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Why Qualcomm Stock Is Surging Today

By Timothy Green – Jul 30, 2020 at 11:33AM

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The chip company's results beat expectations, and a new licensing agreement will boost revenue next quarter.

What happened

Shares of Qualcomm (QCOM -1.62%) jumped on Thursday after the semiconductor company reported its fiscal third-quarter results. Qualcomm beat analyst estimates across the board, and it disclosed a patent license agreement with Huawei. The stock was up about 11.9% at 11:20 a.m. EDT.

So what

Qualcomm reported third-quarter revenue of $4.89 billion, roughly flat from the prior-year period, after backing out revenue recognized last year from settlement agreements with Apple and its contract manufacturers. Revenue from the chip business grew 7% to $3.81 billion, while revenue from the licensing segment was down 19% to $1.04 billion. Total revenue was about $100 million higher than analysts were expecting.

Chips on a circuit board.

Image source: Getty Images.

Non-GAAP (adjusted) earnings per share came in at $0.86, up from $0.80 in the prior-year period and $0.15 higher than the average analyst estimate. Earnings before taxes in the chip business jumped 20%, while EBT in the licensing business sank 28%.

Qualcomm struck a long-term global patent license agreement with Huawei in July. The company expects to recognize $1.8 billion of revenue in the fiscal fourth quarter related to the agreement, which covers Huawei's sales since the start of 2020.

Now what

Qualcomm expects to produce adjusted revenue, which excludes the Huawei patent agreement revenue, between $5.5 billion and $6.3 billion in the fiscal fourth quarter. This includes chip revenue between $4.3 billion and $4.9 billion, and licensing revenue between $1.2 billion and $1.4 billion. The company sees adjusted EPS between $1.05 and $1.25.

Qualcomm's guidance assumes a 15% decline in handset shipments due to COVID-19, along with a delay of an unnamed global 5G flagship phone, presumed to be Apple's upcoming 5G iPhones. Reports have indicated that mass production of Apple's new iPhones are behind schedule.

Including Thursday's rally, Qualcomm stock has erased essentially all its pandemic-driven losses. Shares of the chip company are now just barely below their 52-week high.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Qualcomm. The Motley Fool has a disclosure policy.

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