Qualcomm (NASDAQ:QCOM) recently reported its third quarter 2019 earnings, and shareholders aren’t happy. QCOM stock may head lower. Here are some thoughts on the revenue and reduced sales guidance.
Revenues were $9.6 billion, which was within the companies guidance range of $9.2 billion to $10.2 billion. However, if you stop and think about this guidance, that’s are pretty wide range. Its like hitting the side of a barn with a shotgun.
For Q4, revenue guidance is $4.3 billion-$5.1 billion. This is significantly lower than analysts estimates of $5.7 billion, and this will probably cause some shareholders to sell their stock.
QCOM Stock’s Explanations
I always enjoy listening to management give excuses as to why they came up short of estimates or ease their guidance down. I know that they need to put a positive spin on things, but sometimes their reasoning can be pretty funny — unless, of course, you own the stock and are about to lose money.
The CEO of the company, Steve Mollenkopf, who BTW made almost $20 million last year, basically said people are not buying the 4G phone because they are waiting for the 5G phone to come out. The spin on this is that the weak sales of the 4G now will be made up for by the sales of the 5G in the future.
So I guess now if the company misses revenue estimates or reduces guidance again, they can just say that people aren’t buying the 5G because they are waiting for 6G, or that they aren’t buying the 6G because they are waiting for the 7G to out and so and so on.
One of the things that shareholders need to consider in addition to reduced sales is, what will be the effect on inventories? In other words, what is Qualcomm going to do with all of the phones they cant sell? Right now, these phones are consider an asset, but if they can’t be sold then their value will be reduced.
Looking to the Future
I have an interesting point of view because I have teenage children and I hear them talking about their phones all the time. Based on this non-scientific analysis I would say that I don’t think that the sales were reduced because people are waiting for better phones to come out. I think I has to do with the fact that the excitement that used to accompany the release of a new phone just isn’t there anymore.
Remember when people used to camp out in front of the store the night before a new phone came out? Times have changed. New releases are not as different from the prior versions as they used to be. You don’t need to have the latest version of a phone anymore.
Stacy Rasgon is an analyst at Sanford C. Berstein, a highly regarded Wall Street research firm. I think that she summed it up perfectly when she said “The market’s saturated now. People buy phones when they break. It’s bad all around. It’s going to be a while.”
QCOM Stock Chart — Where Are the Support Levels?
I am guessing that the price of Qualcomm stock will go down, especially with fresh trade war fears on the menu. If you are considering buying it, there may be some support around the $65 level. This level was support in late May and early June.
Longer-term, there may be support around the $50 level because this was the top of the range from December through April.
At the time of this writing, Mark Putrino did not hold any positions in any of the aforementioned securities.