What To Make Of Qualcomm's 'Mixed Bag'

QUALCOMM, Inc. QCOM announced better-than-expected F2Q results, with sales of $5.54 billion and EPS of $1.04. Pacific Crest’s Michael McConnell maintained an Overweight rating for the company, while reducing the price target from $63 to $61.

The upside in Qualcomm’s revenues was driven by the robust performance in both the QTL, its chipset business, and QCT, the licensing businesses, analyst Michael McConnell said.

Mixed FQ3 Guidance

Qualcomm issued a mixed guidance for FQ3. The company lowered its TDS outlook for 2016, citing weaker smartphone demand, but maintained its FY16 QTL revenue guidance of $7.3B-$8.0B. McConnell believes that Qualcomm will need to sign new agreements with Oppo and BBK, which are expected to contribute a larger portion 2Q catchup payments to achieve this guidance.

Qualcomm guided to FQ3 revenues of $5.6 billion, with weaker implied QTL guidance offset by stronger QCT sales, driven by a richer ASP mix. The company has guided to non-GAAP EPS of $0.95 at the midpoint.

McConnell expects Qualcomm to lose 20-30 percent share of baseband chips in the new iPhone to Intel Corporation INTC. The net EPS estimates for F2016 and F2017 have been reduced from $4.05 to $4.0.3 and from $4.70 to $4.63, respectively.