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Citing "device exhaustion," Citi's Glen Yeung removes his Buy rating on Qualcom (QCOM +2.9%) and...

Citing "device exhaustion," Citi's Glen Yeung removes his Buy rating on Qualcom (QCOM +2.9%) and cuts the price target $11 to $70. Demand for high-end smartphones is decelerating as markets near saturation, with lack of hardware innovation also likely to weigh. "QCOM is relegated to a trading stock." Also cut are Avago Technologies (AVGO -0.8%) and MagnaChip (MX -7.2%). Nomura's Romit Shah hikes his QCOM PT $3 to $78, noting the earnings call (transcript) strongly suggested new product launches should drive big growth in the December quarter.
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Comments (9)
  • vector_us
    , contributor
    Comments (345) | Send Message
     
    Now looks like Citi deliberately doing it! So that they can help get their clients in! The ASP's increased and there is going to be a strong december quarter! So I definitely see this stock reaching $75 by early next year!
    25 Jul 2013, 12:07 PM Reply Like
  • B101
    , contributor
    Comments (35) | Send Message
     
    "QCOM is relegated to a trading stock."

     

    Yet.......

     

    "call (transcript) strongly suggested new product launches should drive big growth in the December quarter."
    25 Jul 2013, 01:00 PM Reply Like
  • stoj
    , contributor
    Comments (523) | Send Message
     
    this is one of the few semi conductor stocks, with a limited downside
    25 Jul 2013, 01:10 PM Reply Like
  • Joe Dirnfeld
    , contributor
    Comments (1128) | Send Message
     
    This opinion has kept people from making money. Devise exhaust is pure nonsense. People fidget around these devises the whole day every day. It's part of their existence.
    25 Jul 2013, 01:24 PM Reply Like
  • GoldenDays
    , contributor
    Comments (2) | Send Message
     
    Citi and others were warning during the last quarter about ‘device exhaustion” and again now. This has been addressed by Qualcomm in the earnings call (http://seekingalpha.co...) and they are not of the same opinion. We don’t see that in this quarter results and the year forecast has been raised (in the transcription below we can see how the potential “problem” is addressed).

     

    So I don’t share Citi’s opinion about this Company with 30 billion in cash and cash equivalents and a pipeline full of new technologies coming to the market in the short term.

     

    Transcription:
    “Looking at this now from a regional perspective, there seems to be some concern that developed regions are becoming saturated with smartphones. The fact is that these reasons have been primarily replacement cycle driven for some time as handset penetrations are already quite high. The strategies (ph) already been cycling through devices and are used to doing so. Certain large carriers routinely provide incentives for subscribers to purchase a new phone every two years, and although we may see different programs or replacement initiatives in the future. These types of programs are working successfully and competitive dynamics stay with their continuance in the future. Interestingly there has been some recent plans launched by operators that could actually accelerate the replacement cycle, so we will continue to monitor those. In some our long term plans continue to include a very modest decrease in the developed region replacement rate.
    Turning to emerging regions we view the opportunity is very significant when you consider that according to our geographic definition approximately 80% of the world’s population resides in these locations with a relatively youthful demographic, and the GDP in emerging region is expected to grow at an annual rate of approximately 6% for the next five years according to consensus estimates. And according to Gartner, in these countries at the end of 2012 the average penetration rate of smartphones relatively the install base and the handsets sits at approximately 18% or only 10% of the total population.
    As we pointed out during the last couple of years, we’re seeing the rapid adoption of mobile technologies and in fact rising average selling prices in these locations as a mix shift to smartphone. In these regions there are limited, fixed broadband alternatives and users are getting excellent utility from their wireless devices. So in summary although we expect to experience quarterly growth rate fluctuations for a variety of reasons, 3G, 4G mobile computing technology and device are still in an early stage of adoption in the majority of the world and have a very long runway of attractive growth potential. This adoption is feeling new innovation and perpetuating that cycle. Gartner estimates that approximately 700 million smartphones were sold in calendar 2012 and that number will grow to 1.7 billion in 2017 representing an approximately 20% compound annual growth rate. Building off fiscal year 2012, we believe we will experience a double-digit average annual growth in total reported device sales over our five-year planning period, which included an estimated average low single-digit percentage decline in average selling prices over this period.”
    25 Jul 2013, 01:24 PM Reply Like
  • tctinc@bellsouth.net
    , contributor
    Comments (18) | Send Message
     
    Guess we know who is short QCOM.
    It's going up. Better get in now.
    25 Jul 2013, 01:24 PM Reply Like
  • BIG_BEN
    , contributor
    Comments (157) | Send Message
     
    I don't understand the premise of the article. It talks about device exhaustion then talks about the tapering of high margin high end device sales. That whole thesis would seem to have a greater impact on the high margin device makers and not the component makers as the components are also used in lower margin devices. I just sold some puts on (MX) as i see this being a overreaction.
    25 Jul 2013, 01:39 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1323) | Send Message
     
    What I do not understand is why are they picking on Magnachip? Qualcomm will easily handle the downgrade but MX's stock got devastated. And why? Are they somehow specifically exposed to high end smartphones? I was not aware that was the case. There are a dozen other component manufacturers out there that are more exposed.

     

    This is very suspicious to say the least.
    25 Jul 2013, 03:27 PM Reply Like
  • BIG_BEN
    , contributor
    Comments (157) | Send Message
     
    Agreed. I was able to sell the (MX) Aug $17.50 puts for $0.9. I am not expecting them to be assigned! They do have earnings next week though. I might close before the earnings if the options drop enough on the off chance the expert knows what he is talking about.
    25 Jul 2013, 04:05 PM Reply Like
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