Thursday, July 30, 2020

Qualcomm Stock Set to Hit Record High on Strong Q3

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News shaping
the markets today

     

What’s happening: Shares of Qualcomm surged close to all-time highs in the after-hours trading session on Wednesday, after the company reported upbeat results for its third quarter.

What happened: The mobile industry, which has witnessed a consistent decline in unit shipments over the past four years, is expected to experience a strong rebound in demand with the rollout of 5G services, which promises much better internet speed for consumers.

With the fifth generation mobile networking services taking off and Qualcomm resolving its dispute with Huawei, the world’s largest supplier of mobile-phone chips is expected to benefit from steep sales growth in the current quarter.

How were the results: Although the chip maker reported a decline in net profits for the third quarter, it recorded growth in adjusted earnings (earnings after adjusting for stock-based compensation and other onetime items).

  • Adjusted revenue contracted by $4 million to $4.89 billion in the third quarter, but managed to exceed market expectations of $4.81 billion.
  • Net income declined to $845 million, or 74 cents per share, from $2.15 billion, or $1.75 per share, in the same quarter last year.
  • Excluding onetime items, the company earned 86 cents per share, up from 80 cents per share in the year-ago quarter, exceeding the consensus view of 71 cents per share.

Why it matters: Qualcomm said that it has settled its licensing dispute with Huawei and will receive a payment of $1.8 billion in the fiscal fourth quarter. Although Huawei is still not allowed to buy chips from Qualcomm as per US government regulations, the Chinese company has now started to pay licensing fees for using wireless technology.

After settling a legal battle with Apple last year, Qualcomm announced a deal this year to restart the sale of chips to the iPhone maker.

Qualcomm, which generates the lion’s share of its profits from licensing wireless technology to customers, reported licensing revenues of $1 billion for the third quarter, exceeding expectations of $851 million.

However, revenue from its chip segment came in at $3.80 billion, marginally missing the consensus views of $3.90 billion. The company shipped 130 million chips during the quarter.

CEO Steve Mollenkopf said during the earnings call, “As 5G continues to roll out, we are realizing the benefits of the investments we have made in building the most extensive licensing program in mobile.” Management projected revenues between $5.5 billion and $6.3 billion and adjusted earnings between $1.05 and $1.25 per share.

How shares responded: Shares of Qualcomm climbed 11.6% to $103.83 in extended trading on Wednesday, following a 1.7% rise in the regular session. The stock spiked to as high as $106 in the after-hours session before settling a tad lower on profit taking. Qualcomm’s shares have gained around 18% over the past three months.

What to watch: Investors are keen to know the progress in 5G devices, the demand for the new technology and Qualcomm’s sales of chips for these handsets. Markets will also keep an eye on the iPhone 5G, with concerns around a delay in its launch.

The Markets Today

     

Crude oil will be in focus today, after recording gains in the previous session.

Context: Oil futures closed higher on Wednesday after the US reported the steepest decline in crude inventories so far this year.

Details: The EIA (Energy Information Administration) reported on Wednesday that US crude inventories had shrunk by 10.6 million barrels during the week ending July 24. This marked the biggest weekly contraction since the 11.5 million-barrel decline seen in the week ending December 27 last year.

The latest stockpiles report was much steeper than the analyst expectations of a 1.2 million-barrel decline. This followed the API’s (American Petroleum Institute) report on Tuesday, which showed a decline of 6.8 million barrels in oil inventories.

The EIA report included an increase in gasoline supply by 700,000 barrels in the latest week, while distillate stockpiles rose 500,000 barrels. Crude stocks at Cushing, Oklahoma, rose around 1.3 million barrels.

WTI (West Texas Intermediate) crude for September delivery gained 0.6% to finish at $41.27 per barrel on the NYMEX (New York Mercantile Exchange), while September Brent crude rose 1.2% to settle at $43.75 per barrel on ICE Futures Europe.

The August natural gas contract, which expired following the close, gained 3% at $1.854 per million British thermal units on Wednesday, ahead of the EIA’s report on natural gas supplies scheduled for release today.

What to watch: Investors will continue to keep an eye on the covid-19 cases, with the total number of infections exceeding 16.9 million globally. Traders also await the release of EIA’s data on natural gas stocks, which are expected to have risen by 26 billion cubic feet in the latest week, versus a 37 billion increase a week ago.

Other Markets: European indices were trading mostly lower at 8:30am GMT, with the French 40 and Dax 30 index down by 0.2% and 0.5%, respectively. The FTSE 100 bucked the trend and rose by 0.1%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s annual inflation rate, Spain’s business confidence, Canada’s average weekly earnings, UAE’s money supply M3 as well as the US GDP growth rate and initial jobless claims.