Qualcomm Takes The Fall Of The Slumping Smartphone Market But Claims Competitive Generative AI Advantage

On Wednesday, Qualcomm Incorporated QCOM delivered its latest earnings report with third quarter earnings topping estimates but revenue and guidance for the fourth quarter coming up short of expectations. The company that makes processors for the high-end Android devices, with Meta Platforms META being one of its clients, took the fall of the slumping smartphone industry, with shares falling 6% in extended trading.

Third Quarter Results

For the quarter that ended on June 25th, adjusted revenue amounted to $8.44 billion, coming in short of the $8.5 billion that Refinitiv expected. However, earnings topped Refinitiv’s consensus estimate of $1.81 per share as adjusted earnings amounted to $1.87 per share. Yet, net income tanked a staggering YoY rate of 52% as it dropped to $1.8 billion and this is a reflection of the slump the smartphone industry has found itself in. Year to date, Qualcomm lowered its costs by 5% YoY compared to its spending over the first half of 2022, while also announcing more cost-saving initatives for next year.

Divisions

The company’s biggest division that sells processors for smartphones, cars, and other smart devices, experienced a revenue drop of 24% YoY as sales amounted to $7.17 billion. The biggest part of this segment called QCT are handset chips and they suffered a 25% YoY drop in revenue that amounted to $5.26 billion.

The IoT segment also suffered a 24% YoY decrease in revenue that amounted to $1.48 billion. One of the segment’s main clients is Meta who gets Qualcomm’s chips for its Quest VR headset as this segment is in charge of making lower-cost chips for low-power devices and industrial uses. A Verge report from February stated that almost 20 million of Meta Quest VR headsets were sold. Even Roblox Corporation RBLX launched in open beta on Quest last week and reported it’s been downloaded well over 1 million times.

The licensing business, known for its profitability, also experienced a sales drop of 19% as it brought $1.23 billion to the revenue table.

A rare bright spot and segment who experiences a revenue expansion is the one that makes chips and software for autonomous cars. The automotive segment’s revenue rose 13% to $434 million.

Weaker Than Expected Guidance

Fourth quarter earnings are expected in the range between $1.80 and $2 per share while revenue outlook is in the range between $8.1 billion and $8.9 billion. Both figures are below Refinitiv consensus expectations which are $1.91 in earnings on revenue of $8.7 billion.

As for 2023, Qualcomm expects handset units to decline in high-single digit percentage rate and this is partially owed to a slower than expected recovery in China, but it is expecting the situation to improve and return to growth during the holiday season.

CEO Believes Qualcomm Is Well Positioned To Capitalize On The Generative AI Opportunity

Qualcomm CEO Cristiano Amon highlighted that the company’s vital strength is that it gives companies the ability to run AI models on phones, instead of on cloud servers, therefore Qualcomm potentially has the power to contribute to the new AI era in the making.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.