San Diego’s Qualcomm forecasts positive revenue as diversification bet pays off
Qualcomm forecast third-quarter revenue to beat analysts’ expectations after topping second-quarter revenue and profit estimates on Wednesday, largely due to its decision to focus on a non-mobile business in growth to cushion a likely blow from slowing demand for smartphones.
The strong earnings outlook and record quarterly revenue last quarter immediately sent Qualcomm shares up about 5% in after-hours trading.
Lockdowns in China, war in Ukraine and rising inflation have weighed on consumers, preventing them from spending on electronic gadgets like phones. However, Qualcomm has not been affected so far.
“The market in China is changing a bit. I think we’re a bit less affected by that because we’re really focused on the high-end, high-end smartphone market,” chief executive Cristiano Amon told Reuters.
Runar Bjørhovde, an analyst at research firm Canalys, said smartphone makers will want to focus on selling more profitable high-end phones as the supply chain constrains production, while consumers will want to buy cheap phones. market because inflation and uncertainty are holding them back from spending.
He said the “sweet spot” will be in the midrange ($300 to $800) devices, where Qualcomm has a strong foothold and great partnerships with vendors that dominate that market segment.
Strong results from Qualcomm, coupled with a surprise overshoot in earnings from Meta Platforms, sent shares of Apple Inc. up around 1% in after-hours trading, offering glimmers of hope for a solid performance when the iPhone maker releases its results on Thursday.
“These results (from Qualcomm) lay the foundation for a strong case that the smartphone business is still strong after the traditional big holiday quarter,” said Dan Morgan, senior portfolio manager at Synovus Trust Company, adding that Qualcomm makes 25% of its sales. to create modem solutions for Apple.
But Apple is working on its own chips to replace those from Qualcomm. Analysts said Qualcomm was preparing for the inevitable.
“Qualcomm is certainly leaning into the Android market, leaning heavily into it as they plan to lose Apple’s business for its modem chips. Within Android, Samsung is the clear leader in premium handsets and will likely be an important customer for Qualcomm in the future,” said Edward Jones analyst Logan Purk.
During the company’s earnings call, Amon said he expects the “relationship with Samsung to only grow,” adding that in the latest Samsung Galaxy S22 smartphone, around 75% of chips top-end were Qualcomm chips, compared to around 40% in the latest Samsung. phone and Samsung chip replacement.
Also to reduce its dependence on handsets, Qualcomm has diversified its sources of revenue by addressing other markets, including the automobile.
For example, Qualcomm’s automotive business pipeline now stands at $16 billion, up from $13 billion at the end of last year, driven mainly by a recent deal with automaker Stellantis, said Has my.
Revenue from chips for automotive and internet-powered gadgets rose 41% and 61%, respectively, in the second quarter, while revenue from its core handset business rose 56%, helped by the new launch from Snapdragon.
Amon also told Reuters that Qualcomm was willing to participate in an IPO by Arm Ltd, which develops blueprints that chipmakers, including Qualcomm, use to design chips. SoftBank Group Corp owns the British chip technology company.
Qualcomm expects revenue for the current quarter between $10.5 billion and $11.3 billion, versus analyst estimates of $9.98 billion, according to IBES data from Refinitiv.
Adjusted revenue for the quarter ended March 27 was $11.16 billion, higher than estimates of $10.6 billion.
Excluding items, Qualcomm earned $3.21 per share, beating estimates of $2.91.