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Qualcomm’s Q119 Guidance Lowered Due to Loss of Apple Business
November 12, 2018

Qualcomm reported strong fiscal Q418 results with EPS of $0.90, primarily driven by strong sales to Chinese OEMs along with a tax benefit. However, Q119 guidance absent a roughly $550M tax benefit of $0.65 at well below expectations of $0.94 due to the impact of losing Qualcomm share at Apple combined with a soft global smartphone market and accelerated legal costs. The company’s share should improve in 2H19 with leading Android OEMs and initial 5G smartphone shipments. With Qualcomm no longer shipping into new iPhone models, MSM shipments to Apple will decline 55M units Y/Y in Q119. Further, the loss of RF content to Apple such as envelope trackers combined with softer than normal seasonal December quarter shipments to Android OEMs given weak China smartphone market trends. Qualcomm can build off its strong share for its Snapdragon 700 and 800 series to drive ASP and margin expansion. Qualcomm appears to be gaining share in the premium tier smartphone market with the 800 series, and management has highlighted how 800 have gained smartphone market share in Europe as Chinese OEMs continue to export more premier tier smartphones. Qualcomm will generate much stronger margins in 2H19 and could return to over 20% EBT margins once 5G smartphones ramp longer-term. Stronger 5G sales in F2020 should drive further ASP and margin expansion.