Analyst Expects Qualcomm to Make Bank, Thanks to Apple and Samsung's Love Affair

Mizuho analyst Vijay Rakesh hosted its quarterly handset industry call on the 5G and Handset outlook.

The call noted global handset shipments could now be flat Y/Y, with elevated inventories into the September quarter and potential price competition driving better units but pinching profitability. 

While near-term demand remains weak, Rakesh believes demand tailwinds remain in the 2H23, as its expert noted China June quarter at ~74 million units, up ~17% Q/Q, and 2H23 up 15% H/H (Positive for Qualcomm Inc QCOM) with 5G handsets in 2023 in China potentially ~239 million units, up ~6% Y/Y. 

Rakesh believes his speaker continues to target global 5G units up ~8% Y/Y for 2023E with consensus up ~10-15% Y/Y, primarily driven by emerging markets and growth of low- and mid-tier phones.

The call noted retail handset finished goods inventories have been mostly normalized at 6-8 weeks since the December quarter, with some digestion from Chinese New Year and reopening trends. 

However, component inventories remain elevated and could be a challenge even though the outlook is conservative at Skyworks Solutions, Inc SWKS, with the June quarter flat Q/Q and Qorvo, Inc QRVO flat Q/Q. The call noted the potential for inventories to normalize into the September quarter with 2H23E order pickup.

QCOM could gain share in 2023 with new products, Apple Inc AAPL exposure, and prices.

The potential handset SoC moving downmarket trend sets up QCOM well, with its recent announcement of Snapdragon 7+ Gen 2, an upper-mid-range chip with potentially 50% better performance over prior gen and ~13% better power efficiency. 

The analyst believes QCOM could benefit in 2023E with share gains given 1) improved chip supply, 2) broad portfolio from low-end Snapdragon to high-end Snapdragon8, positioning better vs. peers with higher inventory levels. 

The analyst sees QCOM benefiting from Samsung Electronics Co, Ltd SSNLF S23 and iPhone15 modems to support further upside in 2H23E. 

The analyst believes demand remains weak with current macro headwinds via interest rates and geopolitical concerns, though 2H23 seasonality and retail promotions could drive the upside. 

Specifically, Mizuho's speaker noted iPhone in 2H23 could see 8-9% Y/Y growth, with iPhone 15 specification improvements over iPhone 13/14 potentially attractive enough to drive a more robust adoption/replacement cycle compared to the iPhone 14, as Pro and Pro Max versions could see more DRAM (positive Micron Technology, Inc MU), 6GB to 8GB, up ~33%), A17 chip (3nm), switching to titanium construction, solid state buttons, USB-C, thinner bezels, and better cameras (periscope).

Price Action: QCOM shares closed lower by 0.80% at $120.16 on Friday.