It has been about a month since the last earnings report for Qualcomm (QCOM). Shares have added about 22.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Qualcomm due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Qualcomm Tops Q4 Earnings Estimates on Record Revenues
Qualcomm reported solid fourth-quarter fiscal 2022 results driven by record revenues and continued focus on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge. Both the bottom line and the top line increased year over year and surpassed the respective Zacks Consensus Estimate on the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. However, shares declined sharply post earnings release owing to a soft outlook due to macroeconomic uncertainty and high channel inventory levels.
Net Income
On a GAAP basis, net income in the September quarter improved to $2,873 million or $2.54 per share from $2,798 million or $2.45 per share in the prior-year quarter. The increase in GAAP earnings was primarily attributable to top-line growth.
Quarterly non-GAAP net income came in at $3,548 million or $3.13 per share compared with $2,916 million or $2.55 per share in the year-ago quarter. The non-GAAP earnings per share were largely driven by higher revenues across the board. The bottom line beat the Zacks Consensus Estimate by a penny.
In fiscal 2022, GAAP net income improved to $12,936 million or $11.37 per share from $9,043 million or $7.87 per share in fiscal 2021. Non-GAAP net income came in at $14,254 million or $12.53 per share compared with $9,811 million or $8.54 per share in fiscal 2021.
Revenues
On a GAAP basis, total revenues in the fiscal fourth quarter were $11,396 million compared with $9,336 million in the prior-year quarter. The increase in revenues was driven by 5G ramp-up, chip design win momentum and solid automotive revenues with diligent execution of operational plans and resilient business culture acting as catalysts. In addition, Qualcomm witnessed strong momentum in IoT across consumer, edge networking and industrial sectors, along with strength in Snapdragon portfolio within the automotive sector.
Non-GAAP revenues in the reported quarter were $11,387 million compared with $9,321 million in the year-earlier quarter. The figure beat the consensus mark of $11,382 million, driven by 5G strength, high-performing core chipsets and new RF front-end content.
In fiscal 2022, GAAP revenues improved to $44,200 million from $33,566 million in fiscal 2021, while non-GAAP revenues were up to $44,169 million from $33,467 million.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) improved 28% year over year to $9,904 million, driven by strength in handsets and higher demand in adjacent platforms beyond mobile (automotive and IoT). The company is witnessing healthy traction in EDGE networking that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets.
RF front-end revenues of $992 million decreased 20% year over year owing to weakness in the handset market and high channel inventory. Handset revenues were up 40% to $6,570 million with continued traction from leading smartphone OEMs such as Samsung, Xiaomi, Oppo, Vivo and Honor, and increased adoption of Snapdragon mobile technology platform for premium and high-tier Android. Automotive and IoT revenues rose 58% and 24%, respectively, to $427 million and $1,915 million. EBT margin increased to 34% from 32%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,441 million, down 8% year over year due to lower licensing revenues. EBT margin declined to 69% from 72%.
Cash Flow & Liquidity
Qualcomm generated $1,446 million of net cash from operating activities in the fiscal fourth quarter compared with $1,077 million a year ago, bringing the respective tallies for fiscal 2022 and fiscal 2021 to $9,096 million and $10,536 million. At the fiscal-end, the company had $2,773 million in cash and cash equivalents and $13,537 million of long-term debt compared with the respective tallies of $7,116 million and $13,701 million in the prior-year period. The company repurchased 3 million shares for $500 million during the quarter.
Q1 Guidance
For the first quarter of fiscal 2023, Qualcomm expects GAAP revenues of $9.2-$10 billion due to rapid deterioration in demand and high channel inventory amid a challenging macroeconomic environment and uncertainty. Non-GAAP earnings are projected to be $2.25-$2.45 per share, while GAAP earnings are likely to be $1.72-$1.92 per share. Revenues from QTL are expected to be between $1.45 billion and $1.65 billion. For QCT, the company anticipates revenues between $7.7 billion and $8.3 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -35.45% due to these changes.
VGM Scores
At this time, Qualcomm has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Qualcomm has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Qualcomm is part of the Zacks Wireless Equipment industry. Over the past month, Ericsson (ERIC), a stock from the same industry, has gained 21.6%. The company reported its results for the quarter ended September 2022 more than a month ago.
Ericsson reported revenues of $6.46 billion in the last reported quarter, representing a year-over-year change of -0.7%. EPS of $0.16 for the same period compares with $0.21 a year ago.
For the current quarter, Ericsson is expected to post earnings of $0.18 per share, indicating a change of -50% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
Ericsson has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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