For a moment, it looked like a bit of good news for Qualcomm, Inc. (NASDAQ:QCOM). QCOM stock jumped in after-hours trading after the company’s fiscal second-quarter report included beats on both the top and bottom lines.
Qualcomm stock was up as much as 3% after initially declining, but it has since given back some of its post-earnings gains. All eyes are on the post-earnings conference call, however, as investors look to get more information on the company’s legal battle with Apple Inc. (NASDAQ:AAPL).
But on the numbers alone? Well, Qualcomm earnings weren’t bad … but they weren’t nearly strong enough to get investor attention shifted elsewhere.
Qualcomm Earnings: The Good News
Qualcomm admittedly reported strong Q2 numbers.
Adjusted earnings of $1.34 per share beat estimates by 14 cents. Meanwhile, non-GAAP revenue of $6 billion, up 8% year-over-year, was a point and a half ahead of the Street’s growth projections.
Qualcomm recorded strength in its QCT (chip) business — the one area in which QCOM has some degree of control. Licensing revenues and profits largely are based on shipments by Qualcomm customers — it’s not as if Qualcomm has much influence over how many smartphones are shipped within a given quarter.
The QCT numbers were good, to be sure. Revenue increased 10% and EBT (earnings before taxes) rose a whopping 179% year-over-year. EBT margins moved from a narrow 5% to a much more healthy 13%. Guidance for Q3 suggests that margin improvement will hold, at least in the near term.
That’s a notable step forward in Qualcomm reducing its reliance on the licensing business — because that is the business that worries investors at the moment.
Qualcomm Earnings: The Bad News
The problem is that even a stronger QCT barely moves the needle for Qualcomm, and QCOM stock, as a whole. The licensing business (QTL) EBT was still more than quadruple that of QCT in Q2.
That QTL business did have a solid quarter, with revenue rising 5% and margins holding flat, as 3G and 4G smartphone shipments rose 20%. But the Apple concerns still weigh.
In its Q2 presentation, Qualcomm said that Q3 guidance was wider than usual — EPS is projected between 90 cents and $1.15 per share — because of uncertainty as to whether AAPL suppliers would withhold royalties due. That’s also somewhat disappointing compared to the consensus of $1.09.
And even that wide range doesn’t include a scenario where all of Apple’s suppliers withhold royalties.
The potential impact of the Apple dispute still isn’t known — and could still rear its head at some point over the next few quarters. That’s not going to do enough for investor confidence to get QCOM stock out of its current rut.