Qualcomm FYQ3 2024 Earnings

The News: Qualcomm Incorporated (NASDAQ: QCOM) announced results for its fiscal third quarter (FY Q3) ended June 23, 2024, with revenues of $9.4 billion for the quarter (up 11% year-over-year / +30% EBT), net income of $2.1B (up 18% year-over-year) and GAAP EPS of $1.88 (non-GAAP EPS of $2.33). The company also reported 87% YoY growth in Revenues from QCT automotive segment and 12% YoY growth from its QCT handset business. Read the press release here on the company’s website.

Qualcomm FYQ3 2024 Earnings: Automotive, Handset, PC and IOT Segments on Growth Trajectories

Analyst Take: Another strong quarter from Qualcomm despite strong competition from semiconductor rivals, demand for AI chips outstripping production capacity, the high likelihood of price hikes by chip manufacturers, a mature handset segment, and a softening of EV demand growth in the US market. Qualcomm addressed all of those concerns with 11% YoY growth in revenues (30% EBT), 27% margins for its QCT (hardware) business, 12% YoY growth in handsets, and an impressive 87% YoY growth spurt in QCT automotive for the quarter, highlighting the company’s momentum in the segment.

It isn’t so much that the company is overperforming (FYQ3 generally exceeded the midpoint of guidance) but rather that consensus may be chronically underestimating the company’s roadmap, momentum, and ability to execute.

“Our third quarter results reflect strong execution of our growth and diversification strategy, with QCT quarterly revenues and EBT margins at the high end of guidance,” said Cristiano Amon, President and CEO of Qualcomm Incorporated. “We are excited about the launch of our Snapdragon X Series solutions for PCs that deliver leading performance, unmatched power efficiency and personalized AI experiences. This launch represents a significant milestone in our transformation from a communications company to a leading intelligent computing company.”

Q3 2024 Highlights

• Revenue up 11% YoY, EBT and EPS up 25% YoY, all above midpoint of guidance and consensus. $0.08 beat the June quarter and strong guide for September quarter.
• 27% QCT margins are a good snapshot of business health in the current competitive semiconductor market, and reflect that revenue upside was, again, supplemented by opex discipline. QTL also looks good: Up 3% YoY (+10% EBT).
• Lion’s share of upside came from Automotive and IoT – $2.2B combined revenues – highlighting that Qualcomm’s diversification strategy continues to deliver both as a hedge against ups and downs of individual segments and as a multi-runway growth strategy.
• Again, very strong beat in the Automotive segment: +$150M vs. Street and on track to grow 50% this fiscal year despite generally soft segment for competitors. Qualcomm continued its progress with more than 10 new design wins with global Auto OEMs for the quarter. Pipeline momentum looks great.
• Very welcome pendulum swing for IoT: up 9% QoQ in Q3 with possibility of low double-digit growth in Q4, suggesting that the segment may have finally begun to recover.
• Too soon for PC segment play to turn up in FY Q3 earnings but solid June Copilot+ launch of 20 devices with every major PC OEM and Microsoft was met with excitement by retailers and enterprise ITDMs. Reset of PC category with Copilot+ AI PCs was well coordinated, putting Qualcomm on track to become a leading silicon provider as AI PCs 1) become mainstream and advantages of Snapdragon X platform finds its most competitive / value prop lanes, and 2) Snapdragon X platform allows Microsoft to take on Apple both in the Consumer and Enterprise segments.

Handsets: $5.9 billion in revenues for the quarter (up 12% YoY). Generally, the June quarter isn’t known for massive handset shipments. Being a bit of a sleeper quarter also makes it a useful baseline snapshot of the health of the segment for Qualcomm, and a 12% uplift YoY for the quarter is as strong a signal as you can get that all is well, particularly in a segment as mature and difficult to disrupt as mobile handsets.

Speaking of disruption, Qualcomm will be introducing its next-gen Snapdragon 8 flagship mobile platform at its Snapdragon Summit this October, which we know will be powered by Qualcomm’s anticipated custom Oryon CPU. Combined with advances in NPU AI capabilities, the new platform could create a new incremental inflection point for the handset segment as it accelerates its integration of powerful AI capabilities onto devices. This could help Qualcomm distance itself from other Android handset platform vendors, especially in the premium and flagship tiers, and apply additional pressure on Apple to bring more advanced on-chip AI capabilities to iPhones in order to remain competitive in a rapidly changing segment.

For now though, FY Q3 handset numbers look solid, momentum is good, and the segment is just cruising along as well as expected.

Automotive: $811 million in revenue for the quarter (up 87% YoY – from $434 million in FYQ3 2023), and relatively steady QoQ. Net revenue numbers for Automotive pale in comparison to Mobile, but it is hard to ignore an almost 2x growth in YoY revenue. Qualcomm’s Snapdragon platform and digital chassis strategy continues to scale across almost every major automotive OEM and maintain sequential momentum in the segment.

Qualcomm also reported securing 10 new design wins with global automotive OEMs in the quarter, which includes next-gen cockpit, connectivity, ADAS, and AD/Autonomy solutions. Moving forward, my eye is also on how Qualcomm will integrate on-device (on-vehicle) AI solutions into its Digital Chassis offering. The challenge for Qualcomm won’t be technical – the capabilities are there. It will be, at least initially, in identifying relevant, demand-generating use cases that deliver remarkable, must-have features and UX for automotive-centric generative AI use cases. Those have, thus far, remained a bit elusive (not just for Qualcomm), but obvious vectors of approach already touch on hands-free in-vehicle AI assistants (leveraging not only Qualcomm’s on-chip natural language processing and machine intelligence layers, but also Qualcomm’s Snapdragon Sound platform, which will allow the company to integrate all of these solutions vertically within its automotive stack). Adjacent hands-free use cases that will enhance automotive-specific tasks like navigation; transcribing calls; generating shopping lists, calendar items and custom playlists; identifying entertainment and dining options; and staying on top of incoming calls, messages and emails while remaining focused on the road, are all among the types of generative AI use cases I hope we will see in upcoming announcements from Qualcomm and OEM partners.

Quick additional note relative to reports of “softness” in the EV market, and how this might impact Qualcomm’s automotive QCT business:

• The EV market is not softening. This is an often misinterpreted insight. The EV market’s growth rate in the United States is what has been softening (or normalizing, rather). This can be attributed to the initial boost from early adopters of EVs fading as the segment begins to mature. While some categories of EVs struggle while others thrive, demand for EVs on the whole remains strong.
• Looking at the automotive segment, it is important to remember that software-defined vehicles (software-enabled vehicles) are the larger opportunity for technology vendors like Qualcomm. EVs obviously constitute a significant portion of that opportunity, but hybrids and traditionally powered vehicles are also increasingly software-enabled. As a result, even dips in demand for EVs are unlikely to slow Qualcomm’s growth in the automotive market. In other words, a dominant EV OEM like Tesla having a bad quarter because EV demand slips should not be misunderstood as a signal that Qualcomm’s growth in the automotive segment will also experience a softer quarter. EVs and software-enabled vehicles overlap but are very different technology tracks in the Automotive sector.

Overall, Qualcomm’s automotive QCT growth reflects the success of the company’s diversification strategy and of its ability to scale in high growth segments it chooses to invest in.

IOT (PC, XR, Wearables, Hearables, general IOT, IIOT): $1.4 billion in revenue for the quarter (a slight 8% drop YoY from $1.5 billion in FYQ3 2023), but 9% sequential growth may be signaling a change in momentum. This category is primed for a turnaround in the next couple of quarters, and here is why:

• Copilot+ PCs, powered exclusively by Qualcomm’s Snapdragon X Series platforms, just had a remarkably successful launch with every major PC OEM (Microsoft, Dell, HP, Lenovo, Acer, Asus and Samsung) in the Microsoft Windows ecosystem – and is ushering the new era of AI PCs with the new Copilot+ Category. I continue to write extensively about this, so I won’t dig too deeply into the opportunity here, but here is what you need to know:
  • The Snapdragon X platform positions Qualcomm to become a major semiconductor OEM in the PC space and compete against Intel and AMD as a leader in the enablement of next-gen on-device AI in the Windows PC segment.
  • This marks the start of one of the most significant transitions in personal computing since the launch of Windows 95, and is likely to trigger a full reset of the PC refresh cycle, starting in H2.
  • Snapdragon X and its combination of on-device PC capabilities and Arm-based performance per watt (think extremely long battery life) are restoring performance leadership back to the Windows ecosystem, particularly against Apple silicon.
  • This first wave of 20 devices is now available across 20 countries and 47 retailers, and is being extensively tested in the enterprise segment. I expect strong pre-orders and shipment numbers for Snapdragon X-powered Copilot+ PCs right out of the gate. More on that soon.
  • Qualcomm also has every reason to remain excited about the continued positive momentum of their XR platforms, particularly the success of Meta’s Ray-Ban smart glasses, which I believe carries the most potential for mass consumer adoption, due to its low price-point, light footprint, and natural AI-enabled voice-enabled features. Case in point: Sales continue to exceed expectations, due in part to the integration of Llama. I agree with Qualcomm’s theory regarding an acceleration in demand for extended and mixed reality devices as new use cases enabled by generative AI gain scale.
  • As Meta continues to reset its metaverse and XR strategy to be more aligned with on-device AI capabilities, so does Qualcomm’s potential in that segment improve. Keep an eye on this.
• Qualcomm is also on the verge of announcing a new dedicated product roadmap for industrial IoT (IIOT), including support for multiple operating systems, the ability to run multi-billion parameter AI models, and a more comprehensive platform for the developer ecosystem.
• Revenue for the segment was up 9% QoQ in FYQ3 with the possibility of low double-digit growth in Q4, driven in great part by the initial round of Copilot+ PC shipments (pre-orders may have been stronger than anticipated) and wins in XR, suggesting that the segment may be in the first motions of an imminent recovery.
• I didn’t hear a lot about Wi-Fi during earnings, but I do want to point to the strength of Qualcomm’s Wi-Fi portfolio, and especially the push to Wi-Fi 7 as another strong revenue opportunity for the segment. This piece of Qualcomm’s solutions portfolio routinely gets overlooked.
• Another detail that casual observers of Qualcomm may not have caught is the expansion of Nakul Duggal’s role in the organization. Until recently, Duggal was primarily responsible for the Automotive segment. He now also oversees IIOT, where I expect that the discipline and focus that made his efforts in Automotive so successful will put the IIOT segment on a similar growth trajectory.

Outlook and Conclusion

Qualcomm’s FYQ3 momentum sets the stage for FYQ4: Midpoint of guidance suggests strong YoY growth in revenue (14% / EPS 26% range), with QCT EBT margins improving further to 27-29%. Given the record YoY performance in the auto segment, I expect sequential growth in that segment to remain fairly flat going into Q4, but I expect to see the IoT segment push into low double digits sequential (QoQ) growth, driven primarily by Copilot+ PC launch and momentum in XR.

The one caveat I have to add to this outlook is the possibility that potential price hikes from chip manufacturers, particularly TSMC, might have on earnings going into the fall and winter quarters. 3nm and 5nm process nodes would be especially affected by price hikes, which are likely to happen soon, given current ratio of demand to manufacturing capacity, and the state of demand pipelines for AI-enabling chips. This scenario would also affect Apple, MediaTek, Nvidia and AMD, so this is by no means unique to Qualcomm, but I feel that this eventuality should be flagged ahead of the next few earnings cycles.

Overall, Qualcomm’s solid FYQ3 2024 earnings showcase the company’s steady and methodical execution across key segments, as well as its momentum and leadership in the integration of generative AI at the edge and across devices, from handsets and PCs to XR, Automotive and the IOT. I am especially looking forward to the progress Qualcomm is well positioned to make in PCs, XR, Automotive and the IIOT in the coming cycles, and to the swarm of announcements we are likely to see from the company in the coming months.

Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Qualcomm’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

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Olivier Blanchard

Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies.  Read Full Bio.