Qualcomm Earnings: The Bar Is Raised Too High

| About: Qualcomm Inc. (QCOM)

Qualcomm (NASDAQ:QCOM) reports 4th quarter earnings on Feb. 1st. Expectations are for top line revenue of $4.57B (11% increase over Q3) and earnings of $0.90/share. In addition, analysts expect Q1 revenue guidance of $4.49B and earnings of $0.88.

If these numbers come to pass, Qualcomm will stand alone among the semiconductor companies that serve the mobile communication market. Taking a look at top line revenue of some of Qualcomm peers in this market only reinforces this.

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Sandisk (SNDK) reported recently with revenue growing 11.4% sequentially for Q4, but then forecasted Q1 revenue to drop 16.0% due to 13 mobile OEMs cutting orders for the first half of 2012. In addition they delayed a planned fab capacity expansion until June. Since Sandisk makes Nand memory which is used in mobile devices this information is relevant to the communication semiconductor suppliers.

Nvidia (NASDAQ:NVDA) warned this week that Q4 revenue would come in 10.9% lower than Q3 revenue and an equal percentage below their original forecast. They cited the impact of the Thailand floods on their GPU business and lower orders for their mobile processor.

Marvell (NASDAQ:MRVL) also warned this week that Q4 revenue would be 22.1% lower than Q3 revenue and 8.5% below their original forecast.

"The supply of disk drives started to recover in our fourth fiscal quarter, but later than we had originally anticipated. Our SSD revenues grew more than expected but not enough to offset the impact of the Thailand floods on our HDD volumes," said Dr. Sehat Sutardja, Marvell's Chairman and Chief Executive Officer. "In addition, we experienced year-end demand softness at our mobile and wireless customers, particularly in China. We believe these effects are near term only, and should not impact our results in the new fiscal year."

Broadcom (BRCM) current guidance for the Q4 revenue is 8.0% lower than Q3 revenue. They report earnings on Tuesday 1/31.

In conclusion, I do not expect a Q4 miss from Qualcomm but analysts expect less than a 2% drop in revenue for Q1. Based on the above comments, warnings, and guidance from their peers plus Apple's (NASDAQ:AAPL) very cautious Q1 guide ($32.5B vs. $46.3B Q4 actual ) I suspect analyst expectations have raised the bar for the first quarter too high.

If Q1 guidance is weaker than expected, Qualcomm's stock could be 10% cheaper the next day as SanDisk's stock was. Those investors that have a risk appetite should consider going short Qualcomm before earnings. More cautious investors that want to be long Qualcomm should wait to buy until after earnings. If a market correction comes into play I also will consider going short the S&P500 ETF (NYSEARCA:SPY) and/or the Nasdaq 100 ETF (NASDAQ:QQQ).

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in QCOM, SPY, QQQ over the next 72 hours.

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Tagged: , Communication Equipment, Earnings
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