Qualcomm forecasts sales above estimates, settles dispute with Huawei

Qualcomm Shares Rise on Strong Forecast Huawei Agreement

Chief Financial Officer Akash Palkhiwala told in an interview that Qualcomm expected to make up some of those sales in the fiscal first quarter.

It also agreed to a new long-term licensing agreement with the Chinese firm that should bring in about $1.8 billion in revenue in the fourth quarter.

Third-quarter net income fell to $845 million, or 74 cents a share, from $2.15 billion, or $1.75 a share, a year earlier. Wall Street was expecting the company to report earnings of just 71 cents per share on revenue of $4.81 billion.

While Qualcomm has long supplied processors and modems to help phones connect to wireless data networks, it has pushed into also selling radio-frequency chips to help phone makers handle the more complex signals involved in 5G networks. Accordingly, Qualcomm has experienced a revenue bump as 5G rollouts continue worldwide. The company said it has now signed more than 100 5G patent license agreements, including with all of the market's major players.

What really pleased investors, though, was the settlement and new licensing deal with Huawei. Advertisement Revenues including backpay from the new Huawei deal will be between $7.3 billion and $8.1 billion, according to the company.

Excluding the $1.8 billion gain from Huawei, Qualcomm predicts sales of $5.5 billion to $6.2 billion for the September quarter.

KeyBanc's John Vinh (Overweight, PT from $110 to $125) says the Huawei settlement "likely paves the way" for a QCT agreement with QCOM awaiting an export license. Huawei is heavily invested in 5G, as is Qualcomm.

Qualcomm Inc. gave a strong sales forecast for the current quarter, signaling that fifth generation mobile phone services are taking off. "The Qualcomm/Huawei settlement suggests there are other avenues that commercial organizations can successfully explore and use to further their interests".

"Our guidance for the fourth quarter of fiscal 2020 includes an impact of greater than ($0.25) to EPS attributable to a planning assumption of an approximate 15 percent year-over-year reduction in handset shipments due to COVID-19, including a partial impact from the delay of a global 5G flagship phone launch". "In fact, the company believes it will starts fiscal 2021 as one of the largest RF providers", he said.

But Moorhead said that that downside pressure was outweighed by Qualcomm's growing RF chipset business.

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