Q3 2023 Earnings Report Revealed by Qualcomm (QCOM)

Qualcomm exceeded Wall Street’s expectations with their third-quarter earnings report, but fell short in terms of revenue and guidance for the fourth quarter.

The stock price of Qualcomm dropped by over 6% in after-hours trading.

Here’s a breakdown of Qualcomm’s performance in the quarter ended on June 25:

• Earnings: $1.87 per share (adjusted), surpassing the Refinitiv consensus estimate of $1.81 per share.
• Revenue: $8.44 billion (adjusted), slightly below the Refinitiv consensus estimate of $8.5 billion.

For the fourth quarter, Qualcomm projected earnings between $1.80 and $2 per share, with sales ranging from $8.1 billion to $8.9 billion, which falls short of the Refinitiv consensus expectations of $1.91 in earnings on $8.7 billion in revenue.

In the third quarter, net income dropped to $1.8 billion, or $1.60 per share, a significant 52% decrease from $3.73 billion, or $3.29 per share, reported in the same period last year.

Qualcomm’s exposure to the declining smartphone industry, as a result of manufacturing processors for high-end Android devices and lower-end phones, has impacted their business.

Analysts anticipate a decline in device shipments for 2023, and Qualcomm echoed this sentiment, stating that they expect a “high-single digit percentage” decrease in handset units for the year, partially due to a slow recovery in China. However, the company anticipates growth in handset sales during the holiday season.

QCT, Qualcomm’s largest division that sells processors for smartphones, cars, and smart devices, reported $7.17 billion in sales, a 24% decrease from the previous year.

The revenue from handset chip sales, which constitutes a significant portion of QCT, declined by 25% year over year to $5.26 billion.

“The timing of a sustained recovery in the handset market remains uncertain, and customers continue to exhibit caution in their purchases,” stated Qualcomm’s finance chief, Akash Palkhiwala, during an earnings call with analysts.

On a positive note, Qualcomm’s automotive business, responsible for selling chips and software for autonomous cars, experienced a 13% increase in revenue, reaching $434 million during the quarter.

However, their internet of things business, which focuses on manufacturing affordable chips for low-power devices and industrial applications, saw a decline of 24% in revenue, amounting to $1.48 billion. This segment also includes chip sales to Meta for their Quest VR headsets.

The revenue from Qualcomm’s profitable licensing business, QTL, decreased by 19% to $1.23 billion.

Cristiano Amon, the CEO of Qualcomm, emphasized the company’s artificial intelligence strategy in a statement, recognizing the demand for chips capable of running AI models like OpenAI’s ChatGPT. Qualcomm’s ability to run AI on mobile devices instead of cloud servers positions them for potential growth in the future.

Amon stated, “In summary, we are uniquely positioned to help shape and capitalize on the upcoming on-device Gen AI opportunity.”

Qualcomm reported a 5% reduction in costs compared to the previous year. The company has implemented cost-saving measures, including a workforce reduction of 415 jobs at its San Diego headquarters in June, as reported by the San Diego Union-Tribune. More cost-saving programs are expected to be implemented in the first half of next year.

During the quarter, Qualcomm paid $893 million in dividends and repurchased $400 million in stock.

Correction: The earlier version did not specify that Qualcomm’s quarterly revenue of $8.44 billion was adjusted.