Qualcomm Says its Bad Years Are Over. Do Analysts Believe It?

November 20, 2019, 2:31 PM UTC

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Qualcomm CEO Steve Mollenkopf hasn’t just had one annus horribilis, Queen Elizabeth’s favorite Latin phrase for a horrible year. He’s had three or four—in a row.

Four years ago, China fined Qualcomm $1 billion and scrambled its lucrative arrangements to license its mobile chips to phonemakers there. Then came antitrust investigations in South Korea and the United States. And all of that was nothing compared to when its best customer, Apple, sued and then stopped paying, eventually shifting all of its iPhone modem business to Intel in 2017. Finally, last year, regulators killed Mollenkopf’s $44 billion deal to buy NXP Semiconductors and grab a strong position in the market for chips in cars. Qualcomm’s stock price tumbled from almost $70 to less than $40.

So why was Mollenkopf so bright and chipper on Tuesday morning in New York City? In a sharp blue suit and red patterned tie, the silver-haired CEO played host to 100 or so Wall Street analysts and investors at an event I attended. A parade of top Qualcomm executives explained how the company was poised to profit from the coming wave of 5G phones and increase in connected devices that measure everything from crop water levels to highway traffic. “A lot of the hard work is behind us,” Mollenkopf noted in his introduction.

Here’s the litany of good news: Apple is back in the fold, and the stock price is pushing $90, heights last seen two decades ago, during the Internet bubble. Even with global smartphone sales slipping, Qualcomm has expanded from selling modems and processors in phones to other parts, including the antennas and power modulators. The company is collecting 50% more revenue from the average 5G phone than it does on older 4G models. It’s built a solid and growing unit selling infotainment systems for cars that have loads of potential with self-driving vehicles. And Qualcomm is trying yet again to crack Intel’s near-monopoly on chips for PCs and servers, this time with a couple of promising new efforts that play to its strengths—see, for example, the Qualcomm processor inside Microsoft’s slick new Surface X tablet.

It’s an impressive recovery, but maybe not quite enough. Stock market investors were disappointed by the forecast that sales could only grow 10% or more per year over the next three years, with profits increasing only slightly faster. And Qualcomm’s stock slid 3% by the end of Tuesday. While Mollenkopf and his team hinted that their forecast might be overly conservative, some analysts still fretted.

“A little math suggests conservatism is likely at play here,” longtime chip analyst Stacy Rasgon at Bernstein Research wrote in a report that I received after the meeting. “But by the same token, this is also a management team that has over-spent their credibility budget in the past, so it is never possible to entirely dismiss the worry that something else might be going on.”

(Programming note: Robert Hackett’s cybersecurity edition of Data Sheet will be in Thursday’s issue this week.)

Aaron Pressman

Twitter: @ampressman

Email: aaron.pressman@fortune.com

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