Qualcomm
has added to pessimism around the semiconductor industry with its fiscal-third-quarter earnings report. Wall Street analysts are split on how well the specialist in mobile processors and 5G wireless chipsets can perform in the face of a slowdown in smartphone demand.
Qualcomm
(ticker: QCOM) disappointed with its revenue forecast for the fiscal fourth quarter. The questions for analysts now are how quickly will the handset market recover and whether Qualcomm can boost growth in other areas.
Qualcomm shares were trading down 10%, at $116, in early trading. The stock was up 18% this year before the release of its earnings report Wednesday.
Analysts at Deutsche Bank said the report raised deeper questions about the recovery of the handset market and whether it was more than just a cyclical downturn. They downgraded their rating on Qualcomm stock to Hold from Buy and their target price to $120, from $130.
“The duration of the headwinds QCOM continues to face in its Handset segment is leading to rising structural rather than just cyclical questions (i.e. mix, pricing, post-5G lull, etc.),” Deutsche Bank’s Ross Seymore wrote in a research note.
Seymore noted Qualcomm is already trading at around 14 times its projected earnings per share, in line with its five-year average multiple, and said there was little reason to expect improvement for now.
Some were more optimistic about Qualcomm, which is broadening into categories such as cars and connected devices.
“Overall, while the recovery may be slower to get its legs off the ground given continued softness in handsets, inventories, and the macro, we still believe CEO [Cristiano] Amon is proving Qualcomm can move beyond a modem and cellular IP company to become a true broad-based semiconductor player,” wrote Susquehanna’s Christopher Rolland.
Rolland lowered his target price on Qualcomm shares to $140 from $145 but kept a Positive rating on the stock, noting that its growth probably has bottomed out.
Part of Qualcomm’s vulnerability is its current dependence on large customers in the smartphone market such as
Apple
(AAPL), which is expected to report a slowdown in iPhone sales in its own earnings report on Thursday. A slower-than-expected recovery in China also looks to have hurt Qualcomm’s business in the Android handset market.
“We are confident in saying that QCOM does not appear to be losing share, but rather stuck in a tough handset environment,” wrote Piper Sandler analyst Harsh Kumar in a research note, reiterating an Overweight rating on the stock.
Kumar looks for Qualcomm to show a return to growth in the December quarter, helped by sales from Apple and a stronger seasonal quarter for Android phones.
Analysts at Oppenheimer kept a Perform rating on the stock without a price target.
“We believe the company is overexposed to the mobile market, with its diminishing growth and increasing competition,” Oppenheimer’s Rick Schafer wrote.
Write to Adam Clark at [email protected]
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