Qualcomm Inc (QCOM)

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Qualcomm (QCOM) Downgraded as Citi Says 5G-Cycle Boost Runs Its Course
By: TheStreet | February 4, 2021

• Qualcomm reported stronger-than-expected first-quarter profit. The stock is lower on concern about its guidance.

Qualcomm (QCOM) shares dropped as investors reacted to weaker-than-expected guidance from the mobile-phone chipmaker and analysts at Citi downgraded the stock.

Citi analyst Christopher Danely downgraded the San Diego company to neutral from buy while lowering his price target to $165 a share from $194.

The investment firm sees the upside to Qualcomm from the current 5G upgrade cycle as "over."

"We upgraded QCOM last year based on upside driven by share gains and the 5G upgrade cycle. We believe the upside is over and expect more instances of downside such as the lower margins," Danely said in a note Thursday.

Citi lowered its 2021 revenue and earnings estimates to $31.9 billion and $6.91 a share from $32.2 billion and $6.95 a share.

The company's chipset margins remain "very strong" and the revenue from the company's licensing business rose 10% quarter to quarter.

But analysts note that Qualcomm guided second-quarter revenue to $7.6 billion, an 8% quarter-over-quarter decline, and Q2 profit to $1.35 a share, which is below the consensus estimate of $1.43.

"Although the company doesn’t guide to gross margins, we estimate gross margins will fall at least [2 percentage points] due to mix. The company noted that capacity constraints are resulting in lower than expected shipments and this is expected to last at least through first-half 2021," Danely said.

The chip designer reported first-quarter earnings of $2.12 per share on revenue of $8.24 billion. Analysts were expecting the company to report earnings of $2.10 per share on revenue of $8.27 billion.

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