Earnings, New Deal with Huawei Set Qualcomm Stock on Fire\u00a0

Qualcomm Inc. (NASDAQ: QCOM) reported third fiscal quarter 2020 results after markets closed on Wednesday. The chipmaker posted adjusted diluted earnings per share (EPS) of $0.86 and revenues of $4.9 billion. In the third quarter of 2019, Qualcomm reported EPS of $0.80 on revenues of $9.6 billion. The consensus analysts’ estimates called for EPS of $0.71 and $4.8 billion in revenue.

The big news is a new technology licensing (QTL) agreement with Chinese network equipment maker Huawei. Qualcomm said the deal was a long-term global patent license and includes cross-licensing of some Huawei patents. In the 2019 fiscal year, Qualcomm revenues included $450 million in QTL royalties ($0.32 per share) paid by Huawei under an interim agreement that expired at the end of last year’s third quarter. Qualcomm has not recorded any Huawei licensing revenue since that time.

The new licensing agreement will add $1.8 billion to Qualcomm’s first- and second-quarter revenues and an as-yet-unspecified amount for the third quarter. The amounts were included in the company’s fourth-quarter forecast.

Qualcomm guided fourth-quarter QTL revenues to a range of $1.2 to $1.4 billion. Licensing revenue in the current quarter totaled $1.1 billion, slightly better than the company’s estimate for revenues of $750 to $950 million.

The company also guided its smartphone chip revenues to a range of $4.3 to $4.9 billion, well above actual third-quarter revenue of $3.8 billion.

Adjusted EPS in the fourth quarter is forecast in a range of $1.05 to $1.25 compared to a consensus analyst estimate of $1.10. The company forecasts total fourth-quarter revenue in a range of $7.3 to $8.1 billion, compared to a consensus analyst estimate of $5.78 billion. In the year-ago fourth quarter, Qualcomm posted revenue of $4.8 billion and EPS of $0.78.

If the deal with Huawei will yield $1.8 billion for the first two quarters of this year, a conservative estimate for the last two quarters of $1 billion brings fourth-quarter revenues to a total of $7.7 billion, about the midpoint of Qualcomm’s estimated revenue range.

The Qualcomm lawyers who negotiated the Huawei deal are the revenue drivers for the fourth quarter. Back out the Huawei payments and sequential revenues would be roughly flat. That’s not a criticism but is worth pointing out.

Qualcomm stock traded up about 12.5% in Wednesday’s after-hours session at $104.70 which would be a new 52-week high if it carries over to Thursday’s regular session. The stock’s 52-week range is $58.00 to $96.17 and the consensus price target is $94.89. Qualcomm pays a dividend yield of 2.84%. Investors could be forgiven for wondering if a dividend hike is in the cards following the new deal with Huawei.

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