The Apple iPhone Hurt Qualcomm, Too

• QUALCOMM, Inc QCOM shares have been trending lower over the last three months, and are down 19 percent since October 28.
• FBR’s Christopher Rolland maintained a Market Perform rating for the company, with a price target of $56.
• The impact of fewer-than-expected shipments of Apple Inc. AAPL iPhone and Qualcomm’s ongoing dispute with LG are the concern areas, Rolland stated.

Qualcomm reported its C4Q15 top-line results ahead of expectations, driven by better 3G/4G reported device units. Despite the beat, the company issued disappointing 1Q16 guidance, owing to weaker QCT revenue from fewer-than-expected shipments into iPhones.

The company reported better-than-expected revenue of $5.77 billion, but lower-than-anticipated gross margins of 58.8 percent, due to QCT representing a higher proportion of total revenue. Qualcomm’s pro-forma EPS of $0.97 was better than Street expectations on account of stronger licensing revenues and cost reductions in QCT.

Analyst Christpher Rolland mentioned that Qualcomm did not guide to lower QCT revenues in 2Q16 as it recognizes iPhone royalties one quarter in arrears.

The company’s ongoing royalty dispute with LG will also result in the deferment of certain revenues until the issue is resolved. The negative impact of lower-than-expected iPhone shipments and the dispute with LG may be offset to some extent by cuts in operating expenditure, Rolland stated.

The analyst pointed out that a slowdown in the mobile innovation treadmill has allowed handset OEMs to catch up and roll their own applications, processors and baseband modems to reduce handset costs. “Additionally, QCOM’s IP position in 4G LTE is weaker than 3G, as we expect modestly growing QTL pressure over the long run,” the FBR report noted.