With Smartphone Market Recovering, What To Expect From Qualcomm’s Q2 Results?

Mobile chipset major Qualcomm (NASDAQ: QCOM) is expected to publish its Q2 FY’24 results on May 1, reporting on a quarter that is likely to see business pick up, amid rising smartphone sales. The company is guiding revenue in the range of $8.9 billion to $9.7 billion, with adjusted earnings projected at $2.20 to $2.40 per share. In comparison, revenues stood at $9.3 billion in Q2 FY’23.

While the smartphone market saw a lull in 2023, as the Covid-19 pandemic eased and also as economic uncertainty weighed on consumer spending, things have been looking up of late. Per Canalys, worldwide smartphone shipments grew 11% year on year over the first quarter of 2024. This should help Qualcomm’s CDMA Technologies (QCT) segment, which supplies application processors, modems, and software for technologies for mobile devices, networking equipment, and consumer electronics. Qualcomm’s revenue from handsets rose 16% year-over-year to $6.69 billion in Q1 FY’24, and we should see improvements over Q2 as well. On the technology licensing front, Qualcomm has guided sales of between $1.2 billion to $1.4 billion compared to $1.29 billion in the year-ago quarter.  Qualcomm’s automotive business should continue to gain some traction as semiconductors play a much bigger role in the transportation industry as trends such as electrification and autonomous driving gather pace. Over Q1 automotive revenue rose by 31% year-over-year to $598 million.

QCOM stock has seen little change, moving slightly from levels of $150 in early January 2021 to around $160 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period.
Overall, the performance of QCOM stock with respect to the index has been lackluster. Returns for the stock were 20% in 2021, -40% in 2022, and 32% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that QCOM underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including MSFT, AAPL, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could QCOM face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Qualcomm stock trades at just about 17x consensus 2024 earnings, which is a reasonable valuation. While this is partly because revenues and earnings are projected to only see modest growth this year, the markets project that sales will recover in FY’25. Moreover, last year,  Qualcomm announced it had extended an agreement with Apple to supply modem chips to the iPhone maker until 2026. The development is very positive for QCOM, given that Apple was expected to use an internally developed 5G modem chipset starting in 2024. We have a $146 price estimate for Qualcomm, which is slightly below the current market price. We will be revisiting our price estimate following earnings. See our analysis of Qualcomm Valuation: Expensive Or Cheap? for more details on what’s driving our price estimate for the stock.

[1] Returns as of 4/19/2024
[2] Cumulative total returns since the end of 2016