Samsung’s Note 7 Disaster Have Likely Affected Qualcomm’s Q4 Top-Line

Leading chipset market, Qualcomm (NYSE:QCOM) is set to report its Q4 2016 earnings on November 2nd. (Fiscal years end with September.) In Q3, the company witnessed a year-over-year increase in its top-line, after reporting consecutive revenue declines for a couple of quarters. However, we can expect Qualcomm to report flat or slightly lower revenues in Q4, despite the fact that two of its major customers launched premium smartphones during the quarter. (For details read the analysis below.)

In addition, Qualcomm recently announced the acquisition of NXP Semiconductor for $110 per share, or $43.9 billion.  Including debt the trasnaction has an enterprise value of $47 billion. This is one of the largest acquisitions in Qualcomm’s history. On first look, this acquisition seems to be a strategic fit, as it would significantly diversify Qualcomm’s offering and provide it an entry into multiple markets outside its core mobile chipset business. We need to watch out for further details about the acquisition in the company’s Q4 earnings call.

In the table below we note the key metrics as expected for the company in Q4’16:

Source:Sec filings

Qualcomm’s Top-Line Has Likely Been Affected Because Samsung Galaxy Note 7 Issues

Though Qualcomm has guided a revenue increase for Q4, the company’s top-line has likely been hit as one of its major customers, Samsung, had to discontinue the sale of its premium smartphone, Galaxy Note 7, as cases of explosions of the handset’s battery emerged. The discontinuation of the premium smartphone is likely to affect Samsung’s revenues by approximately $3 billion over the next two-quarters. Further, Qualcomm might not have gained much from the recent iPhone 7 launch too, as it lost some of its orders to Intel. A teardown of iPhone 7 and iPhone 7 plus by Chipworks confirms that the non-CDMA version of the device features an Intel baseband device. It is worth noting that both Samsung and Apple each comprised of more than 10% of revenues for Qualcomm in the last three fiscal years.

Qualcomm Getting Past Its Licensing Issues In China

Qualcomm has been minimizing the revenue gap from China by taking stringent steps to decrease the under-reporting of sales by its customerss in the region. Earlier this year, Qualcomm took a surprising route by filing a lawsuit against Meizu, an Alibaba-backed Chinese smartphone maker. It should be noted that Qualcomm was accused of monopolistic practices by the NDRC of China and had to pay $975 million and lower its royalty rates in the region as a result of the settlement in 2015. However, slow progress by Qualcomm in implementing the NDRC licensing terms, and non-compliance by Chinese OEMs of these terms, have been affecting the company’s licensing profits since then.

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