Can Solid Chip Revenues Drive Qualcomm (QCOM) Q2 Earnings?

Qualcomm Incorporated QCOM is scheduled to report second-quarter fiscal 2022 results on Apr 27, after the closing bell. In the fiscal second quarter, its Qualcomm CDMA Technologies (“QCT”) segment is likely to have witnessed solid revenue growth owing to a ramp-up in 5G-enabled chips and strength in its Snapdragon portfolio. 

Factors at Play

The QCT segment includes CDMA-based integrated circuit devices (chips) used mainly in smartphones, wireless data access cards, infrastructure equipment and system software for wireless voice and data communications and GPS products.

The company is likely to have recorded strong demand in emerging product categories such as XR and wearables along with 4G and 5G mobile broadband devices and rapid adoption of Wi-Fi 6. During the quarter, Qualcomm inked an agreement with Z-ONE TECH to provide intelligent cockpit experiences by utilizing the 4th Generation Snapdragon Cockpit Platforms with Z-ONE TECH’s Galaxy Full-Stack Solution 3.0. The 4th Generation Snapdragon Cockpit Platforms are one of the most comprehensive solutions in the automotive industry. These have been designed to address the transition to automotive architecture combining performance, artificial intelligence and safety.

In the quarter, Qualcomm also inked definitive agreements with leading car manufacturers like Volvo, Honda Motor Co., Ltd. and Renault SA to supply automotive chips for their upcoming models. Volvo will leverage Qualcomm’s “Snapdragon Cockpit” chips to produce its electric SUV, which is likely to go into production this year. Honda will use Qualcomm automotive chips for vehicles rolling out in 2023. The company is increasingly focusing on developing electric vehicles and self-driving cars as it aims to no longer introduce any fossil-fuel vehicles and electrify all its upcoming models. Renault has decided to utilize Snapdragon Automotive Cockpit Platforms to power its advanced infotainment system, comprising portrait-sized touchscreen infotainment displays for audio, visual and navigational functions. Such innovative products are likely to have translated into higher revenues in the quarter.

The company is witnessing healthy traction in EDGE networking that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets. The automotive telematics and connectivity platforms, digital cockpit, and C-V2X solutions are also fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes that it is on track to become the largest smartphone RF front-end supplier by revenues in the near future.

However, QCOM expects an impact on device shipment due to the lengthening of handset replacement rates stemming from the chip shortage and supply chain disruptions. This, in turn, is likely to have affected unit volumes to some extent.

Overall Expectations

The Zacks Consensus Estimate for revenues from QCT segment is pegged at $9,008 million, indicating a significant improvement from $6,281 million reported in the year-ago quarter. Management expects QCT revenues in the range of $8.7 billion to $9.3 billion. Segment income before taxes is pegged at $3,087 million, implying a significant rise from $1,584 million reported in the prior-year quarter.

For the second quarter of fiscal 2022, Qualcomm expects GAAP revenues of $10.2-$11 billion. The Zacks Consensus Estimate for the same is pegged at $10,579 million, indicating growth of 33.3% from the year-ago quarter’s reported figure. Management anticipates non-GAAP earnings of $2.80-$3.00 per share. The consensus mark for earnings is currently pegged at $2.91 per share. Qualcomm recorded non-GAAP earnings of $1.90 per share in the prior-year quarter.

Earnings Whispers

Our proven model predicts an earnings beat for Qualcomm for the fiscal second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.15%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

QUALCOMM Incorporated Price and EPS Surprise

QUALCOMM Incorporated price-eps-surprise | QUALCOMM Incorporated Quote

Zacks Rank: Qualcomm has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Amazon.com, Inc. AMZN is set to release quarterly numbers on Apr 28. It has an Earnings ESP of +37.95% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T-Mobile US, Inc. TMUS is +23.36% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Apr 27.

The Earnings ESP for Telephone and Data Systems, Inc. TDS is +34.62% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on May 5.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.