Qualcomm's Fortunes Seem To Be Turning Around

Last Wednesday, Qualcomm Incorporated QCOM reported its fiscal third quarter earnings, surpassing Wall Street estimates, while also issuing a strong guidance for the current quarter. However, while both top and bottom line slightly surpassed estimates, this wasn’t enough to make the market excited. 

Fiscal Third Quarter Highlights

For the quarter ended on June 23rd, Qualcomm reported adjusted revenue of $9.39 billion, surpassing LSEG’s estimate of $9.22 billion. Revenue grew 11% YoY.

The chip business or more precisely, three hardware lines reported together as QCT reported sales grew 12% YoY as they brought in revenue of $8.1 billion.

Its handsets business grew 12% YoY to $5.9 billion, suggesting recovery after a deep two-year slump in smartphone sales. When it comes to the smartphone market, summer months are usually a slower bit of the annual cycle.

Internet of Things business that includes selling chips for lower-cost devices and Quest headsets from Meta Platforms META revenue contracted 8% YoY to $1.4 billion, but still surpassed StreetAccount’s estimate of $641.7 million. Back in 2022, Meta and Qualcomm partnered to deliver multi-generation metaverse experiences. While the agreement Qualcomm made with Meta is a broad multi-year strategic collaboration, but two years later, the metaverse still didn’t come to life. Although Meta and Mark Zuckerberg are not giving up on the metaverse, they have been talking more about generative AI.

Licensing revenue from collecting fees from companies that integrate 5G or other cellular technologies into their products grew 3% to $1.3 billion.

Automotive revenues grew 87% YoY to $811 million, topping StreetAccount’s consensus estimate of $641.7 million. Although automotive chips remains a small part of Qualcomm’s total revenue stream, but it is seen as one of its biggest future growth opportunities and diversification.

Earnings grew 18% YoY as net income amounted to $2.13 billion or $1.88 per share. Adjusted earnings surged 25% YoY to $2.33 per share.

Current Quarter Guidance Indicates Improvement Is On The Horizon

Qualcomm guided for sales in the range between $9.5 billion and $10.3 billion, forecasting earnings per share between $2.38 and $2.58. Looking at midpoint figures, this guidance indicates a 14% revenue improvement from the previous quarter, along with 26% improvement for the bottom line. However, CEO Cristiano Amon did hint that the smart phone market recovery won’t be fast, pointing out kind of flattish to low single digits in growth.

Qualcomm’s fortunes seems to be turning around.

While the smartphone market slump has brought down Qualcomm’s financials over the past three years, its latest results suggest growth seems to be back on track. In addition, growth of the AI-enabled smartphone market should support the company in sustaining its newly found growth momentum.

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