Qualcomm beats Q4 estimates as handset slump clouds outlook

By Tom Whitfield

Qualcomm posted adjusted fourth-quarter EPS of $2.17 against $2.16 expected, but guided first-quarter EPS to a $2.25 midpoint versus $2.32 consensus; shares fell 10% before Thursday's bell.

Wednesday's after-the-bell report produced revenue of $10.32 billion, ahead of $10.12 billion expected but below $11.27 billion a year earlier. Adjusted EPS was $3 in that prior quarter, so both headline measures fell from the year-ago levels.

Qualcomm is trying to reduce its dependence on smartphone chips through data center, automotive, edge computing and PC businesses. The report did not set out a timetable for replacing handset revenue. In late October, Qualcomm and Anduril said BlueChip would focus on "reshoring computer manufacturing," beginning with a laptop using Snapdragon X series chips. The announcement provided no shipment date or volume forecast.

What did Qualcomm report?

• Adjusted EPS: $2.17, against $2.16 expected and $3 one year earlier.
• Revenue: $10.32 billion, against $10.12 billion expected and $11.27 billion one year earlier.
• First-quarter revenue guidance: $10.4 billion to $11.2 billion, with a $10.8 billion midpoint above the $10.6 billion outlook.
• First-quarter EPS guidance: $2.15 to $2.35, with a $2.25 midpoint below the $2.32 estimate.

The company beat the fourth-quarter estimates and exceeded the first-quarter revenue forecast, but missed on first-quarter profit. The lower EPS midpoint sent the shares lower after the report.

Takeaway: Qualcomm passed the quarterly test, but not the forward profit test.

How much did handset weakness matter?

Qualcomm's QCT segment, which includes handset and automotive sales, generated $9 billion, above the $8.8 billion analysts expected. The segment nevertheless declined 8% from a year earlier.

The bulk of that drop came from handsets, where revenue plunged 26% to $5.1 billion, below the $5.3 billion estimate. Automotive revenue rose 89% to $2 billion and helped offset some of the pressure. QTL produced $1.3 billion, although the report gave no year-on-year comparison for that business.

Takeaway: Automotive growth cushioned the handset contraction, but did not remove the main pressure on QCT.

Can Qualcomm diversify beyond smartphones?

On Wednesday, Qualcomm announced a deal to provide technology to SpaceX's Starlink as the satellite-networking company works to establish a terrestrial network that would rival AT&T, T-Mobile and Verizon. The announcement did not state contract value, deployment dates or expected revenue.

In September, Qualcomm signed an agreement with Amazon for custom chips designed for AWS AI infrastructure. The report omitted the value, production schedule and revenue contribution, leaving the arrangement's near-term financial effect unstated.

Takeaway: The agreements extend Qualcomm's reach, but the missing economics leave their near-term financial effect unproven.

What risk remains?

The memory and storage shortage has forced consumer-electronics companies to raise prices on products from smartphones to laptops, contributing to a sharp fall in demand. Qualcomm faces the same cost and volume pressure while pursuing diversification.

Apple said during Monday's fourth-quarter earnings announcement: "The memory crisis will continue to cut into margins going forward." Intel and AMD also expect PC sales to decline in the coming quarter, and Intel shares plunged nearly 29% after its forecast.

Takeaway: Lower device demand and higher memory costs can delay the payoff from Qualcomm's diversification.

Qualcomm beat fourth-quarter estimates and guided first-quarter revenue above consensus, but the 26% handset decline, below-consensus profit outlook and 10% pre-market share fall leave a narrower task: turn diversification into revenue large enough to replace lost smartphone volume.