Qualcomm Reports Impressive Quarterly Results Amid Macroeconomic Challenges

Qualcomm’s fiscal third-quarter earnings came after Wednesday’s bell and slightly surpassed estimates. The guidance it issued, however, fell short of expectations. Following the announcement, the company’s stock plunged by over 4 percent in extended trading.

The company reported earnings per share of $2.96, slightly beating the $2.87 that analysts had expected for the fiscal third quarter. Earnings were also up 53 percent from the year-ago period. Revenue of $10.93 billion, adjusted, was up 37 percent year-over-year and beat analysts’ estimate of $10.88 billion.

For the fiscal fourth quarter, Qualcomm expects earnings in the range of $3 and $3.30 per share. Analysts, on the other hand, expect earnings of $3.23 per share for the fiscal fourth quarter. Qualcomm also expects between $11 billion and $11.8 billion in sales, while analysts expect $11.87 billion in sales for the fiscal fourth quarter.

In a statement issued by Qualcomm, its CEO Cristiano Amon talked about the company’s results noting that they are strong irrespective of a “challenging macroeconomic environment.”

Qualcomm’s handset business had a 59 percent growth year-over-year to $6.15 billion. The company had this irrespective of signs of slowing smartphone sales induced by macroeconomic conditions.

Taking its guidance into consideration, Qualcomm’s forecast suggests that handset sales growth would slow in the fiscal fourth quarter. This makes sense as it would reflect the decline in smartphone demand which could affect its main business in terms of earnings and revenue. Qualcomm expects operating expenses to increase in the range of 6 percent and 8 percent during the quarter.

CEO Akash Palkhiwala noted that Qualcomm’s expected fourth-quarter weakness in smartphone chip sales would be in the middle and lower tiers, as opposed to chips for the most expensive phones.

Handsets which are reported under the QCT segment along with other semiconductors the company sells grew 45 percent year-on-year to $9.38 billion. Handsets were the fastest growing business under the segment irrespective of the company’s efforts to diversify into other types of chips.

Automotive chips were up 38 percent year-on-year to $350 million, making it an all-time high for the company. This suggests that the segment is still a small business compared to other segments.

Qualcomm’s IoT business increased 31 percent to $1.83 billion. This segment makes low-power chips for connected devices.

Its other major unit called QTL which envelopes licensing fees related to 5G and other technologies Qualcomm makes, had sales of $1.52 billion, rising 2 percent year-over-year. In recent years, it hasn’t been a major source of profit and has not been growing strongly.

Qualcomm’s gross margin fell short of expectations as the cost of chips rose due to shortages and challenges with Chinese production. Qualcomm outsources its chip manufacturing to foundries that have been booked solid since the start of the pandemic. Qualcomm reported a 56% gross margin versus a consensus estimate of 57.8%. The company said it spent $1.3 billion on shareholder return during the quarter, including $842 million in dividends.