Qualcomm beat Wall Street estimates. Adjusted EPS came in at $2.17 against $2.16 expected. A one-cent beat. The market responded by setting fire to the stock.
The guidance was the problem. Qualcomm projected EPS of $2.15 to $2.35 against a $2.27 consensus. The midpoint is $2.25. Two cents short. Shares slid 7% in extended trading.
Here is the culprit. Memory chips cost too much. Data centers are hoarding them for AI. Phone makers can't afford them. Phone prices rise. Phones don't sell. Qualcomm sells chips for phones. Handset revenue fell 26% to $5.14 billion.
Qualcomm raised prices in September. Chip sales fell anyway. Raise prices on a product people can't afford, then act surprised. Bold strategy. Very Econ 101, if you skip the first lecture.
CEO Cristiano Amon said the company saw the memory shortage coming and prepared early. Prepared. The handset division dropped 26%. Imagine the unprepared version. A crater with a logo.
Amon also said Qualcomm expects $5 billion in data center revenue in fiscal 2027. Morgan Stanley said it lacks conviction in that ramp. Nothing says a bright future like a bank shrugging at it.
Eight brokerages cut price targets after the results, according to LSEG. Eight analysts opened eight spreadsheets and typed a smaller number. That is the job. They get bonuses.
Reuters pegged the premarket damage at roughly $17.5 billion in market value. Gone. Over memory chips. Made by Samsung, SK Hynix, and Micron. Not by Qualcomm.
Somewhere a retail trader bought calls Wednesday afternoon because the earnings beat looked like a gift. It was a gift. Wrapped in a two-cent guidance miss.
The stock trades at about 16.8 times forward earnings. Cheap, say the dip buyers. Cheap is what they say about the thing falling on them.
Photo by on Unsplash
Leave a Comment