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Thursday, Feb 9, 2023

Qualcomm Earnings Surge

Qualcomm Inc. revenue soared 33% in the fourth quarter, blowing through Wall Street estimates and continuing the company’s comeback from a tumultuous six-year period of legal battles.

The positive report ignited Qualcomm stock, which was up about 80% year to date prior to the Nov. 4 earnings announcement. To date, the Sorrento Valley-based company’s shares have climbed 49% this year, valuing it at more than $145 billion.

For the quarter which ended on Sept. 27, Qualcomm reported revenue of $6.5 billion, up 33% quarter-over-quarter, adjusted net income came in at $1.7 billion, up 76% from a year prior. Wall Street analysts predicted fourth-quarter sales of $5.9 billion and adjusted earnings of $1.17 per share.

5G Leads the Way

The ramp of 5G networks and handsets lifted earnings for the cellular technology giant. The company also reported growing traction for other technology verticals such as work-from-home gear and connected cars, which also helped contribute to the strong performance.

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Qualcomm’s CEO Steve Mollenkopf in a conference call with investors and analysts, stated that the results included a “partial quarter impact” from a large handset producer in the U.S., likely Apple.

“The challenges of the COVID-19 pandemic highlight the critical importance of our products. As you can see from our results, the early stages of the 5G ramp are well underway, with our strategy playing out largely as expected,” said Mollenkopf. “We concluded the year with exceptional fourth quarter results and are well positioned for growth in 2021 and beyond.”

The company benefited from rising 5G demand throughout the quarter, with more smartphone buyers upgrading to 5G devices this year as well as Apple’s launch of four new 5G iPhone models that use Qualcomm chips, a major settlement payment with China’s Huawei, among other factors.

Major Partnerships

The company anticipated that 5G handset shipments would be 15% lower year-over-year this quarter, partially due to a customer delaying a global 5G flagship phone launch. However, it still expects between 175 million and 225 million 5G handsets to be shipped in 2020.

The company now has over 110 licensing agreements for 5G with smartphone original equipment manufacturers (OEMs).

“With the signing of the Huawei agreement we are now entering a period in which we have multi-year license agreements with every major handset OEM,” said Mollenkopf.

While baseband processors make up a significant chunk of Qualcomm’s chip sales, the company has worked to diversify by adding new products to its lineup such as filters, transceivers, antenna modules and other signal-processing components called Radio Frequency Front End.

Its RF Front End chip sales reached $2.4 billion in fiscal 2020, making Qualcomm a significant competitor to Skyworks, Murata and others in this market.

In addition, Qualcomm’s Internet of Things (IoT) silicon for gadgets such as mobile hotspots, wireless routers and connected laptops reached $3 billion last year.

“Qualcomm had an incredible Q4 and an equally impressive guide. The company also broke out its “growth areas” giving investors a deeper understanding of its opportunities in RFFE, automotive and IoT,” said Patrick Moorhead, analyst at Moor Insights. “In a big surprise, it appears that Qualcomm’s RFFE business is one of the largest, near Qorvo, Skyworks and Broadcom levels.”

What’s Next

Looking beyond, Qualcomm is forecasting revenue of $7.8 billion to $8.6 billion next quarter, significantly above the consensus estimate of $7.15 billion in sales. That better-than-expected guidance is primarily attributable to strong demand for 5G devices.

“Qualcomm is finally, fully taking advantage of its 5G and growth area investments and, based on its guide, the growth will just continue. I don’t believe the full “Apple” impact has been baked in yet, which should be upside for the company,” said Moorhead.

In October, Qualcomm won a major court battle when an appeals court denied the FTC’s request for a rehearing of a previous decision that found that Qualcomm’s licensing business practices are legal, removing an overhanging issue the company faced.

The high-stakes win over the U.S. government leaves the smartphone chip giant with open roads for a period of consistent growth moving forward.

Qualcomm is expecting “high-single-digit growth” in smartphone shipments, including 5G, 4G, and 3G phones, next year.

Headquartered in Sorrento Valley, Qualcomm is the largest maker of chips that run the computer and radio communication functions in smartphones.

Despite the pandemic, the company ended the year with 41,000 global employees, up from 37,000 the prior year. 


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