Can Higher QTL Revenues Buoy Qualcomm's (QCOM) Q1 Earnings?

Qualcomm Incorporated (NASDAQ:QCOM) is scheduled to report first-quarter fiscal 2020 results after the closing bell on Feb 5. In the fiscal first quarter, revenues from Qualcomm Technology Licensing (QTL) segment are likely to have increased due to seasonality factors and global patent licensing agreement with Apple Inc (NASDAQ:AAPL).

Factors at Play

This segment generates revenues from license fees as well as royalties based on global sales by licensees of products incorporating or using Qualcomm’s intellectual property.

During the quarter, Qualcomm continued to spend aggressively on R&D to develop innovative 5G designs for OEMs. The company is expected to have benefited from the holiday season, which typically records high volume of sales, generating high royalty and licensing revenues. The seasonality of sales is also likely to have gained traction from the completion of global patent license agreement with Apple earlier this year.

The agreement with the iPhone maker includes a six-year license agreement along with a two-year extension option and a multi-year chipset supply agreement. Apple is expected to license the chips directly from Qualcomm instead of relying on OEMs to do it on its behalf. This is likely to have generated recurring payments for Qualcomm in the fiscal first quarter.

Management expects QTL revenues to be in the range of $1.3 billion to $1.5 billion and EBT margin of 70% to 74%. The Zacks Consensus Estimate for QTL revenues is currently pegged at $1,404 million, representing a 37.9% rise from the year-ago reported number. The consensus mark for EBT from the segment stands at $960 million, suggesting significant rise from $590 million.

Overall Expectations

For the first quarter of fiscal 2020, Qualcomm expects revenues in the range of $4.4-$5.2 billion. The Zacks Consensus Estimate for the same is pegged at $4,825 million. The company recorded revenues of $4,842 million in the year-earlier quarter. Management anticipates non-GAAP earnings in the 80-90 cents per share range. The consensus estimate for earnings is currently pegged at 85 cents per share, indicating a decline of 29.2% from the year-ago reported number. (Read More: Will Flat Revenue Trend Hurt Qualcomm's Q1 Earnings?)

Earnings Whispers

Our proven model does not predict an earnings beat for Qualcomm this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 85 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

QUALCOMM Incorporated Price and EPS Surprise

QUALCOMM Incorporated price-eps-surprise | QUALCOMM Incorporated Quote

Zacks Rank: Qualcomm has a Zacks Rank #3.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:

T-Mobile US, Inc. (NASDAQ:TMUS) is scheduled to release quarterly numbers on Feb 6. It has an Earnings ESP of +1.39% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Viavi Solutions Inc. (NASDAQ:VIAV) is +1.06% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Feb 4.

The Earnings ESP for Altice USA, Inc. (NYSE:ATUS) is +11.11% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 12.

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