Qualcomm reported first quarter fiscal earnings on Wednesday that were a mixed bag, with revenue above analyst estimates because of growth in chips for handsets and automotive, while IoT dived 32%.
After the earnings call, the stock dropped 4% and traded mid-day Thursday at $142.27.
Total revenue for the quarter that ended Dec. 24 was up 5% from a year earlier to $9.94 billion, while net income was $2.77 billion, up from $2.24 billion a year earlier.
Revenue in the QCT segment, which consists of handsets, automotive and IoT, rose 7% to $8.42 billion. The QCT group broke down this way: handsets up 16% from a year earlier to $6.7 billion, with automotive up 31% to $598 million (a record) and IoT down 32% to $1.1 billion.
What happened with IoT
Qualcomm executives gave a few clues on a call with analysts about the drop in IoT, which had been signaled earlier in 2023. While a much smaller portion of the total revenue at Qualcomm, IoT has been projected as a growth area for the chipmaker, along with automotive.
Qualcomm CFO and COO Akash Palkhiwala noted that the company had been among the first to identify weakness in Iot. “We think the first quarter was the bottom for our IoT revenue stream,” he said, with revenues to increase in the mid- to high single digits in the current quarter. The second half of the fiscal year will produce a normalizing of inventory, he added.
“We’re excited about what our product portfolio can bring” in IoT, Palkhiwala added. “And overall, lots of opportunities for us there. In my mind, there’s significant uncertainty, but we are cautiously optimistic and I think we have a great product portfolio as we look forward.”
CEO Cristiano Amon predicted an inventory correction for IoT, especially for industrial IoT, adding, “we expect that to resume growth.”
Jack Gold, an analyst at J. Gold Associates, said Qualcomm sells into an IoT market for smart cities, auto, healthcare and more which has been “difficult over the past year” because such products require largescale deployments.
Qualcomm’s record auto chip sales
Automotive chip sales by Qualcomm were another story, however, reaching record revenues for the quarter. “We’re extremely pleased with our performance in auto, especially when you look at the overall market,” CEO Cristiano Amon told analysts.
In fact, many carmakers are noticing a decline in the growth of EV sales, as GM, Tesla and others have reported recently.
In 2023, Qualcomm launched 75 car models with its silicon that provides functionality for the immersive car cockpit where infotainment and car safety are combined. “We’re very happy with the business,” he said, noting that the automotive business will grow to $9 billion by the end of the decade.
He also said Qualcomm’s auto business had historically depended on selling silicon for telematics, which has now transitioned to fully immersive digital cockpits for cars, which Qualcomm demonstrated at CES2024.
ADAS processing is also creating revenues, along with ADAS and autonomy processors sold into cars in China.
When one analyst asked how Qualcomm was able to benefit from growth in automotive while other auto companies are seeing weakness, Palkhiwala said Qualcomm has capitalized on selling silicon that is tied to the launch of new cars which are going through an industry transformation to digitization.
“We are right at the intersection of that transformation," he said. "We are benefiting as cars put more infotainment content for experience within the car. More ADAS content comes into the car as well…That’s maybe a disconnect between some of our peers…Clearly, this is an industry that’s going through some shorter-term dynamics, so we’ll be closely monitoring it. But when you step back, our technology, our position, out products look really good and we’re excited about where we’re going.”