Qualcomm Inc. shares are taking a tumble in premarket trading Thursday after the chipmaker gave a dismal forecast for the current quarter, reflecting continued challenges in China and with the transition to 5G.
“Typically, a Qualcomm QCOM, -2.68% earnings report is complicated,” Bernstein analyst Stacy Rasgon wrote in a note to clients. This time around, the report was “not complicated, merely awful,” in his view.
He wrote that Qualcomm didn’t see a pause ahead of the 4G transition, though the company is citing one with the move to 5G, suggesting management might just be looking for a convenient excuse. And challenges involving China, Huawei Technologies Co., and the smartphone industry “aren’t new” at this point, given that Qualcomm has been warning of these issues for months.
“Investor hopes have rested on 5G, and this continues more than ever with Qualcomm calling out a material ramp in CY2020 to help with recovery,” Rasgon said. “But in the meantime, things seem set to stink for the next two quarters, Huawei China share gains seem structural (with geopolitics making settlement difficult), the FTC appeal remains an overhang (and heaven help them if they lose their motion for a stay), and Intel’s INTC, -2.08% baseband sale puts an asterisk on the Apple AAPL, -2.16% chipset ramp.”
He rates the stock at market perform with a $72 target price. Shares are off 7% premarket.
Others were more upbeat following the report, including Evercore ISI’s’ C.J. Muse, who said the company “simply cannot catch a break” following a series of bad turns.
“Obviously the hits keep on coming and until a stay is granted it is difficult to want to jump in aggressively (likely a 45- to 90-day window since filing),” he wrote. “But our positive thesis on 5G remains intact and we would expect investor enthusiasm to gain momentum into the company’s planned Analyst Day in November.”
He rates the stock at outperform with a $90 target price.
Raymond James analyst Chris Caso also reiterated his bullish view on the stock following the disappointing report.
“While we can’t be as confident in the timing, we do think the improvement is inevitable, coupled with the catalyst from the addition of Apple chipsets at the end of FY20,” he wrote. “Net, while the inventory adjustment has a significant effect on near-term numbers, we don’t think the near term issues change the 5G story much, and we think $7 earnings power remains in sight after inventory normalizes, 5G adds content, Apple chipsets - and eventually Huawei licensing - are added to numbers.”
Caso has a strong buy rating and $115 target price on the stock, which has risen 29% so far this year as the S&P 500 SPX, -0.90% has climbed 19% and the PHLX Semiconductor Index SOX, -1.98% has gained 34%.