Qualcomm Inc (QCOM.O) beat second-quarter profit and revenue on April 27, largely prompted by its move to focus on a growing non-handset business to soften a likely hit from slacking smartphone demand, and forecast third-quarter revenue above analyst expectations.
Shares of Qualcomm were immediately pushed up about 5% in after-hours trading by the robust earnings outlook and record quarterly revenue for the last quarter.
A move away from spending on electronic gadgets like phones, rising inflation, lockdowns in China, and war in Ukraine have taken a toll on consumers.
Chief Executive Officer Cristiano Amon told reporters:
“The market in China is changing a bit. I think we’re kind of less impacted by it because we’re really focused on the premium and high-tier” smartphone market.
Runar Bjørhovde, an analyst at research firm Canalys, said that as the supply chain constraints production, smartphone makers will want to focus on selling more profitable high-end phones. In the meantime, as inflation and uncertainty hold consumers back from spending, they will want to buy cheap phones.
The mid-range devices ($300-$800), where Qualcomm has a stronghold and outstanding partnerships with the vendors who influence this market segment, will be in the “sweet spot”, he said.
Shares of Apple Inc (AAPL.O) were pushed up about 1% in after-hours trading by Qualcomm’s strong results paired with Meta Platforms’ (FB.O) surprising profit beat, offering glimmers of hope for a solid showing when the iPhone maker discloses results on April 28, 2022.
Senior portfolio manager at Synovus Trust Company, Dan Morgan, stated:
“These (Qualcomm) results lay the foundation to make a strong case that the smartphone business is still strong after the traditionally big holiday quarter.”
Morgan added that 25% of Qualcomm sales are acquired from making modem solutions for Apple. However, Apple is working on its in-house chips to replace Qualcomm’s. Qualcomm is seemingly getting ready for the inevitable, according to different analysts.
Logan Purk, an analyst at Edward Jones, commented:
“Qualcomm is certainly relying on the Android market, leaning into it heavily as they anticipate losing 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.”
Adding that in the newest Samsung Galaxy S22 smartphone about 75% of the high-end chips were Qualcomm chips, up from about 40% in Samsung’s last phone, and replacing Samsung chips. Amon said during the company’s earnings call that he expects the “relationship with Samsung only to increase”.
Nevertheless, Qualcomm has been expanding its revenue streams by catering to other markets including automotive, to reduce its dependence on handsets. For instance, the company’s automotive business pipeline is now at $16 billion, up from $13 billion in late 2021, mostly because of a deal it made recently with automaker Stellantis.
While revenue from its mainstay handset business rose 56%, helped by the new Snapdragon launch, revenue from chips catering to internet-powered gadgets and automotive rose 61% and 41%, respectively, during the second quarter.
Furthermore, Qualcomm is open to taking part in an IPO by Arm Ltd, which prepares blueprints that chipmakers, including Qualcomm, use to design chips, Amon told Reuters. The British chip technology company is owned by SoftBank Group Corp (9984.T).
Compared with analysts’ estimates of $9.98 billion, Qualcomm forecasts current-quarter revenue between a range of $10.5 billion and $11.3 billion, according to IBES data from Refinitiv.
For the quarter ended March 27, adjusted revenue was $11.16 billion, above estimates of $10.6 billion.
Excluding items, Qualcomm made $3.21 per share, beating estimates of $2.91.