Technology giant Qualcomm (NASDAQ:QCOM) — which specializes in the manufacturing of smartphone processors — is finding itself on the backfoot on Thursday. Following a tepid sales forecast for the current quarter, investors are rushing for the exits. In particular, weak demand in China is posing heavy concerns for QCOM stock.
According to a Bloomberg report, Qualcomm disclosed that sales will land between $8.1 billion and $8.9 billion in the fiscal fourth quarter. Unfortunately, the midpoint of this range sits conspicuously below the $8.79 billion consensus analyst target. Subsequently, QCOM stock is falling more than 8% as of this writing.
To be sure, Qualcomm isn’t the only tech player printing red ink today, although it has suffered disproportionately. Shares of Apple (NASDAQ:AAPL) and Broadcom (NASDAQ:AVGO) are also slipping very modestly in sympathy. Fundamentally, the volatility in QCOM stock underscores concerns about the smartphone industry, which is suffering its “worst downturn in years.”
Both Qualcomm and its chip manufacturing peers have disclosed a “steep drop in orders from handset manufacturers” due to an unexpected rise in inventory. Subsequently, the reduction in spending on smartphone components will likely continue until the end of the year.
QCOM Stock Suffers From a Confidence Problem
In an effort to bolster QCOM stock, leadership has been taking steps to reduce expenses. One of the most prominent action items has involved layoffs. The sluggish smartphone market may force future job cuts at Qualcomm as well, according to The Wall Street Journal. At the same time, management insists on investing in new products that will “capitalize on the spread of artificial intelligence to smartphones.”
Qualcomm CEO Cristiano Amon said the following during a conference call:
“We are taking a conservative view of the market and will be proactively taking additional cost actions to ensure Qualcomm is well-positioned to deliver maximum value for stockholders in an uncertain environment.”
Still, a major problem for Qualcomm centers on China, which represents the largest market for phones. Demand not returning to projected levels is consequential for Qualcomm, with the region providing more than 60% of its sales.
As a result, Deutsche Bank analyst Ross Seymore has seen enough, recently downgrading QCOM stock to “hold” from “buy.” Seymore also cut his price target for shares by $10 to $120. Per CNBC, this new assessment implies over 7% downside risk in the next 12 months from Wednesday’s close.
For context, Seymore stated that a cyclical snapback in the underlying market is “a matter of when not if.” However, the analyst also mentioned that the “duration of the headwinds QCOM continues to face in its Handset segment is leading to rising structural rather than just cyclical questions.”
Why It Matters
For the bold speculator, China’s more conservative monetary policy approach during the pandemic now allows for greater flexibility from the country to exercise monetary expansion if necessary. So, while debatable, Chinese policymakers may be able to roll out measures to boost consumer confidence. Accordingly, the red ink in QCOM stock today could appeal to certain contrarian investors.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
