Qualcomm beats estimates and phone chip sales are up 12%

Qualcomm reported fiscal third-quarter earnings on Wednesday that beat Wall Street expectations, particularly for sales, and provided strong guidance for the current quarter.

Qualcomm stock fell 1% in extended trading after initially rising 7% at one point.

Here’s how Qualcomm did versus LSEG consensus estimates for the quarter ending in June 23:

• Earnings per share: $2.33, adjusted versus $2.25 expected
• Revenue: $9.39 billion, adjusted, versus $9.22 billion expected

Net income during the quarter was $2.13 billion, or $1.88 per share, versus $1.8 billion, or $1.60 per share in the year-ago period.

Qualcomm said it expected between $9.5 billion and $10.3 billion in sales in the current quarter, compared to Wall Street expectations of $9.71 billion. Analysts were looking for earnings guidance of $2.45, versus the company’s forecast of between $2.38 and $2.58.

Qualcomm’s biggest and most important business is processors and modems for smartphones, which it calls its handsets business. The summer months are traditionally a slower part of the annual cycle for smartphones, because most new models launch in the fall.

Handset sales rose 12% on a year-over-year basis to $5.9 billion in revenue, in line with analyst estimates from StreetAccount, which suggests that a deep slump in smartphone sales over the past two years is abating.

Qualcomm is also framing its most advanced Snapdragon chips as necessary for “AI smartphones,” such as recent Samsung models, which can run some generative AI tasks like creating images.

“AI has expanded the size of the premium tier,” Qualcomm CEO Cristiano Amon said on the earnings call. “So even in a market which it’s kind of flattish to low single digits in growth, the premium tier is actually growing faster and we’ve seen that.”

Automotive chips remains small for Qualcomm but the company sees placing more software and semiconductors into cars as one of its strongest opportunities for growth and diversification. Automotive revenues rose 87% on an annual basis to $811 million. Analysts polled by StreetAccount were looking for $641.7 million.

The company sells chips for lower-cost devices as well as Meta’s Quest headsets in a business it calls “Internet of Things.” The line also includes revenues from the company’s new PC chip for Windows laptops, called Snapdragon X Elite, which it launched alongside Microsoft during the quarter.

Amon hailed the Snapdragon X launch as a “milestone” in Qualcomm’s efforts to diversify. Still, Qualcomm said IoT revenue fell 8% on an annual basis to $1.4 billion, which beat StreetAccount expectations of $641.7 million.

Those three hardware lines are reported together as QCT, the company’s chip business, which in total reported $8.1 billion in sales, up 12% year-over-year.

Qualcomm also collects licensing fees from companies that integrate 5G or other cellular technologies into their products, reported as QTL sales. Licensing revenue only rose 3% on an annual basis to $1.3 billion.

Qualcomm said that it previously had a U.S. license to export its products to Huawei, but that the license was revoked, and that it would hurt the company’s revenue.

Qualcomm said it paid $949 million in dividends and repurchased 7 million shares of stock for $1.3 billion during the quarter.