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Next Week’s Earnings Report Will Be a Biggie for Qualcomm Stock

Tom Taulli

Next Wednesday Qualcomm (NASDAQ:QCOM) will report its fiscal second quarter results. The Street consensus is that revenues will be $4.8 billion and the earnings will come to 70 cents a share, but such details probably won’t matter much for Qualcomm stock.

Qualcomm stock is more than a legal win

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Of course, the conversation will be about the company’s recent legal settlement with Apple (NASDAQ:AAPL). The deal has certainly been a huge catalyst. Note that Qualcomm stock is up about 48% since the announcement and the valuation is at levels not seen since the heyday of the dot-com boom in the late 1990s.

The details of the settlement are still kind of murky.  But the broad outlines include: A payment to Qualcomm for prior missed licensing fees as well as a six-year license agreement (there is also a two-year option).

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Now when it comes to litigation, QCOM has a standout track record. Then again it has little choice. The company’s core business model is based on leveraging patents to get licensing fees. And this means being able to wage expensive lawsuits.

But even though APPL has seemingly unlimited resources, this turned out to be a non-factor. So why did the company throw in the towel?

Well, it probably had to do with 5G, which QCOM has a significant lead in terms of multi-gigabit speeds and low latency. As the rollouts of the networks get going, AAPL needs to have its iPhone at the cutting edge.

In other words, the company really had no choice but to work something out with QCOM. Something else:  As another sign of the company’s prowess, Intel (NASDAQ:INTC) has announced that it will abandon its efforts to develop its own 5G modem chips for smartphones.

But of course, there were other important highlights in the quarter, such as:

  • China Unicom (NYSE:CHU) began its 5G rollout with QCOM’s Snapdragon 855 Mobile Platform, which is based on the X50 5G Modem.
  • QCOM announced significant traction with its Vision Intelligence Platform, which leverages AI and machine learning for sophisticated tracking, identification and classification of people, objects and sounds. Some of the partners include Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO), AnyVision and Linkflow.
  • The company announced its AI chip for the data center, which is based on inference processing. The technology will supercharge applications like NLP (Natural Language Processing), image search and personalization. In fact, the chip has more than 10 times the performance per watt versus the most advanced AI solutions on the market.
  • QCOM launched its Robotics RB3 Platform. It’s an integrated system to help design advanced robots and drones, whether for enterprise or consumer purposes. Some of the functions include computer vision, machine learning, perception, localization, mapping and navigation.
  • The company’s CFO, George Davis, departed from the company after six years. David Wise, who is the Treasurer and Senior Vice President, will take his place on an interim basis until a permanent replacement is found.

Bottom Line On Qualcomm Stock

Based on the settlement, QCOM estimates that there will be $2 per share in additional EPS. This would mean that this year will see a total of about $6 – putting the forward price-to-earnings multiple at 14X. This is fairly reasonable for a company that is poised to benefit from the 5G megatrend.

Qualcomm stock also has an attractive dividend, which is at 4.35%. This is one of the highest among tech companies.

True, there are still some notable risk factors with Qualcomm stock. After all, there will likely be challenges with the development of the 5G chips and there is also the pending lawsuit from Federal Trade Commission.

But such things are manageable and yes, Qualcomm stock probably has room on the upside, especially as we learn more about the Apple agreement and the rollouts for 5G.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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