quarter last year. Revenue is expected to come in at $5.08 billion for the quarter, up from last year's $4.98 billion.
Will Qualcomm beat expectations? In the past four quarters, the company has beat predictions. In Q4 Qualcomm delivered earnings of $0.99 per share, thrashing the expected $0.85. However, that was a very different time in the markets.
Qualcomm's expected revenue for Q1
Is Qualcomm’s share price a buy?
Of the 23 analysts tracking the stock on Yahoo Finance, 13 rate it a Hold. The rest rate it either a Strong Buy or a Buy. An average $89.86 12-month price target would see a 19.4% upside. For income-seeking investors, the stock carries a decent 3.52% forward dividend yield.
Qualcomm plans to develop chips for use in mass-produced phones this year - and not just the higher end of the market. It also expects 5G adoption to be faster than 4G. In any other year, both would drive sales in the near-future. However, 2020 isn't any other year.
|PE ratio (TTM)||21.36|
|Quarterly Revenue Growth (YoY)||4.90%|
Qualcomm share price vitals, Yahoo Finance, 29 April 2020