Shares in US mobile phone chipmaker Qualcomm have seen impressive gains recently. Following a bumper 15.8% rally in July, Qualcomm shares rallied a further 12.1% in August. The company extended gains seen in response to a positive Q2 earnings report.
Solid Q2 Earnings
Qualcomm reported Q2 earnings per share of $0.74, beating estimates of a $0.71 reading. Revenues were 7% higher year on year. While both earnings and revenues were higher than Wall Street estimates, there were some damp spots in the earnings report. However, these have done little to stop the company’s shares from rallying.
Qualcomm noted that the COVID-19 pandemic had affected a 21% reduction in demand for phones over Q2, most notably in China. The company also waned over the likelihood of a reduction in shipments as economies around the world display lower demand.
In a press release issued along with the Q2 results Qualcomm said:
“Our guidance for the third quarter of fiscal 2020 being based on a planning assumption that there will be an approximate 30% reduction in handset shipments relative to our prior expectations.”
Major Positive Events For Qualcomm
Despite these concerns, in the period since earnings were reported, Qualcomm shares have been big winners. The main reason for this is optimism over a new licensing deal agreed with Chinese smartphone Titan Huawei. Along with this good news, the company has also experienced a lift in sentiment over the wining of a court case in August.
Qualcomm was victorious in its appeal against a 2019 ruling. The case was brought by the Federal Trade Commission which had advocated Qualcomm renegotiate licensing deals with smartphone vendors. With an overturned ruling, Qualcomm can now continue charging smartphone vendors a licensing fee based on the cost of the handset. This will no doubt benefit the company’s revenues given that Qualcomm’s mainly 5G handsets tend to be higher prices than 4G models.
With Qualcomm well positioned in the 5G space and with the new licensing deal with Huawei and the overturning of the FTC ruling, many analysts are now turning more bullish on the company and revising near term price forecasts.
Qualcomm Shares Retesting Support
Shares in Qualcomm have retreated from recent all-time highs at around the 14.17 level. They are now retesting the support base at 116.19 which is holding for now. While this level holds, focus remains on further upside in the near term and eventual breakout to new highs.
However, should price slip below this level, focus will then turn to the 96.24 level as the next key support to monitor.