The News: Qualcomm soared more than 13% after hours on Wednesday as the company reported fiscal third-quarter earnings that beat expectations and announced a long-term patent agreement with Huawei, settling a major unanswered legal question for the company.
Here’s how it did versus Refinitiv consensus estimates:
- EPS: $0.86 (non-GAAP), vs $0.71 estimated.
- Revenue: $4.89 billion vs. $4.8 billion estimated.
Read the full news piece on CNBC.
Analyst Take: Qualcomm was next up in a massive earnings week. The company, much like the majority of big tech, didn’t disappoint this quarter as it hit on EPS and Revenue, both landing above target.
Breaking Down the Business
In the company’s earnings release it broke down the following as a more granular set of performance metrics.
Non-GAAP Revenues: $4.9 billion, approximately flat year-over-year, above the midpoint of our prior guidance range.
Non-GAAP EPS: $0.86, an increase of 8% year-over-year, above the high end of our prior guidance range.
MSM chip shipments: 130 million, a decrease of 17% year-over-year, below the midpoint of our prior guidance range.
QCT revenues: $3.8 billion, an increase of 7% year-over-year, below the midpoint of our prior guidance range
QTL revenues: $1.0 billion, a decrease of 19% year-over-year, above the high end of our prior guidance range.
Strong balance sheet: $10.6 billion of cash, cash equivalents and marketable securities as of June 28, 2020.
Return of capital to stockholders: $843 million, including $733 million, or $0.65 per share, of cash dividends paid and $110 million through repurchases of 1.6 million shares of common stock. On July 15, 2020, we announced a cash dividend of $0.65 per share payable on September 24, 2020 to stockholders of record as of the close of business on September 3, 2020.
Given the challenging economy and the temporary shutdown, I’m a little less focused on the YoY growth and more focused on how the company performed against its estimates. It met or exceeded guidance across the board all while maintaining a strong return to shareholders. At a high level, these numbers should be seen as a good way to head into the company’s final quarter of its fiscal year.
Business Highlights For the Quarter
In the company’s earnings release, there were focuses on several items beyond the top and bottom line results.
This included the performance of the chip business, licensing business, the overall 5G landscape as well as some insights as to what the company sees for 5G units for the remainder of the year.
In terms of its 5G design wins, the company’s platform Snapdragon has had an incredible run seeing over 660 wins around 5G. This is across the Snapdragon 8, 7, and 6 series along with the X55 modem (discrete). The 6 series was announced this quarter and had huge implications because it brings the economics of the 5G device down into mid and lower tier devices. This will more than likely accelerate volume.
Licensing also saw growth as the company’s 5G licensing grew about 15% to now more than 100 5G license agreements. But for licensing news, I think special attention should be placed on the company working out its cross-licensing agreement with Huawei. This has been a tenuous situation for some time, but the companies benefit from having this agreement in place and it will drive volume for Qualcomm’s licensing business and give Huawei access to much needed innovation to drive business for its mobile solutions.
Lastly, as it pertains to business highlights, the overall expansion of 5G provides a lot to be encouraged by. Here are a few numbers as to what is happening in the 5G environment.
- 380 Operators investing in 5G
- 80 Operators in 35+ countries have launched commercial 5G services
- 45+ OEMs have launched or announced 5G devices.
- More than 60% of smartphone shipments in June were 5G
These are highly encouraging numbers for Qualcomm’s future prospects as these numbers are materially up from a year ago. 2021 is looking like a very important year for 5G.
Forward Looking Guidance for Qualcomm Q4
In its earnings release, the company put out the following guidance by segment.
GAAP Revenues: $7.3B – $8.1B, increase 52% – 68% year-over-year.
Non-GAAP Revenues: $5.5B – $6.3B, increase of 14% – 31% year-over-year.
Non-GAAP diluted EPS: $1.05 – $1.25, increase 35% – 60% year-over-year.
MSM chip shipments: 145M – 165M, decrease 5% – increase 9% year-over-year.
QCT Revenues: $4.3B – $4.9B, increase 19% – 36% year-over-year.
QTL Revenues: $1.2B – $1.4B, increase 4% – 21% year-over-year.
Across the board, the numbers look very encouraging. With the expected 5G device shipments in the range of 175-225mm units, with a lean toward the higher end, the company will see its licensing and chip revenues grow substantially, yielding double digit growth versus pre-Covid numbers. This is very encouraging and the market responded after hours with more than a 7% jump. It’s one more sign of strength in the economy despite a lot of negative speculation.
Overall Impressions of Qualcomm’s Q3 Results
This week will culminate tomorrow with 4 massive earnings announcements. But, it doesn’t feel premature to say that tech is holding up much better than most would have anticipated at the end of the last quarter.
Qualcomm isn’t only a resilient company, but its business is really at the center of where the world is. 5G is what is next, but every mobile device on the planet has contributions that can be traced back to Qualcomm. Its business is diverse because it makes technology, innovates, develops patents and monetizes all of the above.
Despite the pandemic and its impact on the global economy, our mobile device utilization has skyrockets. Work from home has been a force multiplier and as we have all done more streaming, productivity and communication on our devices that has driven the mobile industry forward.
5G will further exacerbate this, people will want faster, more secure connectivity. The world’s mobile device makers, operators and equipment providers all hitch their proverbial wagons to Qualcomm and this will be the catalyst of its more than encouraging guidance numbers for its fiscal Q4.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.