Qualcomm Q3 Preview: Is The QTL Business On The Mend?

by Trefis Team
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Qualcomm (NYSE:QCOM) is expected to publish its Q3 2018 results on Wednesday, July 25. The company’s performance in recent quarters has been mixed, due to headwinds at its bread and butter licensing business (QTL), which is currently facing litigation over royalty payments with Apple, its largest customer, although its chipset business has fared slightly better. The company has guided for revenues between $4.8 billion and $5.6 billion for the quarter, with its adjusted diluted EPS projected at $0.65 to $0.75. Below, we take a look at some of the key trends to watch as the company reports its results.

View our interactive dashboard analysis on Qualcomm’s expected performance over 2018 to see our forecasts and valuation estimate.

QTL Results Will Be Weighed Down By Seasonality, Apple Litigation

While Qualcomm expects global shipments of 3G and 4G devices to pick up to levels of 1.8 billion to 1.9 billion units this year, marking a 5% year-over-year increase at the midpoint, the company’s QTL revenues are likely to be weighed down by its continued dispute with Apple, which has been withholding payments to its contract manufacturers for the royalties they owe Qualcomm. Qualcomm expects QTL revenues of $0.85 billion to $1.05 billion for this quarter. This would also mark a decline of about $300 million at the midpoint, partly due to seasonality.

The company is looking to resolve the issues surrounding its licensing business at the earliest, noting that it is looking for a settlement with Apple by the end of this year. Moreover, the company is seeking to build goodwill with a larger base of handset vendors, by capping the net selling price of a handset on which its royalties are based at $400 per device, down from $500 per device. The company said that the move, which would take effect in Q4, is unlikely to have a material impact on its overall results. The company is also looking to improve relations with its largest customers. For instance, earlier this year, Qualcomm inked a broad multi-year deal with Samsung Electronics that allows the companies to share patents in multiple areas including mobile devices. Under the agreement, Samsung will also withdraw its support for regulatory actions against Qualcomm in South Korea and other jurisdictions.

QCT Business 

Qualcomm expects to ship between 185 million and 205 million chips over the quarter, likely driven by new launches by Chinese OEMs which have been increasingly expanding their presence globally. This compares to 187 million shipments in both the previous quarter and the year-ago quarter. That said, the company expects margins for the division to decline sequentially to approximately 13% to 15%, due to a seasonally weaker product mix.

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