How China Is Weighing on Qualcomm Ahead

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Qualcomm Inc. (NASDAQ: QCOM) reported first fiscal-quarter 2015 results after markets closed on Wednesday. The chipmaker posted adjusted diluted earnings per share (EPS) of $1.34 and revenues of $7.1 billion. In the first quarter of 2014, Qualcomm reported EPS of $1.26 on revenues of $6.62 billion. Thomson Reuters had estimates for EPS of $1.25 and $6.94 billion in revenue.

Adjustments to earnings excluded a $444 million impairment charge on long-lived assets related to the company’s Qualcomm MEMS Technologies division. The impact on GAAP EPS worked out to a negative $0.20.

In its outlook for its second quarter, Qualcomm guided revenues in a range of $6.5 billion to $7.1 billion, compared with $6.4 billion actual in the second quarter a year ago. Adjusted EPS is forecast in a range of $1.28 to $1.40, compared with an actual total of $1.31 last year. Analysts were expecting second-quarter EPS of $1.28 on revenues of $6.74 billion.

Quarterly MSM chip sales are forecast to rise 17% to 28% to a range of 220 million to 240 million units. Second-quarter sales of all third-party devices using Qualcomm chips is forecast at approximately $69.5 billion to $75.5 billion, a range increase of 5% to 14% compared with last year’s total of about $66.5 billion.

For the full fiscal year ending in September, Qualcomm maintained its revenue forecast of $26 billion to $28 billion, and lowered its adjusted EPS range from $5.05 to $5.35 to a new range of $4.75 to $5.05. The consensus full-year estimates called for EPS of $5.21 and revenues of $27.81 billion.

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The company’s CEO said:

Looking ahead, we have lowered our revenue outlook for our semiconductor business for the second half of the fiscal year and lowered our EPS expectations. These changes reflect our revised expectations related to OEM mix, sales to a large customer and heightened competition in China.

The full-year EPS guidance will hit shares hard in the after-hours session and likely again on Thursday. The implication is that the company’s Samsung business is stuttering:

We have lowered our outlook for the second half of fiscal 2015 in our semiconductor business, QCT, largely driven by the effects of:

  • A shift in share among OEMs at the premium tier, which has reduced our near-term opportunity for sales of our integrated Snapdragon™ processors and has skewed our product mix towards more modem chipsets in this tier;
  • Expectations that our Snapdragon 810 processor will not be in the upcoming design cycle of a large customer’s flagship device; and
  • Heightened competition in China.

China continues to present significant opportunities for us, particularly with the rollout of 3G/4G LTE multimode, but also presents significant challenges, as our business practices continue to be the subject of an investigation by the China National Development and Reform Commission (NDRC).

Qualcomm’s stock traded down about 6.3% at $66.50 after closing at $70.99. The 52-week range is $67.67 to $81.97. Thomson Reuters had a consensus analyst price target of around $79.50 before the report.

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