An inventory glut and weak handset demand will impact the current quarter, the company said
Qualcomm on Wednesday reported Q4 results in line with Wall Street consensus estimates: The company recorded adjusted earnings per share (EPS) of $3.13, with $11.39 billion in adjusted revenue. Revenue grew 22% year over year. Qualcomm predicted adjusted earnings of $2.35 per share for the current quarter, sharply below Wall Street consensus of $3.43 and well off its Q1 ’23 earnings of $3.23 per share on $10.7 billion in revenue.
Qualcomm lowered guidance for the current quarter due to lower handset volumes and “uncertainty caused by the macroeconomic environment.” The company had already predicted a mid single-digit percentage decline, but has updated that to a “low double-digit percentage decline” instead.
Qualcomm warned of a rapid deterioration in demand and an easing of supply chain constraints across the semiconductor industry; both factors have contributed to an elevated channel inventory, the company said. The news, predictably, set Qualcomm stock tumbling in after-hours trading on Wednesday and into Thursday.
“As we communicated during the last earnings call, we had started to see a deceleration in demand for mass-tier handsets in consumer IoT. Since then, the further deterioration of macroeconomic environment and sustained COVID restrictions in China have led to broad-based demand weakening across tiers and regions. Given these considerations, we now project 3G, 4G, 5G handset volumes in calendar 2022 to decline by low double digits on a year-over-year basis, including 600 million to 650 million 5G handsets,” said Akash Palkhiwala, Qualcomm CFO, in a Wednesday call with analysts following the earnings report.
Qualcomm CDMA Technologies, or QCT, remains “the growth engine of the company” according to Qualcomm president and CEO Cristiano Amon. The segment recorded annual fiscal ’22 revenues of $37.7 billion for company, up 39% year over year. QCT reported a record quarter with $9.9 billion and EBT margin of 34%, well above the midpoint of the company’s guidance. Handset revenues for the quarter were $6.6 billion, a 40% year-over-year increase. IoT revenues rose 24% year over year to total $1.9 billion for the quarter, the growth of which Palkhiwala attributes to the strong uptake of edge network and industrial IoT.
Automotive revenues of $427 million grew 58% versus the year-ago quarter. “We have firmly established ourselves as a key strategic and technology partner for the automotive industry, and the Snapdragon Digital Chassis is now the preferred platform for next-generation vehicles,” said Amon, in prepared remarks.
Qualcomm’s SVP and GM of Automotive Nakul Duggal told attendees of the recent Automotive Investor Day in New York City that the automotive industry was undergoing “massive change.” The Snapdragon Digital Chassis platform incorporates a comprehensive suite of capabilities aimed at a wide range of automotive manufacturer price tiers and geographies. It includes driver assistance, in-vehicle connectivity, virtual assistance and contextual safety features, car-to-cloud functionality, C-V2X functionality , and positioning tech.
Amon emphasized Qualcomm’s continued financial discipline as a means to weather the current economic uncertainty.
“We have already implemented a hiring freeze, and we have planned spending reductions across our mature product areas and [selling, general and administrative expenses] to fund our diversification. We are continuing to evaluate additional actions, and we are prepared and committed to making further reductions to operating expenses as needed. It is important to note that the current inventory drawdown is a cyclical adjustment that has no impact on the underlying growth and earnings power of the company in the long term,” said Amon.
The elevated channel inventory and other headwinds haven’t changed Qualcomm’s diversification focus, Amon emphasized. “We continue to execute our strategy of transforming Qualcomm from a wireless communications company for the mobile industry to a connected processor company for the intelligent edge,” he said.
Amon said the company is “in a strong position to manage the near-term headwinds,” adding that inventory issues were “a temporary cyclical inventory drawdown.”
Akash predicted future growth to be “driven by our strong design win pipeline for 5G and Wi-Fi 7 platforms across handsets, automotive, and IoT.” He also added that as far as its continued relationship with Apple is concerned, Qualcomm now anticipates to “have the vast majority of share of 5G modems for the 2023 iPhone launch, up from our previous 20% assumption.”
