Deutsche Bank downgrades Qualcomm as smartphone slump pressures chipmaker

Published Thu, Aug 3 20236:41 AM EDTUpdated Thu, Aug 3 202311:39 AM EDT

Deutsche Bank is moving to the sidelines on Qualcomm as a slump in the smartphone market puts pressure on the company. Analyst Ross Seymore downgraded the chipmaker's stock to hold from buy and cut his price target by $10 to $120. His new target implies shares could lose 7.2% in the next 12 months from Wednesday's close. "While we continue to believe the cyclical snapback is a matter of when not if (and build in such a rebound in IoT, Auto and QTL), the duration of the headwinds QCOM continues to face in its Handset segment is leading to rising structural rather than just cyclical questions," Seymore said in a note Thursday, suggesting structural issues related to pricing, a post-5G lull and uncertainty around retaining significant customers such as Apple and Chinese telecommunications company Huawei. The downgrade follows Qualcomm releasing its latest quarterly results Wednesday after the bell . For the fiscal third quarter, the company posted $8.44 billion in adjusted revenue, while analysts polled by Refinitiv forecast $8.5 billion. Qualcomm saw a significant decline in sales from its biggest division, QCT, which sells processors for smartphones, cars and other smart devices. The stock slid 8.5% in premarket trading Thursday. QCOM 1D mountain QCOM slides after earnings Seymore said that while he appreciates Qualcomm's efforts to diversify its products away from handsets, it appears the company's Internet of Things business, which makes lower-cost chips for low-power devices and industrial uses, faces continued headwinds. Its autos division, which sells chips and software for autonomous cars, is also exposed to cyclical pressures. The latter segment reported higher revenue during the previous quarter, while sales from the company's IoT business, which includes chip sales to Meta, fell 24%. Seymore said that given few catalysts that will drive positive earnings revisions in the future, the bank sees "little reason" to increase its valuation forecast on Qualcomm. "While we believe QCOM's technological advantages should enable it to capitalize on trends such as Edge AI, Automotive, and lowpower compute, much of these secular growth opportunities are already sufficiently reflected in our CY24/25 [estimates]," the analyst wrote. Other analysts noted challenges from Qualcomm's third-quarter earnings. JPMorgan analyst Samik Chatterjee maintained his overweight rating on Qualcomm but lowered his December 2024 price target by $11 to $148. UBS analyst Timothy Arcuri maintained his neutral rating and $130 price target on the company. — CNBC's Michael Bloom contributed reporting.