Qualcomm rises after earnings, but sees 30% drop in phone shipments in future

Qualcomm reported second-quarter earnings after the bell on Wednesday.

The stock was up more than 3% after hours, in addition to a nearly 5% rise during trading on Wednesday. 

Here’s how it did:

• EPS: $0.88
• Revenue: $5.21 billion

Wall Street had anticipated earnings per share of $0.78 on revenue of $5.025 billion based on Refinitiv consensus estimates. However, it’s difficult to compare reported earnings to analyst estimates for Qualcomm’s Q2, as the coronavirus pandemic continues to hit global economies and makes earnings impact difficult to assess.

Revenue for Qualcomm was up 7% year-over-year and diluted EPS was up 14% year-over-year. 

Qualcomm said that the coronavirus pandemic reduced demand for phones in the second quarter about 21% compared to its previous expectations and on a year-over-year basis, primary driven by China. It also warned of lower phone shipments in the quarter ending in June, as the pandemic has chilled non-China economies around the world. 

“Our guidance for the third quarter of fiscal 2020 being based on a planning assumption that there will be an approximate 30% reduction in handset shipments relative to our prior expectations,” according to a note in Qualcomm’s press release. Qualcomm representatives said that this estimate was based on the rate of economic recovery it saw in China.

Qualcomm is the leading maker of 5G chips and has a lot of related patents, so its results shed some light into how the rollout of 5G networks is tracking around the world. It still expects between 175 million and 225 million 5G phones to ship during the calendar year, which is unchanged from before.

“Overall, 5G is progressing as planned,” Qualcomm CEO Steve Mollenkopf said in a call with analysts.

Without commenting on specific customers, which include Apple, Mollenkopf said that its clients were likely to maintain previous 5G phone launch timing. 

“There’s been a lot of intensity to maintain those schedules. My guess is you’ll see things move around a little bit because of just people dealing with the environment they’re dealing with,” Mollenkoph said. “But in general, I don’t think you’re going to see big changes in that.”

“The biggest surprise, however, is that the company is sticking to its annual 5G handset unit forecast of 175-225 million units which are very profitable for the company,” Patrick Moorhead, president and analyst at Moor Insights said. “This is a very good sign for the company as it indicates ‘business as usual’ for 5G handsets.”

The chip maker is also being closely watched because it sells parts and licenses technology to most of the world’s top smartphone makers. Qualcomm shipped 129 million modem chips during the quarter, and predicts to sell between 125 million and 145 million in the June quarter.

Mollenkopf said that the company remains on schedule with its product commitments and that it was able to mitigate the effect of Covid-19 on the company’s supply chain. 

In its third fiscal quarter, Qualcomm is expecting earnings per share of between $0.60 and $0.80, about 30 cents less than it would have been due to the coronavirus pandemic. It also expects revenue in the June quarter to land between $4.4 billion and $5.2 billion.