Qualcomm earnings beat diminished expectations, stock heads higher

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Qualcomm Inc. beat diminished expectations with an earnings report released Wednesday afternoon, sending shares higher.

Qualcomm QCOM, -0.97%  reported fiscal fourth-quarter earnings of $506 million, or 42 cents a share, on sales of $4.81 billion, down from $5.83 billion a year ago. After adjusting for stock-based compensation and other effects, the chip maker reported earnings of 78 cents a share, down from 90 cents a share a year ago.

Analysts on average expected adjusted earnings of 71 cents a share on sales of $4.76 billion, according to FactSet, down significantly from expectations ahead of Qualcomm’s previous earnings report. At the end of July, analysts expected adjusted earnings of $1.09 a share on sales of $5.67 billion, according to FactSet.

Qualcomm shares closed with a 1% decline at $84.63, then jumped 4% in after-hours trading immediately following the release of the results. The stock has increased 48.7% so far in 2019, including a 24.1% gain in the past three months, despite concerns about the ramp into 5G technology and a ban on selling gear to China’s Huawei Technologies Co. that sent forecasts down.

“The 5G party may be kicking off, but for now we don’t know if the guest of honor will be dancing up a storm, or still peeking through the drapes,” Bernstein analyst Stacy Rasgon wrote in a preview of Qualcomm’s earnings.

Qualcomm said in its previous earnings report that customers were slowing down their purchases of 4G equipment ahead of the launch of 5G, which isn’t expected to boost Qualcomm results until the beginning of the 2020 calendar year. That led Rasgon to say in August that “things seem set to stink for the next two quarters” for Qualcomm.

That prediction includes the current quarter, which Qualcomm projected will continue a pattern of year-over-year earnings declines. The company’s forecast calls for fiscal first-quarter adjusted earnings of 80 cents to 90 cents a share on sales of $4.4 billion to $5.2 billion, after Qualcomm posted first-quarter adjusted earnings of $1.20 a share on sales of $4.82 billion in the just-completed year. Analysts on average were modeling first-quarter adjusted earnings of 81 cents a share on sales of $4.83 billion after Qualcomm executives warned that 5G returns would be pushed farther out.

“Our technology and inventions leave us extremely well-positioned as 5G accelerates in 2020,” Qualcomm Chief Executive Steve Mollenkopf said in Wednesday’s announcement.

Qualcomm also announced Wednesday afternoon that interim Chief Financial Officer Akash Palkhiwala will remain in the position permanently. Qualcomm said that the board had unanimously approved the appointment of Palkhiwala.

“Akash’s deep understanding of our business both operationally and strategically makes him the ideal individual to lead our finance function as we embark on a period that, I believe, may present the biggest opportunity for growth in Qualcomm’s history,” Mollenkopf said in a separate news release.

Qualcomm planned a conference call to discuss its results at 4:45 p.m. Eastern time Wednesday.

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