QUALCOMM: Rise or fall for the fabless chipmaker?

Qualcomm Incorporated (QCOM) is scheduled to report its Q2 fiscal 2020 results on 29th April. Last Friday (24th April), QCOM share price closed higher at $75.99 following its 3.16% gains intraday. Despite a sharp plunge (which came in line with the coronavirus stock market crash) since the beginning of the year from record highs at $96.15 to session lows at $57.98 seen on 18th March, the company has managed to gain its feet and has recouped its losses by over 30%.

The chipmaker delivered positive earnings of 16.5% in its Q1 fiscal report, surpassing the Zacks Consensus Estimate by 14 cents. The San Diego-based fabless chipmaker is eyeing an earnings boost following an expansion in its product portfolio from smartphone chips to data centers, connected cars and cloud gaming, along with the shift to 5G connectivity.

According to Zacks Investment Research, QCOM is expected to post FLAT EPS at $0.77 in its upcoming report versus the year-ago quarter, while revenues are expected to achieve a 2.2% growth, or $5.09 billion compared to the prior-year quarter. For the full year, Zacks Consensus Estimates are projecting earnings of $3.76 per share and sales revenue of $20.85 billion. As such, QCOM is currently ranked #3 in the Zacks Ranking System, which is, from their perspective, a Hold.

From the medium-term perspective offered by nine analyst firms the average 12-month price target for QCOM stands at $91.94, with STRONG BUY consensus.

Qualcomm stock has been weighing heavily following the Huawei ban and the China trade war in 2019. On April 17, its stock price and EPS target was downgraded by Goldman analysts following the coronavirus pandemic which ultimately suppressed market demand for smartphone chips. In addition, the release of Apple’s 5G iPhone powered by Qualcomm’s Snapdragon X55 5G modem that is expected to be delayed due to the virus outbreak, possibly until after December 2020, , could hurt the company’s revenue in the meantime.

On the brighter side, it is suggested that QCOM’s profit headwinds will ease once the COVID-19 virus has been successfully suppressed, in which case market demand for 5G technology should ramp up. Its collaboration with Apple inc. till 2023 despite a prior public spat between the two parties has helped to secure a relatively larger market share. Also, an alliance with China’s Tencent on mobile gaming devices that support real-time and multiplayer experiences has been a big win for the US chipmaker.

From a Weekly technical point of view, the QCOM share price is seen to undergo a solid rebound prior to gaining support above the 78.6 Fibonacci level. Price closure seen above 100-MA line (orange) and 200-MA line (red) suggests a possible reversal back to neutral-bullish outlook. The latest candlestick closed with a bullish body, diminishing the MACD bearish histogram, while an A/D line that points upward may indicate accumulation of market demand.

From the Daily chart above, QCOM share price is seen to close with a large bullish-bodied candlestick. Both MACD lines are seen to hover above the neutral level, while A/D continues to head upward. Given that the 100-MA line and 200-MA lines are above the asset price, it is suggested that the 78.00 – 81.00 zone could serve as a key indicator as to which direction the asset price will head in.