Qualcomm (NASDAQ:QCOM) is trading modestly higher to start 2020, but there’s a devil in the details. Not only is Qualcomm stock trailing the PHLX Semiconductor Index by more than 400 basis points year-to-date, but it resides almost 5% below its 52-week high. Plenty of other large- and mega-capitalization technology names are closer to new highs.
Less than two months into 2020, Qualcomm has already encountered headwinds, including the new coronavirus from China and a probe launched by the antitrust arm of the European Union. Recent guidance, though decent, sent some Qualcomm to the sidelines.
The company said it expects fiscal second-quarter earnings of 80 cents to 95 cents a share on revenue of $4.9 billion to $5.7 billion. Wall Street was expecting 86 cents a share on sales of $5.1 billion. As has been the case with so many companies in recent weeks, the coronavirus is a legitimate concern for Qualcomm.
Qualcomm is just one of a slew of U.S.-based companies that depend on China for production and as a primary end market. In the final three months of 2019, the company sold 13 million handsets in the world’s second-largest economy. And that figure doesn’t even include Qualcomm’s significant Chinese 5G penetration.
For Qualcomm, the coronavirus presents an obvious near-term headwind and one that could worsen before it improves. That’s thanks to some news from Apple (NASDAQ:AAPL).
Domestic equity markets were closed in observance of the President’s Day holiday on Monday. But that didn’t stop Apple from withdrawing its guidance for the current quarter. It blamed the withdrawal in large part on the “Wuhan virus” closing Chinese plants.
“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” Apple said in a statement. “As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.”
Apple did say that customer demand outside of China has been strong. That’s some good news. I means it’s not unreasonable to expect that the second half of this year will bring a rebound in demand for Apple products. That would mean increased demand for chips and components.
5G Race Heats Up
Looking further out, there is the 5G race, one in which investors widely expect Qualcomm to play a pivotal role. Among the names levered to the 5G theme, Qualcomm stock is a healthier idea than lower-priced fare, such as Nokia (NYSE:NOK) and Ericsson (NASDAQ:ERIC).
There are at least two important factors to consider with 5G. First, some analysts are expecting the impact to be incremental, meaning it’s not likely to be an epic, one-time catalyst for Qualcomm.
Second, there’s Apple again. The company should roll out its 5G iPhones later this year, prompting some speculation that customers are holding onto older models to wait for the 5G line.
Apple is expected to use Qualcomm modems for that phone, but there are rumors swirling. Some say the the iPhone manufacturer may not want to use Qualcomm’s QTM 525 millimeter-wave antenna because it makes the phone bulkier. Again, that’s a rumor at this point, but one that has the potential to hamper Qualcomm shares if it proves accurate.
Bottom Line on Qualcomm Stock
If this space was a game of “buy, sell or hold,” I’d lean toward putting Qualcomm in the “hold” category. The company has a strong balance sheet, dividend growth potential and a treasure trove of patents. But those are widely known factors.
The aforementioned risks are credible and should give investors pause. Perhaps both threats will be ameliorated over the coming year, delivering upside for the chip maker in the process, but that’s a tough bet to make right now.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not own any of the aforementioned securities.