Qualcomm (QCOM) earnings Q3 2022

Qualcomm president and CEO Cristiano Amon speaks about Qualcomm’s technology for automakers at a news conference during CES 2022 in Las Vegas, Nevada, January 4, 2022.

Steve Marcus | Reuters

Qualcomm reported third-quarter earnings after the bell on Wednesday, slightly beating Wall Street estimates, but guidance for the current quarter was short of consensus expectations.

Qualcomm stock dropped over 4% in extended trading.

Here is how Qualcomm did versus Refinitiv consensus expectations:

  • EPS: $2.96, adjusted, versus $2.87 expected, up 53% year-over-year.
  • Revenue: $10.93 billion, adjusted, versus $10.88 billion expected, up 37% year-over-year.

Qualcomm said it expected between $3 and $3.30 in earnings per share during the fourth quarter on between $11 billion and $11.8 billion in sales, falling short of Wall Street’s Q4 earnings expectations of $3.23 per share and $11.87 billion in sales.

Qualcomm CEO Cristiano Amon said in a statement that the company’s results were strong despite being in a “challenging macroeconomic environment.” Qualcomm sales rose 37% during the quarter.

Qualcomm’s biggest line of business is selling processors and modems for smartphones. The company’s handset business grew 59% on an annual basis during the quarter to $6.15 billion, despite signs that smartphone sales might be already slowing down due to macroeconomic conditions such as inflation.

But Qualcomm’s forecast suggested that the company’s handset sales growth would slow during its fiscal fourth quarter, reflecting that a decline in smartphone demand could hit its main business both in terms of revenue and earnings. The company expects operating expenses to rise between 6% and 8% sequentially during the quarter.

Qualcomm CFO Akash Palkhiwala said that the company’s expected fourth-quarter weakness in smartphone chip sales would be in the middle and lower tiers, as opposed to chips for the most expensive phones.

Qualcomm said it’s still on pace for its handset business to grow slightly below 50% this year thanks to more expensive chips.

Handsets are reported under a unit called QCT along with the other semiconductors Qualcomm sells, like RF front end, chips for cars and low-power chips for connected devices. That segment grew 45% on an annual basis to $9.38 billion. Handsets were the fastest growing business in the segment despite Qualcomm’s recent efforts to diversify into other kinds of chips.

Qualcomm announced a partnership with Samsung through 2030 that includes patent licensing and supplying Snapdragon processors for handsets. Samsung is the top smartphone manufacturer in the world on a unit basis.

Automotive chips grew 38% on an annual basis to $350 million, an all-time-high for Qualcomm, suggesting it’s still a small business compared to Qualcomm’s other lines. Qualcomm’s IoT business, which makes low-power chips for connected devices, grew 31% to $1.83 billion.

QTL, the other major Qualcomm unit that’s comprised of licensing fees related to 5G and other technologies the company makes, reported nearly $1.52 billion in sales, a 2% annual rise. It hasn’t been growing strongly in recent years but remains a major source of profit for the chipmaker.

The company’s gross margin came up short of expectations as chip costs rise due to shortages and issues with Chinese production. Qualcomm outsources its chip manufacturing to foundries that have been booked solid since the start of the pandemic. Qualcomm reported a 56% gross margin versus a consensus estimate of 57.8%.

Qualcomm said it spent $1.3 billion on shareholder return during the quarter, including $842 million of dividends.

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