Qualcomm has seen a recovery in its smartphone chip business, and it’s looking to keep up that momentum when it reports its fiscal fourth-quarter results on Wednesday after the close. The company also has two diversification efforts that can drive results in the future. But there are clouds hanging over the proceedings.
Analysts are projecting 14% revenue growth on the year to $9.9 billion. Adjusted earnings per share is seen at $2.56, up 27%. Over the past 10 quarters, Qualcomm has beaten sales and EPS estimates eight times. The consensus estimate for first-quarter guidance is $10.6 billion in sales, and EPS of $2.86.
Qualcomm’s core market is smartphone chips, which comprise 65% of total revenue in the past year. Analysts see smartphone sales at $6.1 billion, up 12% on the year, similar to last quarter. The last three quarters have shown recovery in this cyclical segment, and Wall Street expects it to keep up the momentum.
Qualcomm has long been synonymous with cellphone technology, but it has diversification segments that now account for 20% of its revenue.
Its IoT segment makes chips for a range of products, including smart home and virtual reality. A notable addition is new PC chips, the Snapdragon X series. This summer saw the release of AI PCs built around Snapdragon X from Microsoft, Dell, Samsung, and others. Despite high hopes for this new category, KeyBanc analyst John Vinh cautions that “demand for the Qualcomm PCs has been tepid.”
Wall Street sees the IoT segment at $1.5 billion, up 9% after seven down quarters. Investors will want to know how much PCs contributed.
Qualcomm’s other diversification effort comes from automotive chips for infotainment systems, driver assistance, and connectivity. It’s the smallest of the chip segments, but last quarter automotive chip revenue grew at 87% year-over-year, and analysts are projecting a 51% gain for this quarter to $810 million.
But there are two looming threats hanging over the company. One comes from Apple, which sources its 5G chips from Qualcomm but would like to end that often contentious relationship.
Apple has been working on producing its own 5G chips since 2019, and it may have finally succeeded. Qualcomm has been indicating that revenue from Apple will begin to slowly go away with 2025 iPhones. Bernstein analyst Stacey Rasgon estimates that Apple represented 22% of Qualcomm’s revenue in the first three quarters of fiscal 2024; as the company exits fiscal 2026, 80% of those sales could be gone, Rasgon forecasts.
The other threat is Qualcomm’s coming trial with Arm Holdings, which says Qualcomm has illegally used some of its intellectual property. The trial is set for Dec. 16. In the meantime, Arm has threatened to revoke Qualcomm’s overall use of Arm designs.
If Qualcomm were to lose its Arm license, it would be a significant blow to the company’s momentum, not to mention a big hit to Arm’s revenue. There are many reasons for both companies to settle, but for now brinkmanship is the name of the game.
Analysts won’t lack for questions on the earnings call.