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Semiconductor maker Qualcomm (QCOM) posted mixed second-quarter results after the closing bell on Wednesday. But a weaker-than-expected handset forecast, which sent the shares down more than 6% in after-hours trading, left us looking to move as quickly as possible from the small position the Club still holds in the stock. Revenue for the quarter fell about 17% year-over-year to $9.27 billion, beating analysts’ forecast of $9.1 billion, according to Refinitiv. Adjusted earnings per share (EPS) fell 33% year on year to $2.15, in line with analyst forecasts. Weakness in the handset chipset market is expected to pressure Qualcomm’s business for a few more quarters, making it harder to justify continuing to hold the stock as it navigates this industry challenge. One of the reasons Qualcomm has lowered its handset unit expectations for 2023 is due to a slower rebound in Chinese demand, which has become a disappointing theme of the week. Management said it had yet to see evidence of a meaningful recovery despite the reopening of the world’s second-largest economy after Covid. Given that we have a few Chinese consumer games in the portfolio that sort out this problem, we think it’s best to surround the wagons with those where we think market share gains and growth are most evident, like Starbucks (SBUX) or Estee Lauder (EL). Accordingly, we will look to sell the remainder of this small position in Qualcomm, which we have strengthened several times this year, starting on Thursday. Quarterly Commentary Fiscal second quarter handset sales increased 6% sequentially, quarter over quarter, driven by new launches with Snapdragon 8 Gen 2. However, broader demand remains subdued due to too much inventory, hence the drop of almost 17% compared to the second quarter of last year. , as shown in the table above. The company now expects global 3G, 4G and 5G handset units in the 2023 calendar to be down at least a high single-digit percentage from 2022, a lower forecast than expected. In autos, revenue was up nicely, up 20% from a year ago, but it was disappointing to see it fall short of the consensus estimate. During the quarter, Qualcomm won 12 new designs on its Snapdragon Cockpit and Snapdragon Connectivity 5G platforms with automakers. While there hasn’t been much action in Advanced Driver Assistance Systems (ADAS) yet, management expects new designs in the second half. Internet of Things (IoT) revenue was also a failure, with revenue down about 24% from a year ago. Sales suffered from the impact of the weakening macroeconomic environment on demand and from destocking which is taking longer than expected. Qualcomm expects its fiscal third quarter revenue to be between approximately $8.1 billion and $8.9 billion, which at a midpoint of $8.5 billion is well below the consensus of $9.1 billion. This is a significant shortfall from estimates, and mid-term it reflects macro headwinds, weaker global handset units and reduced channel inventory. While there was hope at the start of the quarter that handset shipments were approaching a bottom, Qualcomm said late Wednesday that inventory drawdown momentum will remain a factor for at least the next two quarters. The outlook also reflects a larger-than-normal sequential decline in revenue from Qualcomm CMDA Technologies (QCT), which the company primarily attributes to the timing of a customer’s purchases of modem-only handsets – likely Apple (AAPL), which is also a Club. stock and it pays after the bell on Thursday. As for earnings, Qualcomm expects Adjusted EPS to be around $1.70 to $1.90, which at a midpoint of $1.80 misses estimates by 2, $17. (Jim Cramer’s Charitable Trust is long QCOM, SBUX, EL, AAPL. See here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a transaction. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Cristiano Amon, CEO of Qualcomm Inc., in New York on Friday, September 23, 2022.
Victor J. Blue | Bloomberg | Getty Images
Semiconductor manufacturer Qualcomm (QCOM) released mixed second-quarter fiscal results after the closing bell on Wednesday. But a weaker-than-expected handset forecast, which sent the shares down more than 6% in after-hours trading, left us looking to move as quickly as possible from the small position the Club still holds in the stock.