Please ensure Javascript is enabled for purposes of website accessibility

Why Qualcomm Stock Is Surging Today

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$112.98 (-1.62%) $-1.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.