Yahoo Finance Why Is Qualcomm (QCOM) Up 8.7% Since Last Earnings Report?
A month has gone by since the last earnings report for Qualcomm (QCOM). Shares have added about 8.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Qualcomm due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Qualcomm Q2 Earnings Miss Estimates on Lower Revenues
Qualcomm reported weak second-quarter fiscal 2023 results, impacted by a challenging macroeconomic environment, inflationary pressures and soft recovery in China, resulting in lower-than-expected demand and elevated inventory levels. While the top line beat the Zacks Consensus Estimate, the bottom line missed the same despite the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. Shares declined sharply post earnings release owing to a soft outlook due to limited market visibility and high channel inventory levels.
Net Income
On a GAAP basis, net income in the March quarter declined to $1,704 million or $1.52 per share from $2,934 million or $2.57 per share in the prior-year quarter. The decrease in GAAP earnings was primarily attributable to top-line contraction.
Quarterly non-GAAP net income came in at $2,420 million or $2.15 per share compared with $3,661 million or $3.21 per share in the year-ago quarter due to lower-than-expected revenues owing to soft demand trends. The bottom line missed the Zacks Consensus Estimate by a penny.
Revenues
On a GAAP basis, total revenues in the fiscal second quarter were $9,275 million compared with $11,164 million in the prior-year quarter. Despite solid automotive revenues, the top line decreased on soft demand patterns and elevated inventory levels owing to market uncertainty and macroeconomic woes. High inflationary pressures and soft economic recovery in China further compounded the problems. However, Qualcomm witnessed strong momentum in IoT across consumer, edge networking and industrial sectors, along with strength in Snapdragon portfolio within the automotive sector.
Non-GAAP revenues in the reported quarter were $9,268 million compared with $11,158 million in the year-earlier quarter. The quarterly revenues beat the consensus mark of $9,080 million.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 17% year over year to $7,942 million, as strength in the automotive platform was more than offset by lower demand in handsets and channel inventory drawdown within the IoT business. Despite solid potential in the EDGE networking business that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets, the company witnessed lower demand owing to an uncertain landscape.
Automotive revenues rose 20% to $447 million, while handset and IoT revenues were down 17% and 24%, respectively, to $6,105 million and $1,390 million. EBT margin for the QCT segment decreased to 27% from 35%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,290 million, down 18% year over year due to lower licensing revenues. EBT margin declined to 68% from 73%.
Cash Flow & Liquidity
Qualcomm generated $1,457 million of net cash from operating activities in the fiscal second quarter compared with $2,698 million a year ago, bringing the respective tallies for the first half of fiscal 2023 and fiscal 2022 to $4,552 million and $4,755 million. At quarter-end, the company had $3,488 million in cash and cash equivalents and $15,486 million of long-term debt. The company repurchased 7 million shares for $903 million during the quarter.
Q3 Guidance
For the third quarter of fiscal 2023, Qualcomm expects GAAP revenues of $8.1-$8.9 billion due to rapid deterioration in demand and high channel inventory. Management expects the uncertain macroeconomic outlook, high inflation and a slower recovery in China to adversely impact demand as customers remain cautious with their purchasing decisions, further leading to inflated inventory levels. Non-GAAP earnings are projected to be $1.70-$1.90 per share, while GAAP earnings are likely to be $1.24-$1.44 per share. Revenues from QTL are expected to be between $1.15 billion and $1.35 billion. For QCT, the company anticipates revenues between $6.9 billion and $7.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -6.21% due to these changes.
VGM Scores
At this time, Qualcomm has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Qualcomm has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Qualcomm belongs to the Zacks Wireless Equipment industry. Another stock from the same industry, Juniper Networks (JNPR), has gained 7.5% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Juniper reported revenues of $1.37 billion in the last reported quarter, representing a year-over-year change of +17.4%. EPS of $0.48 for the same period compares with $0.31 a year ago.
Juniper is expected to post earnings of $0.55 per share for the current quarter, representing a year-over-year change of +31%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.9%.
Juniper has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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