After a long period in the wilderness, Qualcomm reported a solid set of Q4 results today. They handily beat revenue and EPS estimates and guided strongly for next quarter as well. More than anything else, these results reflect a return to more normal (-ish) consumer spending trends for electronics. All the demand during the pandemic was pulled forward from 2023, and that seems to have finally played out. And while we would not say handset buying is going to be strong next year, the market should at least grow, relieving a lot of pressure on component suppliers including Qualcomm.

That being said, if we still maintained stock recommendations our call for Qualcomm would be unchanged. The rest of the call contained a collection of data points, some positive, some negative, but none significant enough to move the needle.

• Not surprisingly, management talked up the launch of their PC CPU which came. out last week.
• Their automotive story continues to roll out nicely. They are increasingly talking about design wins for specific models of cars. They are also flushing out what types of use cases they are being deployed into – digital cockpits got a lot of mentions this quarter. They also confirmed they are still on track for their guidance of $4 billion in revenue by 2026. Glass half full – very strong growth. Glass half empty – that will probably only represent less than 10% of revenue, a long time from now.
• They provided a tiny bit of detail on their relationship with Apple. The current contract includes three more iPhones – 2024, 2025 and 2026, which means the next potential hole is 2027, assuming something does not change before then that makes Apple question its modem program. Again, they hammered home that this is both modem and RF products, which we think is significant.
• Probably the biggest news was the fact that handset makers have begun restocking component inventory, especially significant in that they are seeing this demand come from Chinese companies, who many had feared still face significant domestic economic headwinds.
• They confirmed that they are still getting good business from Samsung and essentially none from Huawei
• In discussing PCs, they claimed that they are targeting “next generation” PCs, the PCs where AI matters. We think the jury is still out on that. They also said that the entry of new entrants to the Arm-based PC CPU markets was good news because it “validated” the market. We know many start-up CEOs who could not have said it better…
• In terms of handset chip ASPs, the company said that they are not seeing pricing pressure, but they expect ASPs to decline as they offer a broader array of chips. This is standard for mid-cycle wireless ‘G’. As the market grows, Qualcomm launches lower priced chips to tap into growth as 5G enters more markets. Good news that the pricing trends remains constant. bad news in that the 6G cycle is very far away.
• Apparently the company launched a Passive Optical product this quarter. We missed the press release and had to dig around a bit to find it on their website. As far as we can remember this is their first new IoT product category in a very long time. We are pretty sure Atheros was working on this when Qualcomm acquired them, so better a decade than never. It sits well next to their strong position in Wi-Fi for home networking. Not big numbers, but good that it finally came to market.
• Finally, the company continues to spend heavily. Brett Simpson of Arete research pointed out that Qualcomm has 50,000 employees, double the level of its peers. And while they did hold opex growth below 5% this year, it grew 13% last year, with annual opex now over $11 billion. And they still have the jets….

So while the company is finally seeing a recovery in its core handset market, the rest of the story remains unchanged. Qualcomm is in great shape for mobile phones, someday it should be in great shape in automotive. Beyond that growth remains challenging.