Qualcomm returns to growth, warns of persisting near-term high inventories

After experiencing four consecutive quarters of declining sales and earnings year-on-year, Qualcomm's latest report signaled a resurgence in growth.

The positive news of growth shown in the company's Q1 report was tempered by a warning. The company said inventories will remain high in the near term.

Qualcomm released its latest earnings report for the fiscal first quarter that ended in December, posting a revenue of US$9.9 billion, up 4.99% from a year ago. The company's operating income and profit increased by 18.78% and 23.8% year-on-year, respectively.

The Handset segment revenue grew by 16.21% to US$6.7 billion. The Automotive segment experienced a 32.34% fall in sales.

Qualcomm president and CEO Christiano Amon said the company was extremely pleased to report strong quarterly results. Looking ahead the company will build on this momentum with its leading Snapdragon platforms and technology differentiation in connectivity, computing, and on-device generative AI across Handsets, Automotive, PC, XR, and Industrial IoT, he added.

Bloomberg Intelligence reported on Qualcomm's better-than-expected sales. The results may mark the beginning of a turnaround in smartphones, it said.

The consultancy said exceeding expectations in gross margin and achieving a higher-than-anticipated Qualcomm Technology Licensing (QTL) revenue indicates the potential initiation of a recovery in the Android market. The company's increased market share thanks to Samsung's adoption of snapdragon 8 gen 2 may further support this revival, Bloomberg added.

Bloomberg quoted KeyBanc Capital Markets saying that the results are strong. The outlook aligns with expectations, reflecting continued recovery in the handset market, particularly Android, it added.

Qualcomm said in a press release that the increase in Qualcomm CDMA Technologies (QCT) revenues in the quarter was primarily due to higher handset and IoT revenues. The company added that the increased handset revenues were predominantly influenced by a US$704 million rise in chipset shipments to key OEMs.

This surge can be attributed to the normalization of customer inventory levels, which were elevated in the previous year, and the expedited launches of specific customer devices compared to the prior year, the company said. Additionally, a US$208 million boost in revenues per chipset was primarily fueled by rises in average selling prices, it added.

Qualcomm also said that certain customers will continue to draw down on their inventory, which remains at elevated levels. Inventory levels will continue to be elevated in the near term, it noted.

Qualcomm anticipates that shifts towards newer generations of advanced process technology nodes will likely result in increased product costs from specific semiconductor wafer suppliers. The company expects enduring strong competition, with notable participation in vertical integration by certain customers, such as Samsung and Huawei.

Qualcomm said the US-China tensions may negatively impact its business. The rivalry could affect the company's growth prospects and operations, it added.

Source: Qualcomm, January 2024

Source: Qualcomm, January 2024