Qualcomm Earnings: Smartphone Demand Headwinds Persist, but Still Holding On to Market Share

Qualcomm QCOM reported soft fiscal third-quarter results and provided investors with a similarly tepid outlook for the September quarter in the face of challenging business conditions associated with a muted smartphone market. We maintain our $140 fair value estimate for narrow-moat Qualcomm and view shares as slightly undervalued.

Revenue in the June quarter was $8.45 billion, down 9% sequentially, down 23% year over year, and just below the midpoint of guidance of $8.50 billion. Chip revenue within its QCT segment was $7.2 billion, down 10% sequentially and 24% year over year. Qualcomm’s position as a leading processor supplier into the Android handset ecosystem continues to be a net negative to the firm, as worldwide Android demand has paused in this post-COVID-19 recovery period, especially in China. Qualcomm still expects smartphone unit sales to be down a high-single-digit percentage worldwide in calendar 2023. QTL (licensing) revenue was $1.23 billion, down 5% sequentially and 19% year over year, again due to Android weakness. Both QCT and QTL revenue were slightly below the midpoints of guidance. Nonetheless, adjusted gross profit and adjusted operating margin both dipped only 10 basis points sequentially to 55.1% and 30.0%, respectively, and we remain impressed with Qualcomm’s cash generation during a smartphone downcycle.

Qualcomm expects September revenue in the range of $8.1 billion-$8.9 billion, which, at the midpoint, would represent 1% sequential growth but still a 25% decline year over year. QCT and QTL revenue are both expected to be flattish at the midpoint of guidance, as is adjusted EPS, which is forecast to be $1.90 at the midpoint. The firm also expects growth in the December quarter, which implies steady chip content in Apple’s next series of iPhones launching this fall.