The Ratings Game: ‘This too shall pass’ — Qualcomm stock avoids pain from forecast miss as it still looks better than other chip stocks
Qualcomm Inc. shares were relatively docile Friday as analysts accepted that inventory clearance is now a given in the semiconductor industry, and believe the company best known for its mobile chips will be able to pull out of it.
executives said Thursday that inventory issues would persist into June, and coupled with weaker-than-expected handset demand, its forecast would fall short of the Wall Street consensus.
Bernstein analyst Stacy Rasgon, who has an outperform rating and a $155 price target, said that “given the current excess channel inventory situation is now well understood, we didn’t think outlook was that bad.”
While Qualcomm execs said they now see longer-than-expected inventory issues, “in the near-term, the company sees handset revenues flattish into what is typically a seasonally down quarter, giving us some confidence that we are likely bottomed,” Rasgon said.
“But this too shall pass,” said Citi Research analyst Christopher Danley, who has a neutral rating and a $132 price target. In a note, Danley said that the recession is here, so “excess inventory will stick around for a couple quarters.”
Danley reiterated his neutral rating “due to the recession and Apple’s
transition to internal modems, offset by share gains at Samsung
Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and a $130 price target, said the inventory and demand issues are “another setback for Qualcomm” short term, “albeit less bad than last quarter’s reset.” Rolland noted that last quarter, Qualcomm had forecast “a little more than 50% of this inventory would be digested in December, with the remainder in March.”
“Longer-term, we believe CEO Cristiano [Amon] is proving Qualcomm can move beyond a modem and cellular IP company to become a true broad-based semiconductor player, diversifying into RF, Auto, IoT and beyond, Rolland said.
On the call late Thursday, Amon said that even with the issues, “from a product and technology perspective, we believe we are in the strongest position in our history.”
Inventory problems and slow demand, however, doesn’t appear to bode well for the mobile handset industry as research firm Gartner recently forecast that mobile phone shipments worldwide would fall 4% to 1.34 billion units in 2023, following an 11% drop in 2022.
Inventory problems have become a visible plague on the industry after a two-year, COVID pandemic-driven shortage, quickly flipped to a glut in 2022, as seen in earnings reports from Intel Corp.
and Advanced Micro Devices Inc.
Read: The world is buying fewer devices, and inventories for PCs, phones and tablets are building
Qualcomm shares shifted between slight gains and losses Friday, while the PHLX Semiconductor Index
declined 0.5%, the S&P 500 index
was off 0.3%, and the tech-heavy Nasdaq Composite Index shed 0.3%.
Of the 29 analysts, 21 have buy-grade ratings, seven have hold ratings, and one has a sell rating, along with an average price target of $148.30, according to FactSet.