On Wednesday, Qualcomm declared earnings for quarterly sales and adjusted profit that was above Wall Street expectations. The increased Qualcomm earnings was driven by selling more and pricier chips into Android smartphones with artificial-intelligence features.
After a smartphone slump last year, Qualcomm said that China’s Android market which has become critical to the company and it has started to pick up, with consumers there shifting toward purchasing higher-priced devices that can accommodate AI chatbots.
Qualcomm’s Q2 report
The company said its sales to Chinese smartphone makers have grown 40% in the first half of its fiscal year, a sign of recovery in that market.
“AI is driving a lot of silicon content in those devices because of the expected computational capability to run those models,” Chief Executive Cristiano Amon told analysts on a conference call. “Users want to buy a more capable phone that can run AI.”
Qualcomm’s competitor
Qualcomm has faced competition from Huawei Technologies Co, which last year introduced a flagship 5G smartphone that uses its own chip made by subsidiary HiSilicon. But IDC analyst Phil Solis said that for the moment, it appears that a general trend toward more capable devices is helping Qualcomm more than Huawei’s competition is hurting the San Diego, California, company.
“The Chinese smartphone market is recovering and shifting more to premium phones, so while HiSilicon takes share with flagship Huawei phones, the total market is growing, especially where Qualcomm gets most of its revenue from,” Solis said.
Qualcomm’s future prospects
Qualcomm forecast Q3 sales and adjusted profit with midpoints of $9.2 billion and $2.25 per share, beating analyst estimates of $9.05 billion and $2.17 per share, according to LSEG data.
Qualcomm is the world’s biggest supplier of chips for smartphones and counts both Apple and Samsung as customers.
Qualcomm’s forecast for the recovery in China’s smartphone market recovery may not extend to Apple’s iPhone.
Apple reports results late on Thursday, and analysts expect its deepest quarterly revenue decline in over a year as it wrestles with competition in China from Huawei and other companies selling cheaper smartphones.
Qualcomm’s road to recovery
For Qualcomm’s fiscal Q2 ended March 24, sales and adjusted profit were $9.39 billion and $2.44 per share, respectively, above analyst expectations of $9.34 billion and $2.32, according to LSEG data.
Qualcomm is hoping to benefit from consumer demand to upgrade devices to run AI chatbots directly on the device rather than going over to a data center.
Qualcomm’s new chip
In a challenge to Apple, Qualcomm plans to release a chip designed to power laptops starting this summer, though that small amount of early sales is unlikely to play a major role in the company’s third-quarter forecast, analysts said.
Qualcomm financials
In Qualcomm’s chip segment, the company forecast fiscal third-quarter sales with a midpoint of $7.8 billion, compared with analyst estimates of $7.74 billion, according to LSEG data.
Qualcomm predicted third-quarter patent-licensing sales with a midpoint of $1.3 billion, compared with estimates of $1.29 billion.
For the Q2, Qualcomm said chip and licensing revenues were $8.03 billion and $1.32 billion, respectively. This was in comparison with analyst estimates of $7.95 billion and $1.32 billion, according to LSEG.
Within Qualcomm’s chip business, the mobile handsets got $6.18 billion in sales in the Q2, compared with estimates of $6.23 billion as per report. Automotive and Internet-of-Things chip revenues in the second quarter were $603 million and $1.24 billion, respectively, compared with analyst estimates of $578.9 million and $1.22 billion.
Qualcomm shares
Qualcomm shares were up 4% in after-hours trading.
