Qualcomm is suffering because you don’t need a new smartphone right now

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  • Qualcomm reported a 12% year-on-year drop in revenue for the first quarter of fiscal 2023, owing to weakening global smartphone demand.

Sales for the quarter ended December 25, 2022 were $9.46 billion, a decrease from $10.7 billion the previous year. Its net income was $2.23 billion, a 34% decrease.

Qualcomm shares fell 3% after an extended trading session in response to the results.

However, according to Qualcomm president and CEO Cristiano Amon, it wasn’t all bad for company executives and investors because of continued growth in Qualcomm’s automotive and IoT business sectors.

Qualcomm unveiled a single-chip automotive product at CES last month that aims to consolidate all of a vehicle’s digital processing workloads onto a single platform.

“Combined auto and IoT revenues represented 27 percent of total QCT revenues in the current quarter, reflecting continued progress on revenue diversification,” Amon said during the company’s earnings call.

Amon’s revenue for its QCT (Qualcomm CDMA Technologies) business, which serves the phone and mobile network sectors, was down 11% year on year to $7.9 billion due to lower handset demand and inventory drawdown.

“As the handset industry continues to experience reduced demand,” he said, “we are now expecting elevated channel inventory levels to persist at least through the first half of calendar ’23.” He added that “multiple end industries within IoT are also experiencing weaker-than-expected demand and elevated inventory levels.”

According to IDC, global smartphone sales dropped 18.3 percent in the fourth quarter to 300.3 million, and were down 11.3 percent year on year to 1.2 billion. In light of the current macroeconomic and demand environment, Amon stated that Qualcomm would implement additional spending cuts and streamline its operations, but would do so while keeping in mind the “significant growth and diversification opportunities ahead.”

Chief financial officer Akash Palkhiwala elaborated on the issues confronting the semiconductor industry as a whole, not just Qualcomm. “The environment remains dynamic, with challenging macroeconomic conditions and COVID headwinds in China driving industry-wide demand weakness. Given this uncertainty, we are incorporating a negative bias for calendar ’23 3G, 4G, and 5G handset volumes relative to calendar ’22,” he said.

“Based on our current assessment, we expect QCT customers to continue to draw down inventory, at least through the second and third fiscal quarters,” Palkhiwala predicted, adding, “At this point, we’re optimistic that demand and channel inventory may normalise during the second half of the calendar year, and we remain in a strong position to capitalise on the opportunity when it arises.” In response to a question about whether Qualcomm was affected by new US export restrictions on China, specifically Huawei, EVP Alex Rogers stated that his company had not received any official communication from the US Department of Commerce.

According to Palkhiwala, a portion of this can be attributed to seasonal sales cycles. “From a handset standpoint, what we’ve assumed in the March quarter is a standard seasonal decline, as I stated in my prepared remarks from December to March,” he explained.

Qualcomm’s revenue forecast for the next quarter is between $8.7 billion and $9.5 billion, implying that it expects to hold its ground or see another drop. “We’ve seen news reports indicating that Commerce is considering not renewing Huawei’s licences. And we haven’t heard anything from the Department of Commerce. “We’ve had a set of licences for a long time that basically allow us to ship 4G and other chipsets, including Wi-Fi, to Huawei,” he explained. “Those will last for a number of years.”

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