China Demand, L-T QCT Margin Guidance Key for Qualcomm (QCOM) into Q3 Report - Cowen

Cowen and Company is out with a preview of Qualcomm (Nasdaq: QCOM) ahead of the company's Q3 report today.

Analyst Timothy Arcuri is looking for Qualcomm to post Q3 revenue and EPS of $4.91 billion and $0.96, respectively. Estimates are slightly above guidance midpoints.

Arcuri is modeling 220 million QCT chipset shipments with average selling prices down about 8 percent sequentially. The analyst continued, We model trough QCT operating margins (down ~990bps Q/Q) on lower volumes and seasonality and see limited upside to our MSM unit number due to further LTE share losses and continued channel inventory headwinds. On QTL, our proprietary operator database indicates net new global CDMA-based connection growth of ~15-20% Y/Y in CQ1:15. Given the historical correlation between global CDMA-based connection growth and QTL revenue and the growing potential for more add-backs we are confident in our TRDS estimate of ~$63.8B (roughly the midpoint of guidance) and above seasonal revenue estimate of $1.98B. We model the royalty rate slightly lower Q/Q, reflecting China mix shift post-NDRC resolution.

Overall, Arcuri sees risk of a QCT cut on lagging, high-end Android sales and from smartphone weakness in China. That said, an improving QTL backdrop may translate into minimal overall '15 guidance changes w/ QTL's sales range narrowed further to the upside and a slight TRDS increase. We have been pushing for a big layoff and QCOM seems to have little choice at this point, the analyst noted.

Key issues for Qualcomm include:

1. latest China post-NDRC licensing conversion metrics and overall royalty collection progress;
2. commentary on European Commission investigation;
3. China demand commentary given recent stock market and channel inventory concerns;
4. outcome of comprehensive 3rd party review of costs and resulting action items;
5. updated long-term QCT margin guidance;
6. updated QTL ASP and TRDS guidance;
7. updated C2015 3G/4G TAM guidance;
8. latest commentary on capital return and ASR progress update; 9) commentary on expected closing of CSR acquisition

Cowen has Qualcomm at Outperform with a price target of $75.

For an analyst ratings summary and ratings history on Qualcomm click here. For more ratings news on Qualcomm click here.

You May Also Be Interested In

• First Cash Financial (FCFS) PT Lowered to $140 at TD Cowen
• Amazon.com (AMZN) PT Raised to $215 at UBS
• Boston Scientific (BSX) PT Raised to $77 at Oppenheimer