Qualcomm (QCOM) Q4 Earnings Preview: Can 5G ramp up revive lost momentum?

When chipmaker Qualcomm (NASDAQ: QCOM) releases its fourth-quarter results Wednesday after the closing bell, Wall Street will be looking for earnings of $0.71 per share, down 21% from last year. Revenues are seen falling 19.4% annually to $4.7 billion.

The bearish outlook reflects the ongoing slump in the semiconductor market and trade-related uncertainties in China, a key market for the company. Sales could also be affected by the unfavorable inventory conditions across the sector, which prompted many players to slash prices.

Also see: Is semiconductor industry returning to growth mode

Though the ongoing shift to 5G networks bodes well for Qualcomm in the long term, the muted demand for 4G services as the market prepares for the transition could be a drag on the top-line. However, having secured a significant number contracts in recent months, the company is currently well positioned to handle the 5G ramp that is expected in early 2020.

Big Bet

Plans are afoot to build 5G chips for medium-priced smartphones so that the facility would reach the masses quickly. The company will still face competition in the market for 5G chipsets. During the fourth quarter, a favorable court ruling in the anti-trust lawsuit, accusing Qualcomm of indulging in unethical business practices, came as a relief to the company. It is estimated to have had a positive impact on the operations.

Q3 Outcome

In July, investors were disappointed after Qualcomm reported weaker than expected revenues for the third quarter and issued dismal full-year guidance. Though revenues climbed 73% to $9.6 billion, helped by gains from the settlement of a dispute with Apple (AAPL), earnings dropped 20% to $0.80 per share.

Peer Performance

Last month, Intel (NASDAQ: INTC) reported flat revenues and a modest increase in earnings – to $1.42 per share – for the third quarter. An increase in data center revenues was more than offset by a further sharp decline in client computing. Meanwhile, AMD (AMD) reported a double-digit increase in third-quarter earnings that matched the Street view. Revenues were up 9%.

Related: QUALCOMM Q3 2019 Earnings Call Transcript

Currently, about half of the analysts following Qualcomm recommend buy, with an average price target of around $82. After retreating from the record highs a few months ago, the stock made steady gains and is currently hovering near the peak once again. It moved up 51% since the beginning of the year, outperforming the S&P 500 index.

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