Qualcomm (NASDAQ:QCOM) stock fell more than 4% today after the smartphone chip maker lowered guidance and warned that the deadly coronavirus could have a big impact on the smartphone industry.
“There is significant uncertainty around the impact from the coronavirus on handset demand and supply chain,” the company’s chief financial officer, Akash Palkhiwala, said during the company’s earnings call on Wednesday.
The virus was first reported in the Chinese city of Wuhan and so far has killed more than 560 people and infected more than 28,000, according to The Associated Press. Outside of mainland China, at least 260 cases are confirmed.
QCOM and the Coronavirus
Nearly half of Qualcomm’s revenue last year came from China. It also has a six-year patent license and chip supply agreement with Apple (NASDAQ:AAPL) that on its own was expected to generate $2 per share in earnings, according to CNN. As Apple has a huge portion of its business in China, those earnings are also at risk.
Qualcomm says it sold 13 million SG handsets in China in the fourth quarter of 2019, and penetration of 5G devices reached 19%. There’s a huge opportunity for 5G sales if the coronavirus can be contained and if Qualcomm can maintain its supply chains to deliver its products.
“As the coronavirus situation continues to unfold, our thoughts are with the many Qualcomm employees in China, our customers and suppliers, their families, as well as those who are impacted by this unprecedented situation,” Qualcomm CEO Steve Mollenkopf said.
QCOM on Wednesday reported earnings of $5.08 billion for the fourth quarter of 2019, which is an increase of 5% from the previous year. Profits were down 13%.
Apple stock was flat in early trading today, while QCOM competitor Nokia (NYSE:NOK) was down 1.3%.
How to Trade Qualcomm Stock
The coronavirus is a huge unknown for the stock market – and you know how much Mr. Market hates uncertainty. As long as the virus remains out of control, the risk is too great to take new positions in QCOM or many other Chinese stocks.
As my InvestorPlace colleague Josh Enomoto recently pointed out, the coronavirus is spreading much faster than the SARS virus, and is proving to be more contagious.
But the potential of Qualcomm stock remains high, and as a long-term play, I like it a lot. Hold fast for now, but expand or take new positions on QCOM when this crisis comes to an end to buy to get Qualcomm stock at a discount.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.
