Qualcomm (QCOM) Earnings Sink Stock; Chip Price Increases Coming
Qualcomm reported quarterly earnings and surpassed most expectations but disappointed in profits and outlook.
Technology leader Qualcomm (QCOM) reported Q3 earnings this week that nearly reached $10 billion, and while they improved their earnings in most areas, their stock still fell by 3.6%.
QCOM dropped on Thursday morning after Q3 earnings surpassed Wall Street expectations with gains across their Internet of Things and QCT non-handset revenue, but their profit margins were much tighter than expected. The company’s expenses greatly increased this quarter, and the company says it will have to raise prices to compensate.
Qualcomm’s non-GAAP earnings per share came in at $2.21, and the company’s revenue was about as high as they anticipated it could climb for the quarter, but shareholders focused on profits. In that area, Qualcomm disappointed and suffered the same consequences as many other chip manufacturers this year. That is, they experienced sharp stock decline after failing to show strong profit margins.
Qualcomm Says It Will Have to Raise Chip Prices
The pressure is on for Qualcomm to impress investors with a strong showing next quarter. The company said that rising component costs and shortages are hurting their bottom line. They have to pay more for memory and various materials as the chip sector grows exponentially. They are also facing severe supply chain shortages that have made it difficult for them to meet customer quotas. All this has led to smaller profit margins, greater expenses, and tightening revenue streams.
Qualcomm managed to earn $8.5 billion from their chip division alone for the quarter, and their automotive division brought in $1.6 billion, which is a 61% increase year-over-year. Despite these sizable gains, the company failed to create strong profit margins and left shareholders wondering if Qualcomm can continue to operate as it has been.
The answer for the moment is that Qualcomm will have to bring their chip prices up to compensate for rising operating costs. This will begin in September to help offset the cost burden and help to improve investor sentiment over profitability.
The company’s outlook for the fourth quarter was lower than Wall Street expected. Qualcomm says that their revenue for the coming quarter is projected to be about $10 billion, with EPS of around $2.10. Analysts expected a more positive forecast, and it was partially that outlook that caused the stock to drop early on Thursday.
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