Key Trends To Watch As Qualcomm Publishes Q4 Results

Qualcomm (NYSE:QCOM) is expected to publish its fiscal Q4 results on Wednesday, November 1, reporting on a quarter that is likely to see its semiconductor division post stronger results, although its bread-and-butter licensing operations will continue to face pressure amid its litigation with Apple. The company has guided for revenues of $5.4 billion to $6.2 billion, with adjusted EPS of $0.75 to $0.85. Below, we take a look at some of the key factors to watch as Qualcomm publishes earnings.

Trefis has a $64 price estimate for Qualcomm, which is nearly 25% ahead of the current market price.

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Apple Litigation Will Weigh On QTL Division

Qualcomm’s licensing division is likely to have another muted quarter due to its ongoing litigation with Apple, which is one of its biggest customers. The consumer electronics behemoth has been withholding payments to its contract manufacturers for the royalties that they owe Qualcomm, and it has indicated that it will not start paying them again until its legal issues are sorted out (related: What’s At Stake For Qualcomm As Apple Expands Its Lawsuit?). Qualcomm is projecting licensing revenues of between $1.0 to $1.3 billion for the quarter, down from $1.89 billion in the year-ago period. Pretax margins for the division are also expected to trend lower to between 64% and 68%, down from 84% in the year-ago period, as Apple is one of Qualcomm’s most lucrative customers, with its royalties estimated to account for as much as 30% of Qualcomm’s earnings.

Qualcomm’s Semiconductor Division Could See An Improvement

While Qualcomm’s chipset shipments saw declines of between 5% to 10% over the first three quarters of the fiscal year, driven by a slowdown in smartphone sales and a growing mix of mid-tier products from Chinese vendors, things could improve during Q4, with the company projecting mobile station modem (MSM) chip shipments of between 205 million and 225 million for Q4. This compares to about 211 million in the same quarter last year. There could be multiple factors driving the improvement. For one, the company’s latest flagship processor, the Snapdragon 835, is likely to have become available to more smartphone manufacturers over the quarter. Additionally, the company could also see more traction in areas such as connected cars, wearables and the Internet of Things.  Qualcomm is also looking to compete in more traditional computing verticals, such as PCs and servers. It introduced its first ARM-based server processor, Centriq 2400, late last year and also announced plans to support Microsoft’s Windows software on its ARM-based chipset. We will be looking for updates on this during the earnings call.