Qualcomm beats expectations, but its stock wobbles on light revenue forecast – News

Chipmaker Qualcomm Inc. beat analysts expectations thanks to some impressive revenue growth as it delivered its second-quarter earnings results today.

The company said it’s reaping the rewards of a diversification strategy that has seen it expand beyond the smartphone market. However, its revenue forecast for the current quarter came in just shy of Wall Street’s forecast, and its stock was trading lower after-hours.

The chipmaker reported earnings before certain costs such as stock compensation of $2.85 per share, ahead of the analyst consensus estimate of $2.82. Revenue for the period rose 15% from a year earlier, to $10.84 billion, beating the $10.66 billion target.

The numbers resulted in net income of $2.81 billion overall, down slightly from the $2.33 billion profit it posted in the year-ago period. However, this number reflects the impact of acquisition-related charges, interest expenses and share compensation, the company said.

On a conference call, Qualcomm Chief Financial Officer Akash Palkhiwala reassured investors that the company doesn’t expect to see any material impact on its bottom line from U.S. President Donald Trump’s trade tariffs. He added that it hasn’t seen any elevated buying of its products ahead of those tariffs either.

Last month, the Trump administration announced exemptions to the 145% tariffs on China imports for a number of imported technology products, including computers, smartphones and processors. However, the exemptions are only temporary, for the White House is planning to introduce a separate tariff especially for semiconductors.

However, Palkhiwala pointed out that the U.S. only accounts for about 10% of global smartphone shipments, which means the impact of the tariffs on its business will be minimal. “One thing to remember is when you look at our supply chain, we have a very diversified global supply chain,” he added.

Qualcomm Chief Executive Cristiano Amon (pictured) reminded analysts that the company “is not inexperienced” when it comes to dealing with economic uncertainties. “We remain focused on the critical factors we can control, like our leading technology roadmap, best-in-class product portfolio, strong customer relationships and operational efficiencies,” he said.

That said, the company appears to be facing other pressures, even if it’s not overly concerned about the tariffs. In its third-quarter guidance, Qualcomm said it’s looking for revenue of $10.3 billion at the midpoint, slightly lower than Wall Street’s forecast of $10.35 billion. On the other hand, its earnings forecast of $2.70 per share came in ahead of the analyst’s $2.67 per share estimate.

The smartphone industry remains Qualcomm’s most important market by far. The company sells processors for the vast majority of the world’s handsets, including high-end devices made by Apple Inc. and Samsung Electronics Co. Ltd. The business appears healthy, with handset sales rising 12% from a year earlier to $6.93 billion.

However, Amon said the company is making great progress in its efforts to diversify away from smartphone chips. It also has an automotive business that sells chips for autonomous vehicles, and an internet of things business focused on devices such as virtual reality headsets and personal computers. Qualcomm needs to diversify because it’s expecting to lose Apple as a customer in the coming years.

Sales from the automotive business jumped 59%, to $959 million, while the IoT business rose 27% to $1.58 billion. All told, Qualcomm’s QCT division, which encompasses all of those chip units, generated revenue of $9.47 billion, up 18% from a year earlier.

“Our top priorities remain executing our diversification strategy and continuing to invest in areas that drive long-term value,” Amon said.

Besides selling chips, Qualcomm also has a very profitable business that generates revenue from patent royalties, licensing various wireless technologies to other companies. The QTL business delivered $1.32 billion in sales, flat from the previous year.

Overall the results were not too bad, but investors were clearly disappointed with the light revenue guidance, as Qualcomm’s stock fell 5% in extended trading. That means the stock is now down 3% in the year to date, though it’s doing better than the broader iShares Semiconductor exchange-traded fund, which is down 15% this year.

Bernstein analyst Stacy Rasgon on Monday reiterated his “buy” rating on Qualcomm’s stock, saying it remains “very cheap” compared with others in the semiconductor industry. He said Qualcomm’s shares are trading at a 40% discount compared to the broader S&P 500 index.

“It’s one of the sharpest discounts in many years,” Rasgon said. “In a world where uncertainty increasingly reigns, this seems likely to help.”

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