💾 Is Qualcomm Priming Its Next Growth Engine?

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💾 Qualcomm: Smart Chipping?

Qualcomm (QCOM), the world’s largest smartphone chipmaker, beat consensus expectations in Q2. All four major chip verticals of the company registered healthy growth, and it’s also giving shape to its automotive business. So how is Qualcomm poised after a rough few months?

The Smart(phone) Substitution

Qualcomm sells processors and modems that connect smartphones to high-speed data networks. With smartphones and apps demanding ever-faster data access, there’s no question Qualcomm’s products are in high demand. So how high is the demand? High enough that the company beat all estimates for the quarter gone by.

Key Highlights From Q2: 

  • Revenue: $11.16B Vs $10.6B expected
  • Earnings Per Share: $3.21 Vs $2.91 expected
  • Chip Sales: $9.55B Vs $8.86B expected
  • Technology Licensing: $1.58B Vs $1.55B expected

For the current quarter, Qualcomm expects to earn $10.9B in revenue (higher than Wall Street estimates of $9.98B) and EPS of around $2.85. In Q2, revenue rose 41% Y-o-Y. The company continues developing and patenting innovations for the smartphone chip business.

The handset business, the biggest market for Qualcomm’s chips, rose 56% Y-o-Y to $6.33B. The growth laid to rest fears of slowing smartphone demand in China. The RF front-end business, which sells parts that enable 5G connections, rose 28% from last year to $1.16B. The Internet of Things or IoT division, which makes low-power and low-cost chips rose 61% from last year to $1.72B.

Qualcomm managed to grow the smartphone business despite lockdowns in China due to a recent Covid-19 outbreak, the war in Ukraine, and rising inflation. Whether this level of performance can continue is the all-important question, given Apple has been working on its chips for the iPhone.

While it may lose Apple as a customer, it may find an equally bigger one as a replacement. After Apple, Samsung is the clear leader in premium handsets, and it is believed to be an important cog in the wheel in the future.

Qualcomm CEO Cristiano Amon expects the relationship with Samsung to “only increase.” Amon also gave proof of the same by stating that the 75% of the high-end chips in the latest Samsung Galaxy S22 smartphone were those of Qualcomm, much higher than the 40% used in Samsung’s previous launch.

Chipping Beyond Smartphones

CEO Amon does not want Qualcomm to be defined as a communications company that serves only one industry. Qualcomm has already been working on diversifying its revenue streams to combat any potential slowdown in the smartphone market, one of which is automobiles.

Qualcomm’s automobile business is currently a negligible part of the overall topline but continuing to report robust growth. For Q2, revenue for the unit was up 41% to $339M, which is just 3% of the overall topline. Its “design-win” pipeline, which stood at $10B a couple of quarters earlier, has grown to $16B.

This year, Qualcomm launched the new Snapdragon Digital Chassis Connected Car Technologies in February. The feature was launched to meet the increasing demand for premium driving experiences and connected in-vehicle services. This feature is a crucial contributor to the growth in their design-win pipeline.

In mid-April, Qualcomm signed a multi-year deal with automaker Stellantis to install its next-generation connected-car technology. 14 brands of Stellantis, including Peugeot, Fiat, and Jeep, will be using Qualcomm’s vehicle cockpit and 5G telematics technology from 2024. The Maserati brand will be the first one to use this technology.

Qualcomm also announced long-term cooperation with BMW to develop and extend the automated drive software to the Snapdragon Ride platform. The bandwagon of signing up with Qualcomm for enabling autonomous driving doesn’t end there! The Volvo Group, Honda Motor Co., Renault SA, and Volkswagen have also signed a deal with the company

Qualcomm’s much-publicized deal with Veoneer will finally see completion in the current quarter. The company also acquired Arriver from the investment firm SSW Partners. The acquisition of Arriver saw Qualcomm complete the software stack for its Advanced Driver Assistance Systems (ADAS).

The company is targeting $46B in revenue by fiscal 2024. Meanwhile, slowdown fears meant peers such as NVIDIA and AMD are down between 35-40% this year, and Qualcomm is down 22% YTD. Investors can only hope the outperformance and the losses are erased, one smart chip at a time!

Market Reaction
QCOM ended at $149.05, up 3.32%.

Company Snapshot 📈

QCOM $149.05 +4.79 (3.32%)

Analyst Ratings (32 Analysts) BUY 69%  HOLD 31%  SELL 0%

Newsworthy 📰

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More Positives: Starbucks hits record Q2 revenue despite lockdowns hammering sales in China (SBUX +9.83%)

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Later Today 🕒

  • Block Inc. Earnings (SQ)
  • ConocoPhillips Earnings (COP)
  • Kellog Co. Earnings (K)
  • DoorDash Inc. Earnings (DASH)
  • Shopify Inc. Earnings (SHOP)
  • Monster Beverage Corp. Earnings (MNST)
  • Lucid Group Inc. Earnings (LCID)
  • Nio Inc. Earnings (NIO)
  • Alpha and Omega Semiconductor Ltd. Earnings (AOSL)
  • AB InBev SA/NV Earnings (BUD)
  • Crocs Inc. Earnings (CROX)
  • Cars.com Inc. Earnings (CARS)
  • Cushman & Wakefield Ltd. Earnings (CWK)
  • Dominion Energy Inc. Earnings (D)
  • FuboTV Inc. Earninngs (FUBO)
  • GoPro Inc. Earnings (GPRO)
  • HubSpot Inc. Earnings (HUBS)
  • Illumina Inc. Earnings (ILMN)
  • Sweetgreen Inc. Earnings (SG)
  • Teradata Corporation Earnings (TDC)
  • Vertex Pharmaceuticals Inc. Earnings (VRTX)
  • Zillow Group Inc. Earnings (ZG)
  • 6:00 PM IST: Initial Jobless Claims

Today’s Fun Fact

Immigrants make up 12.5 percent of small business owners nationwide

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