Qualcomm FQ4 21 – Execution chops

Qualcomm is the exception to shortages.

  • Qualcomm reported good results and guided well which I think demonstrated more about the company’s ability to execute as opposed to sending a signal about a loosening of the global supply situation.
  • FQ4 2021 revenues / EPS were $9.3bn / $2.45 compared to forecasts of $8.9bn / $1.95 and the company guided well for the next quarter.
  • FQ1 2022 revenues / EPS are expected to be $10.0bn – $10.8bn / $2.90 – $3.10 compared to consensus at $9.7bn / $2.58.
  • This level of strength was surprising as everyone else is indicating that they have demand but that they are unable to fulfil it.
  • Many vehicle OEMs are slowing production for lack of parts and advertisers are not spending as much on seasonal advertising this year as they are unable to meet the lift in demand that they would see as a result.
  • This has been the main message given during the Q3 2021 reporting season by most of the technology sector and so how is Qualcomm different?
  • Akash Palkhiwala (CFO) was fairly modest on the call when asked this question stating that it was due to a combination of stronger than expected demand and that supply constraints loosened somewhat.
  • I think that this certainly was the case but rather than supply constraints loosening, I think that Qualcomm was out in the market doing everything it could to alleviate the situation.
  • Love or loathe Qualcomm (as many do), the company has always been a powerhouse of execution and I think that this is what has made the real difference this quarter.
  • In 3G, 4G and 5G it has always got to market first with the most difficult versions of the technology which is a major reason why it has held onto such a strong position in the market for wireless semiconductors.
  • Many is the time I have heard industry executives say: “we are using a Qualcomm chip in our prototypes as it’s the only one at the moment that works”.
  • There have been some signs of market loosening in some areas of the market such as DRAM but elsewhere there is no let up as most semiconductor companies, Apple and so on have all indicated.
  • Hence, I think that the difference that Qualcomm is reporting and forecasting is company specific and does not apply to the rest of the industry more widely.
  • Consequently, the outlook remains unchanged which is that the shortage is likely to alleviated as inventory stocking slows down and more capacity comes on stream.
  • I expect that this will occur sometime in H1 2022 which will probably mark the top of the super cycle currently being enjoyed by the industry.
  • Qualcomm remains attractively valued to some of the sector and with its superior ability to execute, has a better shot at making the estimates that are currently forecasted for it.
  • Hence, it looks like Qualcomm will outperform the sector for the next quarter or two on fundamentals making it a good place to invest.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.