Qualcomm reported 22% revenue growth year-over-year for its fiscal fourth quarter of 2022, but offered downbeat guidance, and formally announced a hiring freeze and other cost-cutting efforts as it battles the same macroeconomic headwinds as many of its peers.
On the positive side, Qualcomm said in its earnings release that it will continue to “have the vast majority of share of 5G modems for the 2023 iPhone launch,” updating previous assumptions that this share would be around 20%. This update did not appear to come as a surprise to most analysts on the earnings call.
Also, the 22% revenue jump included a record $1.9 billion in IoT revenue and a 58% leap in automotive revenue to $427 million. Qualcomm reported $11.4 billion in revenue overall, making the final fiscal period of 2022 an overall record quarter for the company.
Still, the current broader market atmosphere is thick with challenges. Weeks ago, Qualcomm was rumored to have implemented a hiring freeze, the company has now confirmed as much.
According to the Motley Fool earnings call transcript, Cristiano Amon, president and CEO, said on the earnings call that in addition to the hiring freeze, “we have planned spending reductions across our mature product areas and SG&A [expense related to sales, general and administrative function] to fund our diversification. We are continuing to evaluate additional actions, and we are prepared and committed to making further reductions to operating expenses as needed.”
Qualcomm CFO Akash Palkhiwala added that the company has seen an ongoing “deceleration in demand for mass-tier handsets in consumer IoT,” which has combined with “further deterioration of the macroeconomic environment and sustained COVID restrictions in China [which] has led to broad-based demand weakening across tiers and regions. Given these considerations, we now project 3G, 4G, 5G handset volumes in calendar 2022 to decline by low double digits on a year-over-year basis, including 600 million to 650 million 5G handsets.”
He said large customers have been “drawing down” their inventory needs, leaving Qualcomm with elevated inventory, a situation the company believes will be a short-term challenge but may take a couple of quarters to dissipate.
That all leads to lower guidance for the fiscal first quarter of 2023. Qualcomm forecasted that overall revenue for this quarter will land in the range between $9.2 billion to $10 billion. “The midpoint of our guidance includes an estimated impact of approximately $2 billion in revenue and $0.80 in EPS related to the drawdown of channel inventory with the remaining impact primarily due to weaker end-market demand and foreign exchange headwinds,” Palkhiwala said.
He added that Qualcomm expects handsets and IoT revenue to be down sequentially, but emphasized that especially in IoT and automotive, the future looks bright. Qualcomm’s increased focus on IoT has led IoT to become a $7 billion business for the company in 2022. Meanwhile, Qualcomm officials implied that the near-term revenue challenges would not specifically affect its growing automotive business.
Regarding IoT, Palkhiwala said, “I think when you kind of step back and look at where our IoT opportunity exists, for us, it's about digital transformation and about connecting everything to the cloud. And our technology portfolio is perfectly suited to enable various industries to do that. So, we feel pretty optimistic longer term.”