Qualcomm Earnings Guidance Reflects Coronavirus Concerns Amidst Beat

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San Diego chip giant Qualcomm Incorporated has posted earnings results for its first quarter of the fiscal year 2020. Heading into today's earnings, Wall Street estimates expected Qualcomm to post $4.86 billion in revenue and $0.86 in earnings per share. In its results, the company has beaten revenue guidance by earning $5.077 billion and missed earnings per share guidance through posting $0.81 in basic and $0.80 in diluted earnings per share.

Qualcomm's net sales from equipment and services witnessed its regular seasonal decline in the quarter, as they dropped by $220 million. In comparison, the company's net sales from equipment and services had dropped by approximately $1 billion in the year-ago quarter. However, as opposed to the year-ago quarter, Qualcomm licensing revenue grew by $455 million in its last quarter, whereas it had dropped by $243 million in the year-ago quarter.

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Moving towards Qualcomm's revenues by segment, the company's licensing arm witnessed a 38% year-over-year growth in the quarter, with revenues standing at $1.4 billion. Sequentially, the segment demonstrated a 21% revenue growth, outstripping the previous year's 20% loss. Moving towards chip shipments, Qualcomm shipped more chips in its first quarter of 2020 than it did in the fourth quarter of 2019, with the number growing by 3 million.

However, the company's year-over-year shipments declined by 31 million (17%). It should be kept in mind at this point that these drops are seasonal, as Qualcomm's first fiscal quarter comes at the end of the Android flagship and non-flagship smartphone cycle, with manufacturers generally choosing to launch new gadgets in the company's second fiscal quarter (or the calendar year's first quarter).

Qualcomm maintains that it shipped 1.75 billion cellular modems in 2019, and for 2020, the company expects the figure to lie in between 1.75 billion and 1.85 billion. The company's cost structure also improved in the quarter with earnings before taxes jumping by a massive 69% year over year in Q1 2020.

Qualcomm financials

The company did beat its own guidance for the quarter if Non-GAAP earnings per share is analyzed. Non-GAAP lets Qualcomm exclude acquisition-related and other expenses from its financials, and therefore lets the company post healthier earnings per share. For its second quarter of the fiscal year 2020, Qualcomm hopes to post in between $4.9 billion and $5.7 billion in revenue. The company's post-GAAP earnings per share estimates for the second quarter are set to decrease and should range in between $0.50 and $0.65.

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Chip shipments are also forecasted to decline and expected to range between 125 million and 145 million. These estimates are undoubtedly affected by the coronavirus in China; a fact that Qualcomm directly notes in its cautionary note related to forward-looking statements. Qualcomm's estimates for 5G device shipments in the calendar year 2020 remain in line with those that it provided on its investor day last year. The company expects to ship 175 million and 225 million 5G device handsets in 2020, and it expects 5G devices to address 40% of China's market at current price points.

Qualcomm's revenue in its second quarter of fiscal 2020 sits smack in the middle of its earnings guidance. Its post-GAAP EPS guidance is below what it reported in Q2 2019 and reflects concerns related to the coronavirus. Additionally, the high end of company's chip shipment forecast for Q2 2020 is also below what it shipped in the year-ago quarter. For its second quarter of 2020, Qualcomm expects to ship 125 million - 145 million chips, while it shipped 155 million chips in its second quarter of 2019.

Following the earnings release, the company's stock initially peaked to $93.57 in aftermarket trading, but now it has settled at $91 at the time of publishing, up by 0.1% over today's close.

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