Citi Still Likes Qualcomm

In a report published Thursday, Citi analysts maintained a Buy rating on

, with a price target of $88, despite the expectations of a bad year for the company. Qualcomm reported robust results for F2Q, with revenue at $6,894M, marginally ahead of the guidance. The beat was achieved with strength in QTL offsetting a weak QCT. QTL revenue was very healthy, at $2,414M, representing 17 percent y/y growth and 33 percent q/q growth. This performance was driven by strong iPhone 6 shipments in December. QCT reverence came in at $4,434M, although growing 5 percent y/y, but down 15 percent q/q and missing expectations. The shortfall was on account of lower chip ASP. Qualcomm has announced its revenue and EPS guidance for FQ3 at $5.4-$6.2B and $0.85-$1.00, which is short of Citi's recently-reduced estimates of $6,372M and $1.04. The company reduced its revenue and EPS guidance for FY15 from $26.3-$28B to $25-$27B and from $4.85-$5.05 to $4.60-$5.00, respectively. The company expects a further share loss in the QCT chip business. In the report Citi noted, "The bear case on the stock has morphed from an implosion in the QTL royalty business – which has since recovered post the NDRC China ruling and is now hitting record levels – to a meltdown in the QCT chip business. We believe QCT recovers as well in 2016 as 1-off share loss due to late product development at 64- bits should not be confused with the much stronger long-term twin forces of chip integration and the move to merchant, both of which should drive QCT as its new 820 launches later this year." "With QCOM continuing to repurchase shares, and now actively managing opex lower (the San Diego Shift Plan?), we reit our Buy," the analysts added.