Purely from a revenue perspective, Qualcomm’s most recent quarterly earnings report did not sound much different than those of other chip companies as the firm continued to see macroeconomic pressures, ongoing slow PC market demand, and larger-than-usual lingering customer inventories pushing sales down compared to the same period last year.
What was different for Qualcomm as it reported its fiscal third quarter 2023 earnings this week was that it was not very optimistic about the rest of this year. According to published reports appearing after the earnings report was made public, the company is planning layoffs, although during an earnings call this week Qualcomm official did not offer specifics. The downbeat atmosphere is largely due to the fact that, even as Qualcomm has sought to diversify into IoT and automotive sectors in recent years, it continues to have more exposure to the smartphone market than other chip suppliers, and similar to the PC market, the global smartphone market continues to drag, led down by a sluggish market in China.
As such, Qualcomm’s handset revenue–still by far its biggest revenue segment–was down about 25% in fiscal Q3 2023 compared to the same quarter last year, landing at about $5.25 billion.
“We continue to estimate that calendar ‘23 handset units will be down at least a high single-digit percentage relative to calendar '22, reflecting the macro environment and a slower recovery in China,” said Qualcomm CFO Akash Palkhiwala on the fiscal Q3 earnings call. “This forecast contemplates growth in handset units going into the holiday season.”
The IoT market was supposed to provide Qualcomm with some relief from the ups and downs of the handset market, but IoT sales also fell sharply in Q3 2023, down 24% year-over-year for the second consecutive quarter to $1.48 billion. While that final revenue number was higher than the roughly $1.4 billion reported in Q2 2023, Palkhiwala indicated, “In IoT, channel inventory remains elevated due to weaker demand driven by the broader macroeconomic conditions. Since it remains difficult to predict the timing of a sustained recovery and customers remain cautious with purchases, we continue to operate under the assumption that inventory drawdown dynamics will be a factor through the end of the calendar year.”
As has been the case with other chip companies, the only bright sport for Qualcomm in fiscal Q3 2023 was the automotive sector, where the company posted revenue of $434 million, up 13% compared to Q3 2022. While automotive revenue was lower in sequential comparison to the $447 million posted in Q2 2023, the most recent quarter represented Qualcomm’s “11th straight quarter of year-over-year double-digit percentage growth in QCT automotive revenues,” said Cristiano Amon, President and CEO of Qualcomm, on the earnings call.
He added, “We are pleased with our technology, product and design win execution, positioning us well for continued leadership enhancements and future growth and diversification in automotive and IoT.”
Among the good news in automotive, Amon said Qualcomm “won more than 10 new designs with leading automakers across the globe for next-generation digital cockpit and telematics systems.”
In total, Qualcomm revenue came in at $8.45 billion in fiscal Q3 2023, at the mid-point of previous guidance, but down 23% from the $10.9 billion posted for the same quarter in 2022. Net income was down 52% year-over-year to $1.8 billion.
Regarding its fiscal Q4 2023 outlook, Palkhiwala said Qualcomm is anticipating total revenue of between $8.1 billion and $8.9 billion, with the potential for a “slight increase” in global handset units. “This forecast is consistent with our prior guidance of muted seasonality in QCT revenues primarily due to the timing of purchases by a modem-only handset customer,” he said. “On a sequential basis, we are forecasting Android handset revenues to be roughly flat, with mid-single-digit decline in IoT and low double-digit growth in automotive.”
While things do not look great for Qualcomm in the near term, the company, like its peers, sees AI as a fast-emerging driver of new market opportunities. Amon noted, “We believe the automotive industry will use some of the most advanced edge AI capabilities from large language models for personalized and curated content and services, driver and occupant monitoring, and AI virtual assistants to contextual search. ADAS and autonomy applications can be enhanced by the fusion of data from cameras and other sensors for combined real world perception, drive path prediction and more. We're helping enable these capabilities, and expect gen AI use cases to extend to XR, edge networking and industrial IoT.”
Regarding restructuring plans, Qualcomm officials did not say anything specific about layoffs, but Palkhiwala stated, "Given our commitment to operating discipline, we will proactively implement additional cost actions in the first half of fiscal '24. This will be incremental to the reductions we have successfully completed in fiscal '23. Despite these actions, we will preserve investments in our strategic priorities and position ourselves to emerge stronger as the recovery from the broader industry begins to take hold."