The primary source of Qualcomm’s revenue is the manufacture of modems and chipsets for the smartphone industry, which accounted for nearly 60% of its fiscal 2022 revenue. However, a decline in the global economy has led to a decrease in consumer demand for mobile devices.
As a result, top brass executive have forecast a decline in 3G, 4G, and 5G 2022 handset volumes in the low double digits versus a year ago.
What does this mean for QCOM stock, and where is it headed?
A Glut of Chips
Because demand for smartphones has decreased sharply, excess inventory has become a serious problem. A couple of years ago, shortages were a concern but now that reality has fully inverted and a glut of chips is causing inventory management challenges.
The pile up in warehouses means manufacturers are reducing chip inventory resulting in fewer orders for Qualcomm. That in turn is negatively impacting Qualcomm’s top line and hurting its share price.
During the Q4 2022 earnings call, executives forecast the glut would take multiple quarters to alleviate the inventory accumulation. If their forecasts are right, expect a stronger second half for Qualcomm.
What Is Fair Value for Qualcomm?
We crunched the numbers on Qualcomm and concluded that the fair value for the company sits at $180.56 per share, which would be a rich 50% upside from where the share price currently sits today. That valuation is based on a discounted cash flow forecast analysis.
It’s noteworthy that analysts are more pessimistic; they have a consensus stake in the ground at $150 per share, which would still represent a 25% gain from current levels; the stock is hovering around $120 at the time of research.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.