Qualcomm CEO Cristiano Amon is leading the company’s diversification into sectors away from smartphones.
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Qualcomm
stock rose Friday after the maker of mobile processors and 5G wireless chipsets reported earnings and said it is diversifying its business.
Analysts warn, however, that a slow smartphone market and the expected end of Qualcomm’s relationship with
Apple
could drag on the stock.
Qualcomm
(ticker: QCOM) on Thursday evening warned of weak mobile-phone demand and elevated levels of inventory that are expected to remain for at least the first half of 2023. The company’s March quarter guidance fell short of Street expectations.
Qualcomm is looking to diversify its business from reliance on supplying components for phones, as it taps into demand for similar components in everything from cars to connected devices such as smart grocery carts. The company showed progress on that front in the latest results: Revenue from its auto segment rose 41% in fiscal 2022.
“Short term, we consider this another setback for Qualcomm,” analysts at Susquehanna International Group said, also raising its stock target price to $130 from $125, with a Neutral rating. “Longer-term, we believe CEO Cristiano Amon is proving Qualcomm can move beyond a modem and cellular IP company to become a true broad-based semiconductor player, diversifying into RF [radio frequency], Auto, IoT [Internet of Things] and beyond.”
Shares of Qualcomm were up 1% on Friday, as the
S&P 500
and
Nasdaq
Composite declined slightly.
Other analysts were less confident that Qualcomm can overcome its headwinds.
“We believe the company is over-exposed to the mobile market, with its diminishing growth and increasing competition,” analysts at Oppenheimer, led by Rick Schafer, wrote in a research note. They maintained a Perform rating on the stock.
The company on Thursday acknowledged some of its challenges.
“The environment continues to be dynamic with challenging macroeconomic conditions and Covid headwinds in China, driving industrywide demand weakness,” Chief Financial Officer Akash Palkhiwala told analysts on Thursday’s earnings call. “Given this uncertainty, we are incorporating a negative bias for 3G, 4G, 5G handset volumes for calendar ’23 relative to calendar ’22.”
Another cloud over the stock is Apple’s (AAPL) intention to develop its own in-house components to replace Qualcomm’s, in the wake of a patents dispute that was settled in 2019. Qualcomm has already said it expects only a minimal revenue contribution from Apple by fiscal 2025.
“AAPL [Apple] remains an overhang, in our view, with the transition to an internal modem set for 2025, but there is also the possibility that AAPL may stop paying royalties to QCOM around this time—which could potentially open up another legal battle,” analysts at UBS, led by Timothy Arcuri, wrote.
The UBS analysts reiterated a Neutral rating and $125 target price on the stock.
Write to Adam Clark at adam.clark@barrons.com
Credit: marketwatch.com