Will Lower QCT Revenues Dent 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 CDMA Technologies (QCT) segment, which accounts for the lion’s share of total revenues, are likely to have declined due to prolonged trade war with China and price wars with competitors.

Factors at Play

The QCT segment includes CDMA-based integrated circuit devices (chips) and system software for wireless voice and data communications, as well as GPS products, primarily used in mobile phones, wireless data access cards and infrastructure equipment.

During the quarter, Qualcomm launched Snapdragon XR2 Platform, the world’s first 5G-supported extended reality platform, which combines 5G and AI innovations for a new era of mobile computing. The company also introduced Snapdragon 865 5G Mobile Platform, which combines advanced 5G Modem-RF System with advanced mobile platform for improved connectivity and performance with peak speeds of up to 7.5 Gbps. In addition to developing premium category Snapdragon 8 series chipsets, mostly found in high-end mobiles and smartphones, Qualcomm has been actively expanding its product portfolio to develop mobile phone chips for the masses. These are expected to get reflected positively in the upcoming results.

However, the company expects worldwide mobile station modem (MSM) chipset unit shipments to be in the range of 145-165 million units with lower volume in the premium and high tiers, due to the transition to 5G. The Zacks Consensus Estimate for MSM shipments is currently pegged at 155 million units, implying a 17.1% decline from the year-ago reported number.

The consensus estimate for revenues from QCT is pegged at $3,377 million, indicating a decline from $3,739 million reported in the year-earlier quarter. The consensus estimate for EBT from the segment stands at $488 million, suggesting a decline from $598 million. A prolonged tariff war with China, which is one of the most important markets of Qualcomm, is likely to have harmed its supply chain management and strained margins. In addition, fierce competitive pressure from low-cost chipmakers is likely to have hurt its top line.

Q1 Developments

During the quarter, Qualcomm issued a report that predicted that global smartphone makers will ship 450 million 5G handsets in 2021, with an additional 750 million in 2022. The company expects 5G adoption to be faster than 4G owing to the timing of commercialization of the technology in China and availability of chipsets across different price points. With more than 150 5G design wins to date, Qualcomm is likely to benefit from such exponential growth of 5G handsets.

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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