Telecom Stocks' Earnings: Key Predictions for QCOM & QRVO
The overall Technology sector, of which Telecom is an essential part, is likely to report relatively healthy earnings for the October-December quarter compared with other sectors. Despite COVID-19-induced supply chain disruptions affecting normal business operations of several telecom firms, the sector appears to have been well placed with recurring revenues backed by digital sustainability. Better-than-expected sector revenues with a faster pace of 5G deployment and rapid proliferation of IoT devices amid rising work-from-home trend instill confidence.
Although the sector appears to have overcome the ‘supply shock’ caused by factory shutdowns and travel restrictions through gradual resumption of business activities, profitability has largely been compromised. Various trade restrictions on grounds of national security concerns have eroded sector margins, while higher infrastructure investments for 5G networks have increased operating costs. Upfront capital investments for 5G have proven to be substantially higher than prior generations of wireless deployments due to network density requirements, potentially hurting return of capital metrics.
To sum up, although technological advances have changed the way consumers communicate resulting in higher home data consumption and video streaming, intense competition and commoditization of services have limited the chances of benefiting from these trends.
Per the latest Earnings Preview, total earnings for the Technology sector for the December quarter are expected to be up 6.8% on 11.2% higher revenues year over year compared with the respective tallies of 13% and 8.2% in the prior quarter.
Let’s take a look at two leading Telecom stocks that are slated to report quarterly results on Feb 3.
Qualcomm Incorporated QCOM is scheduled to report first-quarter fiscal 2021 results after the closing bell. For the first quarter of fiscal 2021, Qualcomm expects GAAP revenues of $7.8-$8.6 billion. The Zacks Consensus Estimate for the same is pegged at $8,299 million. The company recorded revenues of $5,077 million in the year-earlier quarter. Management anticipates non-GAAP earnings of $1.95-$2.15 per share. The consensus mark for earnings is currently pegged at $2.10 per share. Qualcomm recorded non-GAAP earnings of 99 cents per share in the prior-year quarter.
Our proven model does not predict an earnings beat for Qualcomm this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.
Qualcomm currently has an Earnings ESP of -0.05% and a Zacks Rank #2.
QUALCOMM Incorporated Price and EPS Surprise
QUALCOMM Incorporated price-eps-surprise | QUALCOMM Incorporated Quote
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During the fiscal first quarter, Qualcomm secured green signal from the Trump administration to supply 4G chips to China-based Huawei Technologies, paving its way to provide some key raw materials for 4G mobile devices despite stringent U.S. trade restrictions. Markedly, Qualcomm had earlier inked a settlement agreement with Huawei to resolve previous disputes related to its license agreement that expired on Dec 31, 2019. The company also entered into a new long-term, global patent license agreement, including cross-license rights to certain Huawei’s patents, covering sales beginning Jan 1, 2020. This has ensured recurring payments to the mobile chip manufacturer. The resumption of chip supply is likely to have translated into incremental revenues for the company in the quarter.
Qorvo Inc. QRVO is scheduled to report third-quarter fiscal 2021 results, after the closing bell. The company expects third-quarter fiscal 2021 revenues to be $1.06 billion (+/-$15 million). The consensus mark for revenues is pegged at $1.07 billion, which suggests an improvement of 22.75% from the year-ago quarter’s reported figure. Non-GAAP adjusted earnings are anticipated to be $2.65 per share at mid-point for the fiscal third quarter. The Zacks Consensus Estimate for earnings is pegged at $2.66 per share. The figure indicates an improvement of 43% from the year-ago quarter’s reported figure.
Qorvo currently has an Earnings ESP of +0.78% and a Zacks Rank #2.
Qorvo, Inc. Price and EPS Surprise
Qorvo, Inc. price-eps-surprise | Qorvo, Inc. Quote
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Solid momentum in Qorvo’s mid-high-band and ultra-high band front end modules, which have been powering 5G smartphone launches, is likely to have contributed to the company’s fiscal third-quarter performance. Solid uptake of Bulk Acoustic Wave filters, with the reopening of economies, is expected to have had driven top-line growth. Increased sales of RF content expansion for 5G devices might have favored Mobile Products division sales, which is expected to contribute $790 million during the quarter.
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