Qualcomm beat exceptions and set strong momentum for the year. Insights below on the quarter highlights.

Key Takeaways

• Solid numbers, largely beating expectations, and highlight on operating margin
• Smartphone outlook remains positive in a recovery year for the segment, however, only slight growth is likely for 2024
• The business diversity story looks to benefit from a recovery year in semis with auto a key highlight where Qualcomm is bucking the trend of other auto suppliers having challenges
• Apple has opted to extend their IP licensing deal, which demonstrates a continued commitment to Qualcomm IP, and modems in particular

What’s Significant

Qualcomm continues to demonstrate its revenue diversity story. While the smartphone/handset outlook remains positive thanks to the recovery happening in 2024, there was some negativity due to commentary that Android handsets would likely remain flat. But as ASPs rise and the high-end of the market expands, Qualcomm’s handset business should be stable as they continue to get more content dollars per device.

Also notable was the announcement that Apple has elected to extend its global patent license with Qualcomm, adding two years, and it will now go through March of 2027. Qualcomm also announced they have renewed long-term agreements with two significant smartphone OEMs.

A standout was the auto division, that announced 75 design wins in 2023. The auto business was a standout for the industry as a whole as many other semiconductor auto providers had rough quarters. This shows Qualcomm’s auto product lineup is strong and they are gaining share and content dollars in more vehicles.

We recognize Qualcomm’s strategic positioning within the burgeoning Edge AI sector as a compelling opportunity for upside potential. The evolution of AI from cloud-based processing to local, on-device processing, particularly in smartphones, is driving a significant shift towards more advanced and expensive processors and memory. This transition, aimed at fostering a hardware replacement cycle, presents Qualcomm with a substantial opportunity for content gains. The company’s current valuation, trading at an undemanding multiple, suggests room for rerating around the Edge AI theme. This shift is part of an ongoing evolution, where the demand for more powerful processors in flagship phones has already led to strong content gains. However, the potential for features that can shorten replacement cycles and drive further growth remains a notable improvement. Qualcomm’s strategic focus on Edge AI, amidst this backdrop, positions it well to capitalize on these industry trends, offering a promising avenue for growth and value creation for investors.

Financial Highlights/Performance

• Revenue: Qualcomm reported a quarterly revenue of $9.922 billion, which represents a 14.5% increase quarter-over-quarter (q/q) and a 4.9% increase year-over-year (y/y). This figure surpassed both the Street’s expectations of $9.505 billion
• Earnings Per Share (EPS): The company’s EPS for the quarter was $2.75, significantly higher than the Street’s expectation of $1.37

Segment Performance

• QCT (Qualcomm CDMA Technologies): Revenue for this segment was $8.4 billion, marking a 14.2% increase q/q and a 6.7% y/y increase
• QTL (Qualcomm Technology Licensing): Revenue for this segment was $1.5 billion, up 15.7% q/q but down 4.2% y/y
• Gross Margin: The non-GAAP gross margin was 57.2%, showing an improvement of 138 basis points q/q but a decrease of 83 basis points y/y
• Guidance for the March Quarter: The company provided guidance for March-quarter revenue to be $9.3 billion at the midpoint, indicating a 6.3% decrease q/q but a slight 0.3% increase y/y.
• EPS guidance for the March quarter was set at $2.3, above both the Street’s expectation of $2.25

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