China’s Coronavirus puts Qualcomm Quagmire back in focus

<p>Qualcomm (NASDAQ: QCOM) is trading modestly higher to begin in 2020, but there is a devil in the details. Not only does the Qualcomm stock follow the PHLX Semiconductor Index with more than 400 basis points to date, but it is almost 5% below the 52-week high. Lots of other big and big capitalization technology names are closer to new peaks.

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Less than two months into 2020, Qualcomm has already encountered headwinds, including the new corona virus from China and a probe launched by the European Union’s antitrust arm. Recent guidance, although decent, sent some Qualcomm to the pages.

The company said it expects a second-quarter financial gain of 80 cents to 95 cents per share on revenue of $ 4.9 billion to $ 5.7 billion. Wall Street expected 86 cents a share at a sale of $ 5.1 billion. As has been the case with so many companies in recent weeks, coronavirus is a legitimate concern for Qualcomm.

Qualcomm is just one of many US companies that depend on China for production and as a primary end market. In the last three months of 2019, the company sold 13 million phones in the world’s second largest economy. And that figure doesn’t even include Qualcomm’s significant Chinese 5G penetration.

Concerns about coronavirus

For Qualcomm, the coronavirus presents an obvious short-lived headwind and one that can worsen before improving. This is thanks to some news from Apple (NASDAQ: AAPL).

Domestic stock markets closed in line with the President’s holiday on Monday. But that did not stop Apple from withdrawing its guidance for the current quarter. This was largely due to the withdrawal of the “Wuhan virus” from the closure of Chinese plants.

“Work is beginning to resume around the country, but we are experiencing a slower return to normal conditions than we had expected,” Apple said in a statement. “As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.”

Apple said that customer demand outside China has been strong. That’s good news. I mean, it’s not unreasonable to expect that the second half of this year will bring a recovery in demand for Apple products. This would mean increased demand for chips and components.

5G Race Heats Up

If we look further, there is the 5G race, where investors generally expect Qualcomm to play a central role. Among the names used for the 5G theme, the Qualcomm share is a healthier idea than cheaper fares, such as Nokia (NYSE: NOK) and Ericsson (NASDAQ: ERIC).

There are at least two important factors to consider with 5G. First, some analysts expect the effect to be incremental, which means it will probably not be an epic one-off catalyst for Qualcomm.

Secondly, there is Apple again. The company should launch its 5G iPhones later this year, leading to some speculation that customers are holding older models to wait for the 5G line.

Apple is expected to use Qualcomm modems for that phone, but rumors are swirling. Some say that the iPhone manufacturer may not want to use Qualcomm’s QTM 525 millimeter wave antenna because it makes the phone bigger. Again, it is a rumor at this point, but one that has the potential to hamper Qualcomm shares if it turns out to be correct.

The conclusion of the Qualcomm share

If this space was a “buy, sell or hold” game, I would lean towards putting Qualcomm in the “hold” category. The company has a strong balance sheet, dividend growth potential and a patent tax. But these are generally known factors.

The above risks are credible and should give investors a break. Maybe both threats will improve in the coming year and deliver upwards for the chip maker in the process, but it’s a tough investment to make right now.

Todd Shriber has been an InvestorPlace contributor since 2014. At the time of writing, he did not own any of the above securities.