The standout for Qualcomm was the auto growth as the strength of the ADAS solutions from Qualcomm continue to drive this business. Because it is ADAS/digital, Qualcomm is providing solutions to not just EVs but traditional power train and that is a key area of current differentiation among the other semiconductor companies providing solutions to the automotive industry.

Overall, the Qualcomm growth story and more specifically, growth by diversification, continues to gain momentum.  What is interesting about this growth is it continues to be slow and steady and less depending on AI tailwinds as other companies in the space.  AI remians a possible boost, but not depending on this puts Qualcomm in a strong market position.

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Key Takeaways

• Solid results and outlook: Qualcomm delivered better-than-expected revenue and earnings for the quarter, beating analyst estimates.
• Strong performance in China: Revenue from Chinese OEMs grew over 50% year-over-year, benefiting from the growing premiumization trend.
• Automotive segment growth: Auto revenues grew 34% quarter-over-quarter as design wins translate into revenue. The company remains on track for $4 billion in auto revenue by 2026.
• Diversification efforts bearing fruit: Strong performance in automotive and IoT segments demonstrates success in diversifying beyond smartphones.
• Content gains in premium smartphones: Qualcomm continues to benefit from increased content and share in high-end devices.
• Positive momentum in AI: The company is well-positioned in the edge AI theme, with initial AI PC sales exceeding expectations.

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Earnings Call Analysis

Below is our interpretation of the bigger questions on investors minds, from the earnings call, and how management answered.

Automotive Business Growth

• Question: Will the strong automotive revenue growth continue in coming quarters?
• Answer: Cristiano Amon expressed satisfaction with automotive performance, noting that the pipeline is translating into revenue. He confirmed they’re on track for $4 billion in automotive revenue by 2026. He also mentioned potential upside from AI applications in automotive, particularly for user interfaces.

AI PCs

• Question: What are expectations for PC market units/revenue in the next fiscal year?
• Answer: Amon stated that AI PC sales are exceeding expectations, with some models sold out. However, they expect a gradual ramp-up over time. More details on PC and IoT opportunities will be provided at their upcoming investor day.

AI Smartphones

• Question: Is there noticeable demand for AI-capable smartphones? Will AI features proliferate to mid-tier phones?
• Answer: Amon noted that AI has expanded the premium tier of smartphones, with 50% growth seen in China. They plan to bring AI capabilities to mass-tier phones as well. He expressed excitement about upcoming Snapdragon launches with custom CPUs enhancing AI capabilities.

China Handset Growth:

• Question: What’s driving the 50% growth in China handsets?
• Answer: Akash Palkhiwala explained that while the overall handset market is flat to slightly up, the premium tier (>$400) has grown from 21% to 31% of the market. Qualcomm is benefiting from this premium segment expansion.

Market Share and Customer Relationships:

• Question: How does Qualcomm view its market position with key customers like Samsung and Apple
• Answer: Amon expressed confidence in Qualcomm’s technology leadership, especially with upcoming custom CPU launches. For Apple, they’re operating within previously disclosed frameworks. With Samsung, the relationship remains consistent with recent product launches.

Growth Opportunities:

• Question: Which opportunity is more exciting in the next 12 months – automotive or IoT?
• Answer: Amon emphasized that Qualcomm is building multiple diversification opportunities, including automotive, PCs, and industrial IoT. He expressed excitement about all these areas, with more details on industrial roadmap coming soon.

Overall, management emphasized strong performance in automotive and IoT segments, growing traction in AI-enabled devices (particularly in premium smartphones and PCs), and ongoing efforts to diversify the business beyond traditional smartphone chips.

View From the Street

Investor sentiment appears cautiously optimistic. While the results and near-term outlook were solid, there are some concerns about growth sustainability. Below is our summary of the main themes from investor commentary:

• Conservative Q1 FY25 guidance: Qualcomm’s initial outlook for 5% year-over-year growth in Q1 FY25 was below consensus expectations of 9%. However, analysts believe this guidance may be conservative.
• Smartphone market uncertainty: Qualcomm is assuming flat to slight growth in the global smartphone market for FY25, despite healthier trends seen in the first half of 2024. This conservative outlook is likely contributing to investor caution.
• Huawei impact: The loss of Huawei business due to licensing restrictions will be a 2% headwind to revenue growth in upcoming quarters.
• Potential share loss at Samsung: Analysts note Qualcomm faces challenges in maintaining share at Samsung in the second half of 2024.

Looking Ahead

1. AI-driven opportunities: Potential for AI to drive content increases in smartphones and PCs, supporting Qualcomm’s growth.
2. Automotive traction: Ongoing momentum in the auto segment as design wins convert to revenue.
3. Smartphone market recovery: Whether Qualcomm’s conservative smartphone market outlook proves too cautious.
4. Diversification progress: Continued success in growing non-handset revenues to offset potential headwinds in the core smartphone business.
5. Competitive dynamics: Ability to maintain share and content gains at key customers like Samsung.
6. Overall, while there are some near-term uncertainties, analysts generally see potential for upside if smartphone trends improve and AI opportunities materialize. The company’s efforts to diversify beyond smartphones appear to be gaining traction, providing some optimism for long-term growth prospects.

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