What Can We Expect From Qualcomm’s Q3’16 Earnings?

July 19th, 2016 by Trefis Team
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Leading chipset maker  Qualcomm  (NYSE:QCOM) is set to report its Q3 2016 earnings on July 20th. (Fiscal years end with September.) We expect that there was a contrinutation of trends evident in fiscal Q2 2016 earnings release in April, when revenues were up 4% sequentially but down 20% year to year.  In fact, the consensus revenue estimate for fiscal Q3 reflect this continuing weak improvement as revenues are forecast to be down about 5% year to year.  Weakening macro-economic factors have reduced end-market demand, while problems with under-reporting in China and increased competition at the low end of the market persist.

Major licensing related issues still linger for the company and might well affect its profitability going forward. In the last earnings call, Qualcomm admitted that it was seeing under-reporting of sales by at least 44% in China and it might take longer for it to resolve the issue completely, possibly beyond FY 2016. Further, according to a recent report, the company may face the propect of large fines in South Korea as well for allegedly contradicting local  patent laws. An initial ruling on this issue is also likely to be announced on July 20th.

Nevertheless, in an effort to decrease the under-reporting of sales in China, Qualcomm took a surprising route by filing a lawsuit against a Chinese smartphone maker – Meizu Technology in Q3. We believe that Qualcomm’s move to file a lawsuit should increase compliance in the region. This move will go out as a clear message for other OEMs in the region, who haven’t yet agreed to comply with the new terms.

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Below we analyse the key metrics expected for Qualcomm in its Q3’16 earnings release:

qcom_pre_earnings_q3'16_

  • The total reported device sales have likely remained flat for Qualcomm in Q3, as IDC reported a roughly flat growth in the smartphone shipments in the March quarter. It must be noted that the reported device sales figure of Qualcomm lags by one quarter.
  • The minimal growth of smartphone sales can be attributed to the smartphone saturation in the developed markets as well as the decline in sales for both Apple and Samsung in the March quarter.

qcom_pre_earnings_T2

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Qualcomm.