Qualcomm
QCOM
recently revised its forecast for smartphone shipments and now expects a significant decline in demand for its handset chips, per a report from
The Wall Street Journal.
In November, the company had decreased its outlook for smartphone shipments from a mid-single-digit fall to a low-double-digit percentage decline, signaling a downtrend in the handset market. This decline in demand is part of a larger trend affecting consumer-facing businesses, which have seen a drop in demand following the pandemic.
In response to this decline, Qualcomm is attempting to reduce operating costs and focus on expanding into new areas, such as the automotive industry.
QUALCOMM Incorporated Price and Consensus
QUALCOMM Incorporated price-consensus-chart
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QUALCOMM Incorporated Quote
The company’s CEO, Mr. Palkhiwala, is wary of the firm’s outlook for 2023 owing to rising global uncertainty, including a challenging macroeconomic environment, political and economic conditions in different regions, and the ongoing impact of the Covid-19 pandemic. In addition, there is currently a high inventory in the semiconductor industry, which adds to uncertainty in the short term.
The company is taking several steps to address the challenges it is facing. One of these steps is redirecting resources and spending toward areas of the business where there is potential for growth, such as the automotive and Internet of Things sectors.
Additionally, Qualcomm is making selective headcount reductions in certain areas and preparing contingency plans in case further action is needed. These measures are likely being taken to respond to uncertainty and challenges in the market and position the company for success in the future.
Also, the company issued new debt in 2022 to replace aging bonds nearing maturity. The company had locked in rates a couple of years ago, which helped to protect against the recent increase in interest rates. While the coupon on the debt may show a higher rate, it can take advantage of the rate locks that were put in place earlier, per the company’s report.
Qualcomm manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-based integrated circuits and system software for wireless voice and data communications as well as global positioning system products.
The company faces huge concentration risks as the bulk of its revenues is generated from a handful of customers — a trend that is expected to continue in the ensuing quarter. Moreover, Qualcomm has been facing challenges from low-cost chip manufacturers like MediaTek and Rockchip as well as handset manufacturers’ SoC projects such as Exynos by Samsung.
At present, QCOM carries a Zacks Rank #5 (Strong Sell). The stock has lost 39.9% in the past year compared with the
sub-industry’s
decline of 34.2%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the broader technology space are
Arista Networks
ANET
,
Jabil
JBL
and
Super Micro Computer
SMCI
, each presently sporting a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Arista Networks 2022 earnings is pegged at $4.37 per share, up 8.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 17.5%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 12.7%. Shares of ANET have declined 18.4% in the past year.
The Zacks Consensus Estimate for Jabil’s 2023 earnings is pegged at $8.31 per share, rising 1,6% in the past 60 days. The long-term earnings growth rate is anticipated to be 12%.
Jabil’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 8.9%. Shares of JBL have declined 3.6% in the past year.
The Zacks Consensus Estimate for Super Micro Computer’s fiscal 2023 earnings is pegged at $9.58 per share, rising 19.8% in the past 60 days.
Super Micro Computer’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 9.4%. Shares of SMCI have soared 83.6% in the past year.
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