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The market for smartphones has faced headwinds as inflation-hit consumers rein in spending on non-essential items, replacement cycles elongate, and handset makers struggle to come up with new advances to entice customers. In the first quarter, global smartphone shipments slipped by 13%, according to research firm Canalys.
As a result, semiconductor companies have built up a glut of excess chips on their shelves. Some investors are worried that these firms, including Qualcomm, will drive down chip prices to clear out backlogs, subsequently placing pressure on gross margins.
But in a note to clients on Monday, the JPMorgan analysts defended their “favorable view” of Qualcomm heading into the results on Wednesday. Almost two weeks ago, the analysts gave an upbeat prediction for San Diego-based Qualcomm’s fiscal third-quarter returns, citing “very early signs” of recovery in the global smartphone market.
The analysts argued that the latest returns for Qualcomm’s Taiwanese peer MediaTek Inc (TW:2454) bolster their case. Revenues at MediaTek expanded on a quarterly basis in the second quarter, they noted, and are expected to continue growing in the current three-month period thanks in part to “improved trends in smartphones.”
Smartphone supplier Amphenol (NYSE:APH) also posted quarterly revenue that beat estimates, the analysts said. They added that the electronic connector maker expects its mobile handset revenue “to increase at a more robust pace and at an above seasonal level.”
Given these trends, the analysts said they continued to see “upside relative to investor expectations for Qualcomm,” and reiterated their overweight rating of the stock.
