(CTN News) – With its strong forecasts for the first quarter, Qualcomm (QCOM.O) rose almost 6% on Thursday, signaling that the slump in the smartphone market that had lasted two years was easing, driven in part by the recovery in China.
With its premarket share price of $117.09, the company, which is among the largest designers of chips used in smartphones, had the potential to increase its market value by nearly $7 billion.
With fresh orders coming in for Qualcomm’s chips after four quarters of decline in its mainstay smartphone business, Qualcomm is starting to see a reduction in the inventory pile-up in the Android business, as fresh orders are being received for its chips following four quarters of decline.
In its latest earnings report, the company announced that it had exceeded Wall Street’s expectations in terms of revenue and profit projections for the last three months of the year, with a 35% increase expected in sales to Chinese smartphone users compared to the previous quarter.
Despite the fact that management expects a less-than-normal seasonal uptick in the December quarter, the guidance was more positive than expected, with stock levels showing signs of improving ahead of last quarter’s expectations, Canaccord Genuity analysts said.
As well as this, the company also raised concerns about the competition from Huawei (HWT.UL) and Samsung (005930.KS), both of which are now producing and using their own chips in products after having reliant on the U.S. company in the past.
Qualcomm CEO Cristiano Amon has said that the company expects to retain a “majority share” of the chips in Samsung’s upcoming S24 line of phones and does not expect Huawei’s re-entry into the market to affect its relationship with Chinese smartphone manufacturers.
Stacy Rasgon, an analyst at Bernstein Research, stated that “while some narrative headwinds (the use of in-house chips at Huawei and Samsung) still exist, the market recovery and normalization from that trough may offset these eventualities.”.
According to data from LSEG, at least nine analysts raised their ratings on Qualcomm’s stock, with an average rating of “buy”, according to the data.
Although, Wall Street believes $139.50 is the median price target for the company, as lingering concerns about when a recovery from the smartphone slump is likely to begin pushed nine downward revisions to its price target.
The company’s share price has remained relatively stable this year compared to last year. Based on estimates, it is currently trading at nearly 12 times its 12-month forward earnings, while Nvidia, a popular investment choice, is trading at 27.2 times its 12-month forward earnings.