Sell Qualcomm (QCOM)
You’ll pardon me, I hope, if I’m nervous heading into Qualcomm’s (QCOM) earnings announcement for the second quarter of fiscal 2010 on Wednesday, April 21. Last quarter Qualcomm shares dropped 14.3%–or $6.72 a share–on January 28, the day after the company released earnings for the first quarter of the 2010 fiscal year and announced guidance for future quarters. In its guidance Qualcomm executives predicted lower than expected revenue and earnings for the second quarter.
Since then the company has restored most of the decrease it predicted three months ago. But Qualcomm has a record of delivering earnings surprises—and the surprises aren’t always pleasant.
But that’s not the reason I’m selling these shares. My read of the technology sector shows that cell phone selling prices—and hence the selling prices for the things that go into cell phones such as Qualcomm’s chips—will remain under pressure well into 2011. (This isn’t to say that cell phone prices will increase in 2011. It’s just that I don’t see prices breaking their downward trend before that.) That will keep pressure on margins for just about every company in the sector.
On the other hand, I see margins improving in other parts of the technology sector. Intel (INTC), for example, raised its forecast for gross margins for 2010 to a range of 62% to 66% in the guidance to its first quarter earnings. (Intel is already a member of the Jubak’s Picks portfolio. For more on Intel’s recent earnings report see my post http://jubakpicks.com/2010/04/14/update-intel-intc/ )
And that means I think you can find better technology stocks than Qualcomm to buy right now. So I’m selling this position with an 8.1% loss since I added it to Jubak’s Picks on July 15, 2009. I’ll have a new technology buy to replace Qualcomm tomorrow.
Full disclosure: I will sell my personal position in Qualcomm three days after this is posted.
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Hi, Jim,
From your post – “My read of the technology sector shows that cell phone selling prices—and hence the selling prices for the things that go into cell phones such as Qualcomm’s chips—will remain under pressure well into 2011.” What are the reasons behind cell phone pricing pressure? Importantly, are you suggesting pricing pressure for the smartphones i.e. iPhone, Nexus One, Droid, and the like? Isn’t QCOM starting to get its chips into these smartphones (if not already in)? Thanks.
sold out of this sinking ship a while ago!, looking forward to reading about the replacement pick
Bought QCOM at $37.16 and sold today for $42.70 and an about 15% return. Thanks Jim.
Sold this cold turkey few months ago when I had chance to break even. It does not deserve my patronage.
Indeed…tech is hot, but haven’t been impressed with chip makers. Battery companies haven’t been that hot either. Right now, I like companies that compete with the likes of Cisco. Certainly medical technology/software wouldn’t be a bad call either. Qualcomm and their counterparts, but especially QCOM doesn’t have much of the wind at their back right now. I bet Jim comes up with one (or some) tech co’s that have a good ROIC until the recovery gets “less bad”. I bet if you run some screens on companies that have gone up in stock price and have good fundamentals, you’ll find a rose amidst the thorns…ah spring!
Gee; if memory serves me correct, this company returned 26x from Jan. 1, 1999 to Dec. 31, 1999. Oh, those were the days….
Good call Jim…QCOM is such as serial disappointer!
pristine call. down 9% after reporting