Brean Worries Trend Toward Lower Pricing In Phones Could Be Headwind For Qualcomm

QUALCOMM, Inc. QCOM reported a beat and raise quarter on July 20, driven by improvements in catch-up payments from China for QTL, along with strength in QCT.

Brean Capital’s Mike Burton maintains a Hold rating on the company.

Potential Headwind

“We had anticipated the strong trends in QCT, and while we had correctly anticipated the decline in handset pricing, the number of Chinese signings and catch-up payments in the June quarter was much greater than we had expected and is anticipated to continue for the near future,” Burton mentioned.

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The analyst believes the downward skew in handset pricing acts as a headwind to QTL’s profit growth, while QCT’s market share loss to Intel Corporation INTC during 2016 could adversely impact Qualcomm’s results when new news and pricing discussions take place in 1HCY17.

QTL And QCT Strength

Burton stated that the upside in the QTL business was driven by progress on Chinese signings, with QTL revenue coming in at $2.04 billion, beating the estimate and slightly ahead of the guidance.

Although the QCT business reported stronger than expected results for the June quarter, driven by worldwide strength in smartphones, the September quarter performance is expected to be in-line with the estimates.

“We remain neutrally positioned on the name given the temporary nature of catch-up payments and our concerns about pricing in both handsets and QCT going forward,” Burton added.

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