Qualcomm Faces 5% Earnings Decline in Q3 Amid Trade Tensions, iPhone Sales

Qualcomm (QCOM.US) is set to release its second-quarter earnings for the fiscal year 2025 on April 30, after the U.S. market closes. Analysts from a prominent financial institution have indicated that while Qualcomm's second-quarter performance is expected to align with market forecasts, the company's guidance for the subsequent quarter may be less robust. This cautious outlook is attributed to several factors, including trade tensions and broader macroeconomic challenges that could dampen global demand for smartphones.

The analysts predict that Qualcomm's earnings will meet expectations, but they anticipate that the company's guidance for the third fiscal quarter, ending in June, will fall short of typical seasonal trends. Specifically, they expect a single-digit percentage decline in earnings on a sequential basis, which is slightly more pessimistic than the market's consensus estimate of a 2% decline. This outlook is influenced by the weaker-than-expected sales of iPhones in the first quarter of 2024, as well as the impact of Apple's recent iPhone SE, which features Apple's proprietary 'C1' modem. This shift is expected to replace some of Qualcomm's modem orders, although the financial impact is estimated to be minimal, affecting only a small portion of Qualcomm's overall revenue.

Despite the challenges, the analysts note that Qualcomm's smartphone business, which accounts for approximately 75% of its revenue over the past 12 months, remains largely dependent on the Android ecosystem. While sales data for Android devices have been mixed, with some markets showing signs of slowing momentum, the upcoming release of Samsung's Galaxy S25, which will feature Qualcomm's Snapdragon chipset, is seen as a potential bright spot. This move by Samsung is expected to mitigate some of the anticipated weakness in Qualcomm's Android business in the coming months. Additionally, the ongoing consumer preference for high-end and flagship smartphones, where Qualcomm has a strong market presence, is expected to benefit the company.

In the personal computer segment, Qualcomm's shipments for the third fiscal quarter are projected to increase by 5% sequentially, maintaining its market share at around 1.8%. However, the analysts point out that Qualcomm's Elite X product has seen a significant slowdown in sales, and increased competition from AMD and Intel may hinder Qualcomm's ability to make substantial progress in this market in the near term. The analysts conclude that while Qualcomm's non-smartphone businesses may not be sufficient to offset the decline in its smartphone segment, the company's significant revenue exposure to China adds another layer of uncertainty, particularly given the ongoing trade-related challenges.