A Tough Smartphone Market Will Weigh On Qualcomm’s Q2 Results

Mobile chipset major Qualcomm (NASDAQ: QCOM) is expected to publish its Q2 FY’23 results on May 3, reporting on a quarter that is likely to see the company’s revenue contract meaningfully year-over-year, due to a slowdown in smartphone and tablet sales. We expect revenue for the quarter to come in at about $9.15 billion, marking a decline of about 18% versus last year, although our estimates are marginally ahead of the consensus estimates of $9.1 billion. We project that earnings will come in at about $2.17 per share, slightly ahead of consensus estimates. See our analysis of Qualcomm Earnings Preview for a closer look at what to expect when the company reports earnings.

The smartphone market has been cooling off of late as the tailwinds seen through the Covid-19 pandemic ease and also as economic uncertainty weighs on consumer spending. This is impacting Qualcomm’s CDMA Technologies (QCT) segment, which supplies application processors, modems, and software for technologies for mobile devices, networking equipment, and consumer electronics. Moreover, Qualcomm’s customers have also been holding elevated levels of chip inventory and this could also lead to softer demand for Qualcomm’s chipsets. Over Q1 FY’23, chip sales to the handset space declined by about 18% to $5.8 billion. Qualcomm is also likely to see its technology licensing business cool off, with the company guiding that sales could contract by about 14% at the mid-point for Q2. That said, there could be a couple of bright spots for the company. For example, the automotive and Internet of Things business should continue to gain some traction, while sales of RF front-end components – which include the various components that come between the antenna and modem of a wireless device – are also likely to see gains.

We remain positive on Qualcomm stock despite the current headwinds, with a $147 price estimate which is about 25% ahead of the current market price. See our analysis of Qualcomm Valuation: Expensive Or Cheap? for more details on what’s driving our price estimate for Qualcomm. Qualcomm trades at just about 12.5x consensus 2023 earnings. While this is partly due to the fact that revenues and earnings are projected to decline this year, the markets project that sales will recover in FY’24. Moreover, while Apple is expected to start using its own modem chipsets on its iPhones, transitioning away from Qualcomm’s chips in the next year or so, Qualcomm should be able to compensate for this loss as it expands in other areas such as low-power applications and automotive semiconductors.

[1] Month-to-date and year-to-date as of 4/30/2023
[2] Cumulative total returns since the end of 2016

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