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Chip Shortage: Qualcomm Leaves Money On The Table

Mar. 08, 2021 3:21 PM ETQUALCOMM Incorporated (QCOM)AAPL113 Comments
Kwan-Chen Ma profile picture
Kwan-Chen Ma


  • Even with Apple’s return and Huawei’s exit, Qualcomm still missed Q1 revenue and lowered Q2 guidance because of the chip shortage.
  • As supply dictates demand, Qualcomm looks to increase 22% chip capacity from (1) Huawei’s freed 7nm capacity at TSMC, (2) Samsung’s 5nm fab, and (3) TSMC’s new 5 nm capacity.
  • The consensus estimate of Qualcomm's 42% revenue growth cannot be supported by the 22% increase in capacity.  Thus, 20% of the 2021 orders may not be filled.
  • Recognizing the chip shortage impact, Qualcomm's share has been traded at a 20%-30% discount to the analysts’ target price.
  • The price discount suggests that the market underreacts to Qualcomm’s long-term growth prospect but overreacts to the short-term supply shortage.

(Source: Author's work)

Aided by Apple's (AAPL) return and Huawei's exit, Qualcomm (NASDAQ:QCOM) was able to deliver a better 2020 performance than other semiconductor firms. QCOM achieved a record $8.23 billion Q1 revenue, while under the pressure of a widespread global chip shortage. "If we could make more, we could sell it," said the outgoing CEO Steve Mollenkopf.

In terms of 2021 and on, "If you asked me, 'what keeps me up at night?' Right now, it is this supply chain crisis we're having in the semiconductor industry," said Cristiano Amon, incoming CEO of Qualcomm. Amon referred to the "V-shaped recovery" with a huge drop off in purchases, followed by a rapid return of demand. However, component manufacturers (like Qualcomm) couldn't keep up with the surge.

As the chip shortage clearly becomes the overriding constraint for Qualcomm's near-term growth, I intend to add more color on the chip shortage impact. In this post, it is estimated that Qualcomm may not be able to fill 15-20% of 2021 orders. While the company's guidance or analyst forecasts may not reflect the full extent of the chip shortage impact, Qualcomm investors have already discounted the stock by 30%.

2020 Demand Will Stay

In addition to the common WFH demand that all semis enjoyed in 2020, Qualcomm has been further blessed by the return of their largest customer, Apple, after the antitrust lawsuit. For Q4 2020 alone, Apple has contributed $571.73 million or 11.26% to Qualcomm's revenue (Bloomberg). In addition to Apple's favorable 5G iPhone sales outlook, Apple reportedly will use Qualcomm's 5nm Snapdragon 5G X60 modem in the upcoming iPhone 13 smartphones. Based on company's forecast, Apple's orders will become a permanent part of the Qualcomm future revenue stream.

As a result of the US sanction, starting September 2020, Qualcomm has further benefitted from Huawei's

This article was written by

Kwan-Chen Ma profile picture
K C Ma, Ph.D, CFA, is the Eminent Scholar and the Mary Ball Washington/Switzer Brothers Endowed Chair of Finance at University of West Florida. I am the Director of Argo Investments Institute which enables college students to manage real money stock, bond, and option funds. I manage market-neutral institutional hedge funds in KCM Asset Management. I write about stocks, bonds, and derivative strategies, long or short, based on our quantitative processes.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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