Qualcomm FQ2 24 – Steady Sailing.

Stable quarter and guidance raised.

• A steady quarter devoid of fireworks but where the fundamentals are beginning to come together creates a foundation for more upside as new segments such as PCs and automotive gain traction.
• Qualcomm reported good results and raised guidance as the core smartphone chip business continues to recover and the new business areas get themselves ready to make a much larger contribution to revenue growth.
• FQ2 24 revenues / Adj-EPS were $9.4bn / $2.44 broadly in line with consensus at $9.4bn / $2.33 and the company guided higher for FQ3 24.
• Here FQ3 revenues / Adj-EPS will be $8.8bn – $9.6bn ($9.2bn) / $2.15 – $2.35 nicely ahead of estimates of $9.1bn / $2.16 which pushed the shares up 4% in after-hours trading.
• The main story from these results was a jump in revenues from Chinese Android handset makers of 40% YoY signalling better demand in China and overseas.
• Qualcomm’s overall “flat to slightly up” outlook for the smartphone market in calendar 2024 remains unchanged meaning that Qualcomm’s outperformance is largely due to slight market share shifts rather than a sudden recovery in overall demand.
• It also signals that Huawei’s re-entry to the smartphone market in China has impacted Apple more than its local rivals and so the read across for Apple is more about market stabilisation rather than a recovery.
• Apple reports its results after the market close on Thursday, May 2^nd and here I expect to see that iPhone shipments will still be struggling to see growth contributing to a difficult outlook overall.
• While smartphones are unexciting, they are very important as they support Qualcomm’s core business while Qualcomm’s offerings for automotive and laptops are still in the early phases of their development.
• Here, there is good news as the automotive pipeline is now sitting at $45bn and Qualcomm is about to make a really big push at Computex in June.
• Computex is the PC trade show of the year, and I am expecting to see clarification on the SKUs for the X Elite and X Plus platforms as well as a large number of device launches from OEMs.
• Qualcomm is talking a big game in laptops and claimed at a meeting at Mobile World Congress that the emulator it had running performs better than Apple’s Rosetta and does so and lower power.
• This is very significant because, from a consumer perspective, Qualcomm-powered Windows laptops need to be able to run all the available software seamlessly so that the consumer doesn’t even notice that the device is Arm-based rather than Intel.
• This is what Apple did so brilliantly and a superb emulator to run software that has not been ported to Arm is a crucial element of the proposition.
• Qualcomm has been pretty quiet and conservative about this opportunity which means that market expectations are low offering an opportunity for estimate upgrades if it takes a meaningful amount of share from Intel.
• I have also been concerned that Qualcomm was pushing too hard on the AI PC button and not enough on the performance and battery life improvements that these devices should offer over Intel.
• However, commentary on the call called out all three of these advantages giving me hope that marketing will be targeted to all of the areas that will resonate most strongly with consumers.
• This will give the platform its best chance of success, and I am pretty hopeful that Computex is going to go well.
• Every quarter sees more partnerships being announced with the automotive industry giving me confidence that the FY 2026 target of $4bn in revenues up from the $2.4bn annual run rate that it had in FQ2 24 will be met or exceeded.
• Qualcomm has seen a steady re-rating of its shares from 12x FY 2024 PER to 17x FY 2024 PER which is where it is today.
• The company is also on 15x FY 2025 PER but if the laptop strategy works out and smartphones hold steady, there is upside to this number.
• Even at 17x 2024 PER, Qualcomm compares pretty favourably with the peer group and so I have no inclination to take profits on it yet.
• I have a position in Qualcomm and remain happy to sit tight.