Qualcomm Beat the Street -- but Won't Promise a Summer Encore

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As Qualcomm (Nasdaq: QCOM  ) wound up to deliver second-quarter results, I made this bold prediction: The maker of wireless radio and mobile computing chips would crush analyst targets.

The results are in, and Qualcomm did indeed deliver on my promise (thanks, guys!). Sales jumped 28% year over year to $4.9 billion on heavy orders of 3G and 4G radio chips; non-GAAP earnings increased 17% to $1.01 per share. As a reminder, the Street consensus called for $4.8 billion and $0.95 per share, respectively.

So far, so good. So why did Qualcomm's shares fall like a drunken giraffe on the news?

For one, expectations were pretty high. Qualcomm investors enjoyed a 16% return in the three months leading up to this report. To put that number into perspective, the Dow Jones Industrial Average (INDEX: ^DJI  ) gained just 3.6% over the same period

The other factor in this drop, and probably the more significant of the two, was a timid forecast for the next quarter. Both sales and earnings guidance came in light compared with the current Street view, with the earnings range not even touching the consensus average.

Management also raised its earnings outlook for the full fiscal year while keeping revenue targets steady. That's nice, but still not enough to satisfy the analyst herd.

Qualcomm refrained from discussing the assumptions behind this soft outlook, though I'm sure analysts will grill management for details in the earnings call. Look for a fuller discussion of the puts and takes tomorrow as fellow Fool Evan Niu digs into the report.

Since Qualcomm plays an important role in pretty much every mobile gadget Apple (Nasdaq: AAPL  ) makes, this stock is often seen as a low-rent but big-opportunity alternative to owning the world's most expensive stock. iPads and iPhones probably helped Qualcomm beat the Street this time, but then we have to wonder what's wrong with the third quarter's order flow. Did Qualcomm lose its cherished chip provider status for the next iPhone revision? Are Android sales falling through the floor?

Or is management just being conservative here?

I'm thinking "conservative." Qualcomm missed the Wall Street earnings target six months ago and would probably prefer not to do it again -- so why not set the bar low? Once bitten, twice shy.

This is still a top-shelf company and a premium stock. I'll take advantage of this sudden drop by placing a thumbs-up CAPScall on Qualcomm right now. That way you can follow along as I benefit from Qualcomm's large stake in the trillion-dollar mobile revolution -- or point and laugh if I'm wrong. Don't you wish all analysts held themselves accountable like that?

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Qualcomm and Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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10/26/2016 4:00 PM
QCOM $68.20 Up +0.49 +0.72%
Qualcomm CAPS Rating: ****
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AAPL $115.59 Down -2.66 -2.25%
Apple CAPS Rating: ****