The Six Five team dives into Qualcomm’s earnings on the second episode of Earnings Palooza!
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Daniel Newman: You and I both had the chance to speak with Cristiano Amon on earnings day. CEO of Qualcomm. I think we had somewhat similar views, but you get to go first. So let’s see what you got.
Patrick Moorhead: No, I appreciate that. So backdrop is, smartphones are down. Shocking. The good news is that Qualcomm has diversified its portfolio with IOT, automotive and RF. Even with the smartphone market being in the tank, their revenue was up 22%, earnings were up 26%, EPS was up 23%. A very clean flow down in profits. Biggest thing for me was, it kind of got lost, like how the stock could be down yesterday, and I know the whole market was down, but it was kind of ridiculous. But they essentially announced that their percentage of getting the modems for Apple and a little bit of analog in there went from 20% to 100%.
So, I’m not an equities analyst, but sometimes I try to play one on TV, but when you update your spreadsheet on Qualcomm and that number goes up by 80% to the world’s second largest smartphone maker, the largest premium smartphone maker, wouldn’t the price go up? I don’t know, I’m just a neophyte here. So again, those were the pluses I saw. Some of the negative, I mean, mobile demand and OEM and ODM inventory bleed. Sound familiar Daniel, when we talk about AMD and Intel’s client business? So, I was super impressed with the explanation on demand and inventory and no crazy strategy changes and they’re sticking to their guns. It just makes sense. So I thought they had a great quarter.
Daniel Newman: Yeah, you hit on a lot of important things. We had to, like I said, not only did we talk to Cristiano, I did a Six Five, you had to split because you were, I think in the air or on stage, but I got to talk to Akash, the CFO as well, and got to kind of do the run through. Pat, record year, record revenue, record EPS, the guide is what kills everyone right now. Nobody cares what you did, everyone cares what you’re going to do. And I guess if there’s a truth that the market’s forward looking, then that’s why, that they were being penalized for that. But gosh, if you look at the execution across the year, Cristiano Amon come out saying he wanted to, he wanted diversify the business. So whilst QCT, which is really the chip making part of the business, was growing that handset business, it was also creating multiple billion dollar businesses that nobody really has in their spreadsheets. At least historically. I mean the RFFE business, which we’ll talk about more and we talk about Skyworks, that kind of leveled off a little bit.
But I mean, you got to remember what it got to. I mean it was nearly a billion a quarter run rate. I mean great business and also an incredibly difficult business. And that’s why that they, they’ve been so successful in it. The IOT business got $7 billion business for the company now. And by the way, diversification into industrial applications, so it takes some of the weight from the consumer and the handset off the company’s ability to perform long term or B2B. They’ve got an ACPC business that’s obviously causing some indigestion for some people out there. The arm lawsuit rings a bell in my mind. And Pat, by the way, I just want to put this out there since we haven’t really talked about that too much here on the show. I still think that this might have Apple fingerprints on it, the whole deal. There’s a little bit of, I’m just kind of trying to figure out why ARM would want to go after what could be a great revenue driver. If Nuvia is successful, it would be a lot of licenses, a lot of utilization. I just don’t know something, it’s on my mind. Where’s the pressure really coming from there?
But the PC business has done pretty well to this point, and they haven’t even really shown their best hand yet. We know with Nuvia, when they get that product into market, they’re going to try to redefine the PC category. So that’s a big opportunity there. The automotive business, they grew their pipeline by an NVIDIA pipeline in two months literally. And this is, by the way, the $11 billion INVIDIA pipeline is impressive, so let’s not like make it sound like that’s not good to $30 billion. So the earnings were good, but the outlook is more encouraging than what’s being led onto. All the negativity is the fact that these chip makers have to come out and say right now that this over inventory indexing that took place over the last few quarters due to the supply chain shortage is finally coming home to roost.
NVIDIA went through it, AMD went through it, Intel went through it, now Qualcomm’s going through it. But overall Pat, they’re thinking a quarter or two and then they’re going to turn the corner. And by the way, Metaverse full tilt with Meta. Now that company may be a mess right now, but they are going to be one of the first to build any scale in the Metaverse and Qualcomm got that business. And then one of my calls, Pat, is the premium tier is going to be super successful. Samsung is all in on Qualcomm. Samsung is the premium tier equal in devices. So lots of good things happening over at Qualcomm. They did guide the wrong way. I mean you can’t call it anything but that, and that’s what the street got upset about. But I think it’s a reset. I think their expectation is now to put the foot back on the gas.
Patrick Moorhead: Yeah. Hey Dan, did I tell you that Qualcomm is having a text summit in two weeks and the Six Five’s going to be there?
Daniel Newman: Ooh, can we do a promo please? I got to pull up my notes for the next topic anyway, so…
Patrick Moorhead: No, no, no. I’m super-excited about that. Hey, what’s your take… I was going to bring this up in Skyworks, but I want to bring this up now with you. Qualcomm announced that they were going to integrate RF into the other BUs, so we will not see a distinct RF number. They said they might bring it out time and time and again, every once in a while, my guess would be for investor days. But is this a sign of decline or slowing down or is this more simplicity? Because when you think about it, RF goes across everything, it’s handsets, it’s IOT devices hanging on the edge, it’s in PCs. What’s your take on that, Daniel?
Daniel Newman: Yeah, I think there’s a couple things going on. I think that their desire to be able to show discreet new business entries and then show success tends to have a period of time in which it’s meaningful and then a period of time when you hit maturity. And I think the way they’re kind of looking at it is the RF and the 5G and the front end and the handsets and the devices is really is all an integrated thing. And so at some point, I think we’ve hit the maturity end of growth perhaps, for this in this cycle. What I’m saying is you saw this quarter, they’ve been doing this growth across segments thing and 50% on handsets and 40% on automotive and 40% on IOT and then 4% on RO. If they’re not, they don’t believe that that number maybe is going to, if it’s hit that, because remember Pat, it was like 1000% for a long, it was like 100 then 50 and four… I don’t know if they’re kind of saying, let’s just kind of wrap it into the broader handset QCT number.
And of course it’s not just handset though cause it goes across automotive in other parts, but maybe they focus on the three bigger growth areas and don’t have that smaller number showing up every quarter. And plus, I don’t think most people understand what RFEE is. So when you talk about adjacencies, you talk about handsets, people get it. You talk about automotive, people get it, you talk about it, and they got this great mobile RFFE business and people are like, “What?” There’s more mobile RFFE, so that might be it. They’ve got some great IP there. It’s growing because that capability is what’s helping IOT, automotive, and handsets.
Patrick Moorhead: Yeah, they did one victory, one final victory lap, and a middle finger to Qorvo and Skyworks basically saying, “We’re number one in handset RF, see you later.” It’s like, let’s move on here.
Daniel Newman: What’s $4.3 billion in revenue? But like you said, it does really attach across the portfolio. So, we’re both just speculating as to what it might be. But I don’t think breaking out something if it’s not showing that kind of growth, especially because it isn’t that, like maybe in the next year when Nuvia chips start to hit, will they start breaking out PC? You know what I mean? So you can start to see that.
Patrick Moorhead: That IOT category is pretty wide definition of IOT.
Daniel Newman: For sure. But that’s sort of a market trend. It’s like cloud. What is cloud, Pat? Like every company’s definition of cloud is different. It’s economics and architecture..
Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio