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Qualcomm’s Sales and Forecast Miss Targets Amidst 25% Decline in Smartphone Chip Sales

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Qualcomm's Sales and Forecast Miss Targets Amidst 25% Decline in Smartphone Chip Sales

On Wednesday, Qualcomm announced its third-quarter earnings, surpassing the expectations set by Wall Street. However, despite the positive earnings, the company’s revenue for the quarter and its projected guidance for the fourth quarter fell below anticipated levels. As a result of this news, Qualcomm’s stock experienced a significant drop of over 6% during extended trading hours.

During the quarter that ended on June 25, the chipmaker, Qualcomm, delivered favorable earnings, surpassing market expectations. The adjusted earnings per share amounted to $1.87, outperforming the Refinitiv consensus estimates of $1.81 per share. However, on the revenue front, the company fell just short of expectations. The adjusted revenue for the quarter was $8.44 billion, slightly below the Refinitiv consensus estimates of $8.5 billion. Overall, while Qualcomm’s earnings pleased investors, the revenue result led to some disappointment among market analysts.

Qualcomm projected its expectations for the fourth quarter, forecasting earnings between $1.80 and $2 per share on sales ranging from $8.1 billion to $8.9 billion. However, these figures fell short of Refinitiv consensus expectations, which were $1.91 in earnings on $8.7 billion in revenue. The company’s net income for the quarter was $1.8 billion, or $1.60 per share, indicating a substantial 52% decline from the previous year’s figures of $3.73 billion, or $3.29 per share. This significant drop in net income highlights the challenges faced by Qualcomm during the specified period.

Due to its role as the provider of processors for the majority of high-end Android devices and many lower-end phones, Qualcomm faces exposure to the current downturn in the smartphone industry. Analysts predict a decline in shipments of new devices in 2023, and Qualcomm has also reiterated its expectations for a “high-single digit percentage” decrease in handset units this year, partly attributed to a slow recovery in China. Nevertheless, the chipmaker expressed optimism, anticipating handset growth to pick up during the holiday season. This positive outlook suggests potential recovery and increased demand for smartphones in the latter part of the year.

Qualcomm’s largest division, QCT, which specializes in selling processors for smartphones, cars, and other smart devices, recorded sales of $7.17 billion for the current period. This figure represents a 24% decrease compared to the same period in the previous year. Notably, the most substantial component of QCT’s sales comes from handset chips, and unfortunately, this segment experienced a significant decline of 25% year over year, amounting to $5.26 billion in sales.

During an earnings call with analysts, Qualcomm’s finance chief, Akash Palkhiwala, stated that predicting the timing of a sustained recovery in the handset business remains challenging, and customers continue to approach purchases with caution. Despite this uncertainty, the company found a bright spot in its automotive business, which focuses on selling chips and software for autonomous cars. This segment experienced a notable growth of 13%, generating $434 million in revenue during the quarter.

On the other hand, the internet of things (IoT) business, responsible for producing lower-cost chips catering to low-power devices and industrial applications, faced a decline of 24%, resulting in $1.48 billion in sales. This segment also encompasses chip sales to Meta for its Quest VR headsets. Additionally, Qualcomm’s profitable licensing business, QTL, experienced a decrease of 19%, generating $1.23 billion in revenue.

In a statement, Qualcomm CEO Cristiano Amon emphasized the company’s artificial intelligence (AI) strategy, aligning with the trend among semiconductor firms to capitalize on the increasing focus on chips required to run sophisticated software like OpenAI’s ChatGPT. Amon pointed out that Qualcomm’s capability to execute AI models directly on smartphones, instead of relying on cloud servers, positions the company for a potential “inflection point” that could fuel substantial growth in the future. This approach to AI processing could offer Qualcomm a competitive advantage and open up new opportunities in the evolving landscape of AI-driven technologies.

“In conclusion, we find ourselves in a distinctive position to actively influence and leverage the emerging on-device Gen AI prospects,” remarked Amon. Qualcomm also revealed that it has successfully lowered costs by 5% compared to its expenditures in the previous year. Additionally, in June, the company made organizational changes by cutting 415 jobs at its San Diego headquarters, according to reports from the San Diego Union-Tribune. These measures reflect Qualcomm’s efforts to streamline operations and optimize its position in the market.

The company announced its plans to introduce additional cost-saving programs during the first half of the upcoming year. Moreover, Qualcomm disclosed that it distributed $893 million in dividends and repurchased $400 million worth of stock during the quarter. These initiatives demonstrate the company’s commitment to managing its finances effectively and returning value to its shareholders.

About Rajesh Parmar

Rajesh Parmar

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