The Six Five team discusses Qualcomm Q3FY24 earnings.
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Transcript:
Patrick Moorhead: Qualcomm, beep, beep, raise. Diversification story here with automotive. Automotive is a juggernaut. Nothing really on PCs, said that it exceeded internal expectations which were appropriate low and some skews were sold out, but it’s a very small percentage. But I do believe the roadmap looks good and I think even looking at OEMs after the Intel news, maybe they’re doing a side eye at Qualcomm. Any impact from any potential AI lift is going to be through this new Orion Core that’ll be announced later this year. Won’t financially impact this year, but if AI in smartphones is going to hit in any year, it’s going to be 2025. And if we see what Intel, sorry, Apple is doing with Apple AI, it is a good portending thing. I think China will actually be leading with the AI smartphone, which I think again, there’s a lot of puts and takes for Qualcomm in China. You’ve got Huawei rising. You have Apple potentially declining. But you’ve got premium smartphones in China going up that does benefit Qualcomm because you get the APU, you get the modem and you get a lot more RF content. Go.
Stacy Rasgon: So Qualcomm, was a good print. The stock reaction was very interesting though. It was up like 8% in the aftermarket and then it was down and then it’s been weak since. And there were a couple of reasons. So the quarter was good. It was a nice solid beat and raise. The guide on the surface was a beep and people were worried because again, they also lost their Huawei export license. So there were two reasons that the stock sold. The first was that that guide actually had an extra week in the quarter. So you get extra revenue and everything. And I think it was misunderstood how much revenue it was, ’cause if you just do it at first glance, it’s 8% of a quarter’s revenue. The 9, they guided 9.9 billion. If you just take a uniform revenue distribution, the real guide without the week would’ve been 9.2, which was very low. They said some stuff on the call, you could actually back that out. It wasn’t that much. It was like $300 million, about a hundred million in licensing, 200 million in chips.
9.6 in my opinion was the sort of normalized guide, which would’ve been fine. The other issue though is they’ve made a practice of the last couple of quarters to give N plus one guidance to guide not just an extra but give some soft guidance to the quarter beyond. And they kind of guided the December quarter softly, but a little below where the street was. And so that’s kind of what, they tend to do this, again, maybe they should stop, but if you sort of look at their prior history, when they eventually get to that quarter, not only do they tend to beat their guide, they also tend to beat where consensus had been before they gave the guide. So I think they’re being conservative. I think it was fine. But I mean that was the issue. The other issues that Qualcomm is having is everybody’s worried about the Apple modem.
It’s potentially going away. They’ve actually told everybody for modeling purposes assume it goes away. People have assumed that’s the end of ’26, but there’s been some news flow that they might lose some small volume skews next year potentially as Apple kind of trials their modem and, I don’t think, it’s not a lot of earnings. I don’t think that the worry there is there. The worry would be that, does it increase the chance that the actual thing actually does go away? For real, because people are thinking that maybe it won’t. So it’s been disappointing. Now at these price levels, I think you’re already pricing Apple out. I could take all of Apple out next year fully and it’s trading in the teens today so. I think you’re kind of pricing it in, but that’s the worry that people have.
It’s like, well they’re guiding down December, I got these Apple headwinds. Maybe there’s no rush. That’s kind of where I think sentiment in the near to medium triple B, be it, just ignoring all the other stuff that’s going on with the macro and everything right now. I think that’s just where sentiment is. But in general, it was a decent print. It was very good. On the product roadmap and everything, they’re killing it. And you mentioned Auto, by the way, the adjacency story’s looking really good. The Auto killed it. Auto was really good. I think their long-term targets there are looking increasingly conservative. At least their industrial IoT business has bottomed. And then we’ll see what PCs do. I mean worst case it’s not a negative for them, right? So we’ll see if Arm PCs are a thing, I don’t know yet, but if they are, they’ll benefit.
Daniel Newman: Yeah. So you guys hit on a lot of the points. I think you and I, Pat, have been beating the diversification drum, and this is where it’s starting to really shine. I mean look, the handset business wasn’t that, it was fine, but I mean all their growth came in strength in automotive and strength in IoT, which are now, they’ve had these two additional, I mean automotive is almost a billion a quarter now of revenue.
Stacy Rasgon: Yeah, 811 million they get.
Daniel Newman: Yeah, 800 something, but I mean it’s 75% roughly up from a year ago. So it is changing the whole trajectory and the whole shape of the company. So now it’s got the potential of these arm PCs, which when we talked, we all probably talked to Christian, I know you and I did, Pat. I talked to him and I thought, I kind of said I’d like to hear more about how it’s going. The way they explained how it’s going was very, it was a little vague. It’s better than we had modeled. Okay, well good, I’m glad to hear that. But what does that really mean? Are people buying these? Are they flying off the shelf? I mean our testing in our lab shows that there’s some really great stuff. Pat, you and I both use them every day. I’ve been encouraged by my experience with them, but is this a supercycle? I mean we keep hearing that term. There’s going to be a supercycle.
Stacy Rasgon: I hate that term.
Daniel Newman: I know, I know, some people love it. But the point is what does that mean and when does it ramp? How excited are people? What value are they getting? You and I have both complained about the Microsoft Recall thing not necessarily being there and that was the exciting feature. So that’s a big one for me. I mean then we were hearing about, by the way, a supercycle on the handsets, right? There’s going to be a supercycle driven by Apple Intelligence and it’s going to make everybody run to the store. And I know you’re cringing, but just, I’m not saying I agree. I’m saying that’s the sort of the street, the bulls of the street are saying…
Stacy Rasgon: Where I get bullish by the way on the AI smartphone side is there’s actually not tons of units and upgrades. It’s content.
Daniel Newman: Yeah, okay.
Stacy Rasgon: I think that’s enough, frankly. If we get an upgrade cycle, great, that’d be wonderful.
Daniel Newman: So it’s more people willing to pay more for the things they’re using on the device. Of course, and look, I’m going to be really clear, AI is not XR. And not to say, actually Qualcomm, part of their strong IoT number was XR, which is rare and anybody’s making money on the VR/XR side, but they actually do well because the Meta new headsets are performing well. But what I’m getting at is AI is a real thing. The biggest thing across the entire industry though, I think people are fighting with is what AI are people willing to pay for and what AI are people just expecting as part of what would be kind of an iterative upgrade. And that could be in software, that could be in hardware, that could be in enterprise, that could be in consumer. It’s like if people pay more for SaaS, I’m supposed to get the next feature. That’s part of why I subscribe to your stuff. How much more am I going to pay for it? Same thing with a phone. Every time I go buy a phone, it’s supposed to have more stuff. That’s why I upgrade. I mean, by the way, I’m still using a 13 pro max because I’ve seen nothing in the last two generations that excites me enough to pay for another phone. And I’m a tech guy, so that’s what we’re up against. But Qualcomm’s numbers, I mean look, compared to where we started this conversation…
Stacy Rasgon: Oh yeah, oh yeah.
Daniel Newman: Steady state, good stuff, margin, operations, management, execution, not a lot to complain about over there. Diversification, looking good.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
