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Qualcomm Soars After Strong Earnings and Chip Disclosures: 6 Key Takeaways

Qualcomm's new disclosures indicate its mobile RF chip sales are growing strongly, as are its non-smartphone chip sales.

Qualcomm  (QCOM) - Get QUALCOMM Incorporated Report is soaring to new highs after posting strong results and guidance, making new disclosures about its massive chip unit and offering an upbeat outlook for 2021 5G phone sales.

After the bell on Wednesday, Qualcomm reported September quarter (fiscal fourth quarter) revenue of $6.5 billion (up 35% annually) and non-GAAP EPS of $1.45 (up 86%), comfortably beating FactSet consensus estimates of $5.9 billion and $1.17.

For the December quarter, Qualcomm guided for revenue of $7.8 billion to $8.6 billion and non-GAAP EPS of $1.95 to $2.15. Those ranges are respectively above consensus estimates of $7.14 billion and $1.69, and they imply 62% and 107% annual growth at their midpoints.

Qualcomm’s stock rose 12.9% in after-hours trading to $145.60, making new highs along the way. The company’s report coincides with the arrival of a strong report from RF chip rival Qorvo  (QRVO) - Get Qorvo Inc. Report, and it follows strong reports from a slew of other mobile chip suppliers.

Here are some notable takeaways from Qualcomm’s earnings report and call.

1. Qualcomm Broke Out its Chip Revenue by Source -- and Markets Liked What They Saw

For the first time, Qualcomm broke out revenue for its chip unit (QCT) into four “revenue streams”: RF front-end (RFFE) chips for phones, “handsets” (all phone-related chip sales outside of RFFE, dominated by modems and SoCs), automotive chip sales and “IoT”, which covers chips going into Wi-Fi equipment, wearables, industrial hardware, AR/VR headsets and PCs, among other things.

The mobile RFFE business, which is benefiting from strong 5G design win activity, saw revenue grow 91% sequentially to $852 million (annual comparisons aren’t yet available), easily beating prior guidance of $750 million. “IoT” revenue rose 21% to $926 million, automotive revenue rose 36% to $188 million and “handset” revenue rose 22% to $3 billion.

Qualcomm's chip sales by revenue stream. Source: Qualcomm.

Qualcomm's chip sales by revenue stream. Source: Qualcomm.

Notably, about 40% of QCT’s revenue now appears to come from products other than modems and processors going into mobile phones. Look for that number to continue rising in the coming quarters.

2. Qualcomm Expects 5G Phone Sales to Soar Next Year

With most high-end smartphones now containing 5G modems, and with a growing number of mid-range 5G phones also hitting the market, Qualcomm expects 450 million to 550 million 5G phone shipments in 2021, up sharply from an expected 175 million to 225 million shipments in 2020.

For comparison, research firm IDC estimates 1.37 billion smartphones were sold overall in 2019.

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3. Phone Sales Were Better Than Expected Last Quarter

Though this isn’t too shocking in light of the strong numbers already shared by many mobile chip peers, Qualcomm estimates global 3G/4G/5G phone shipments fell only about 5% annually during its September quarter, after dropping an estimated 20% in the June quarter due to COVID-19.

Qualcomm also guided for 3G/4G/5G phone shipments to be down about 5% annually in the December quarter, and for shipments to rise by a high-single digit percentage next year.

Better-than-expected phone sales are of course a positive not just for QCT, but for Qualcomm’s licensing unit (QTL). With the help of rebounding phone demand, a recent settlement with Huawei and a phone sales mix shift towards OEMs paying relatively high royalty rates, QTL revenue rose 30% annually to $1.51 billion, and is expected to be in a range of $1.6 billion to $1.8 billion in the December quarter.

Apple’s  (AAPL) - Get Apple Inc. Report decision to use Qualcomm’s Snapdragon X55 5G modem (along with some complementary chips) within its iPhone 12 line is naturally boosting QCT’s revenue, which rose 38% annually last quarter to $4.97 billion and (aided by a full quarter of shipments to Apple) is expected to be in a range of $6.2 billion to $6.8 billion during the December quarter (up 80% annually at the midpoint).

Qualcomm, which has estimated that it gets about 50% more revenue on average from 5G phones packing its modems and RFFE chips than comparable 4G phones, is also benefiting from various 5G modem and RFFE design wins for Android phones. The company says that altogether, it now has over 700 5G design wins announced or in development.

And with Huawei’s phone business, which relies heavily on Huawei’s own silicon, struggling right now due to U.S. sanctions, Qualcomm said it’s seeing “minor elevated demand” right now among Huawei’s rivals. That trend might get stronger in the coming months.

Also: Looking out to 2021, Qualcomm expects its RFFE business to benefit from the launch of cheaper 5G phones that pack its millimeter-wave (mmWave) antenna modules.

5. Operating Margins Grew Strongly

While QCT’s revenue rose 38% annually, its operating income (EBT) rose 103% to $1.02 billion, leading its operating margin to rise to 20% from 14%.

QTL’s EBT rose 40% to $1.11 billion, outpacing revenue growth of 30% and leading operating margin to rise to 73% from 68%.

Along with the operating leverage that comes from strong revenue growth, restrained spending provided a margin boost. Qualcomm’s non-GAAP SG&A and R&D spend rose just 8% annually to $1.79 billion.

6. The Automotive Deal Pipeline Continues Growing

“Our automotive design win pipeline is now approximately $8 billion, up from almost $6.5 billion at the start of the fiscal year,” said CEO Steve Mollenkopf on the call. Among other things, this pipeline includes designs for processors, modems and RFFE chips going into cars and telematics gear.

Mollenkopf also claimed all of Qualcomm’s next-gen 5G telematics design wins, as well as a majority of its next-gen 4G telematics design wins, include its automotive RFFE products.