Earnings preview: After Apple deal, Qualcomm is set for a dull Q3 amid antitrust ruling

Mobile chipmaker Qualcomm (Nasdaq: QCOM) is currently going through a highly volatile phase in its history. The positive sentiment that followed settlement of the patent case with Apple (AAPL) was short-lived as the company suffered a setback after the Federal Trade Commission recently issued an anti-trust ruling against it.

What’s in Store

Qualcomm will be publishing its third-quarter earnings results Wednesday 4:00 PM ET. The consensus earnings estimate for the June quarter is $0.75 per share, which is down 26% from the year-ago quarter. Revenues are seen falling by 9.8% to $5.08 billion.

While the projection points to a dismal performance, the bottom-line stands to benefit from the management’s effective cost-cutting initiatives. Though the market is quite bullish about Qualcomm’s adoption of 5G, it is unlikely to bear fruit in the near term. In order to regain the waning momentum, what the company currently needs is strong organic growth.

Apple Settlement

As per the April settlement, which marked the end of a long-drawn-out patent battle with Apple, the smartphone giant will pay Qualcomm about $4.5 billion. The payment will reflect in the unadjusted results for the third quarter. Meanwhile, there is negative sentiment surrounding the recent anti-trust ruling against the company, which also impacted the performance of the stock in recent weeks.

Related: QUALCOMM Q2 2019 Earnings Conference Call Transcript

It is alleged that Qualcomm misused its dominant position in the microprocessor industry and engaged in business practices that violated the anti-competition rules. However, the market’s mood turned positive once again after the Department of Justice recently issued a statement favoring the company.

Looking Back

Qualcomm’s second-quarter sales dropped 5% year-over-year to $5 billion, hurt mainly by the softness in its QTL licensing segment. Consequently, adjusted earnings edged down to $0.77 per share from $0.78 per share in the second quarter of 2018.

Competition

Last week, Intel (INTC) reported a 2% increase in second-quarter earnings to $1.06 per share, despite a decline in revenues. A modest rise in the Data Center business was more than offset by a sharp decline in client computing.

Also see: What Tesla executives discussed during Q2 earnings call

Qualcomm shares witnessed severe fluctuations this year, marked by sharp gains prior to the last earnings report and the subsequent retreat. The stock has gained 31% since the beginning of 2019 and 15% in the past twelve months.

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