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Will Qualcomm (QCOM) Disappoint on Q3 Earnings?

Zacks Equity Research

The world’s largest mobile chipset developer, Qualcomm Incorporated (QCOM), is scheduled to report its third quarter fiscal 2014 financial numbers on July 23, after the closing bell.

In the previous quarter, Qualcomm’s earnings surpassed the Zacks Consensus Estimate by a margin of 10.09%. Let’s see how things are shaping up for this announcement.

Factors to Influence the Quarter

Qualcomm is benefiting from a significant growth of 3G/4G LTE (Long-Term Evolution) wireless technologies and smartphones in the emerging markets, particularly in China. Moreover, China’s decision to roll out the 4G Long Term Evolution (:LTE) technology should further drive Qualcomm’s chip demand thereby improve revenues in the upcoming quarter.

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During the second quarter of fiscal 2014, Qualcomm shipped approximately 188 million CDMA-based MSM (Mobile Station Modem) chipsets, up 9% year over year. This figure was in line with the company’s guidance. In the third quarter, Qualcomm expects to have shipped between 198 and 213 million MSM chipsets, higher than that reported in the second quarter.

On the flip side, aggressive competition in the mobile phone chipset market may hurt Qualcomm’s profits in the upcoming quarters. The company is facing severe competitive threat from, Intel, which has been redesigning chipsets for the mobile computing market.

Earnings Whispers?

Our proven model does not conclusively show that Qualcomm is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zero Zacks ESP: This is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at $1.08. This leads to an ESP of 0.00% for Qualcomm.

Zacks Rank: Qualcomm’s Zacks Rank #2 (Buy) when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies for investors to consider, that, according to our model have the right combination of elements to post an earnings beat this quarter:

Texas Instruments Inc. (TXN), with Earnings ESP of +3.39% and a Zacks Rank #2.

Intel Corp. (INTC), with Earnings ESP of +1.56% and a Zacks Rank #1 (Strong Buy).

NVIDIA Corpo. (NVDA), with earnings ESP of +31.58% and a Zacks Rank #1.

Read the Full Research Report on QCOM
Read the Full Research Report on INTC
Read the Full Research Report on TXN
Read the Full Research Report on NVDA


Zacks Investment Research