Qualcomm, Inc. QCOM reported Wednesday fiscal second-quarter results, which was in-line with expectations but the resolution of a long-lasting dispute with Apple Inc. AAPL creates improved visibility, according to Bank of America.
The Analyst
Bank of America's Tal Liani upgraded Qualcomm from Neutral to Buy with a price target lifted from $90 to $105.
The Thesis
Qualcomm's in-line quarter was coupled with three areas of weakness, Liani said in the note.
- Revenue guidance fell short of expectations despite the disclosure of $4.5 billion in royalties from Apple.
- Third-quarter mobile station modem (MSM) shipments of 160 million units were short of expectations of 181 million and likely due to Huawei gaining market share and overall soft demand.
- Operating expenditure is modeled to grow 6-8 percent quarter-over-quarter versus expectations of a 7-percent decline.
Despite a concerning outlook, the bullish case for Qualcomm's stock can be made as the fiscal third quarter could prove to be a trough ahead of the 5G buildout cycle, the analyst wrote. The company has notable exposure as the company cited more than 75 design wins which is up from 30 last quarter.
5G gives Qualcomm an opportunity to drive more content per device. Liani said Intel Corporation INTC's decision to exit the modem market gives Qualcomm better pricing power, the analyst wrote.
Price Action
Qualcomm traded marginally higher Thursday at $86.6 per share.
Related Links:
Morgan Stanley Upgrades Qualcomm On Earnings Multiple Expansion Opportunity
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