Qualcomm FQ2 23 & AMD Q1 23 – Cycle hurts

Down cycle sinks all boats.

Qualcomm FQ2 23 – Well positioned

• Qualcomm reported results that demonstrated its ability to manage its business but was forced to guide weakly as the economy refuses to play ball.
• Qualcomm reported FQ2 2023 revenue / Adj-EPS of $9.3bn / $2.15 in line with what the company had guided for, but it was more cautious going forward.
• The previous position was that inflation and the weak macro were causing demand weaknesses in consumer goods which device makers were responding to by reducing their inventories.
• This was expected to normalise after the second calendar quarter of 2023, but this has not happened meaning inventory cuts are going deeper.
• This combined with the fabled H2 recovery in China stubbornly not materialising, means that suppliers like Qualcomm take a harder hit.
• This means that FQ3 revenues will be weaker than expected at $8.1bn – $9.1bn compared to consensus at $9.12bn.
• The net result here is that Qualcomm is not doing anything wrong or pursuing the wrong strategy, but is simply hostage to market conditions over which it has no control.
• By contrast, its long-term strategy to diversify away from handsets to automotive, the Metaverse and IoT is going extremely well but with handsets still 66% of revenues, this is a long process.
• The gloomy outlook has returned the shares to their October 2022 low of $105 which puts the shares on 11.4x 2023 PER.
• For a company with a steady long-term growth profile (post-2023) and a strengthening market position, the market has put the shares on sale.
• I am having a closer look with a view to taking a position.

AMD Q1 23 – the price of a high multiple

• AMD paid the price for its high valuation crashing 9% as it repeated the woes seen by its peers and pinned its hopes on H2 2023.
• Q1 2023 revenues / EPS were $5.35bn / $0.60 in line with estimates of $5.31bn / $0.57 but it guided weakly.
• Q2 2023 revenues are expected to be $5.0bn – $5.6bn which is weaker than consensus at $5.5bn with a recovery in the data centre hoped for in H2 2023.
• However, this was not enough and the shares lost 9% as the valuation once again became an issue.
• Even after this sell-off, AMD has a 2023 PER ratio of 28.2x nearly 2.5x greater than Qualcomm which makes absolutely no sense.
• It is also far higher than TSMC and MediaTek both of which I think are better positioned in the long-term than AMD is.
• This is why I would continue to prefer these three over AMD any day of the week regardless of the fact that I think AMD is really well-run and has a shot at taking even more share out of Intel.