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Qualcomm (QCOM) Beats on Q1 Earnings, Falters on Revenues

Qualcomm Incorporated QCOM reported mixed first-quarter fiscal 2023 results driven by a challenging macroeconomic environment and COVID headwinds in China, resulting in weaker-than-expected demand and elevated inventory levels. While the top line missed the Zacks Consensus Estimate, the bottom line surpassed the same on the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. However, shares declined sharply post earnings release owing to a soft outlook due to market uncertainty and high channel inventory levels.

Net Income

On a GAAP basis, net income in the December quarter declined to $2,235 million or $1.98 per share from $3,399 million or $2.98 per share in the prior-year quarter. The decrease in GAAP earnings was primarily attributable to top-line contraction.

Quarterly non-GAAP net income came in at $2,684 million or $2.37 per share compared with $3,686 million or $3.23 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by a couple of cents.

QUALCOMM Incorporated Price, Consensus and EPS Surprise

QUALCOMM Incorporated price-consensus-eps-surprise-chart | QUALCOMM Incorporated Quote

Revenues

On a GAAP basis, total revenues in the fiscal first quarter were $9,463 million compared with $10,705 million in the prior-year quarter. Despite solid automotive and IoT revenues, the top line decreased on soft demand patterns and elevated inventory levels owing to market uncertainty and macroeconomic woes. However, Qualcomm witnessed strong momentum in IoT across consumer, edge networking and industrial sectors, along with strength in Snapdragon portfolio within the automotive sector.

Non-GAAP revenues in the reported quarter were $9,456 million compared with $10,697 million in the year-earlier quarter. The figure missed the consensus mark of $9,563 million.

Segment Results

Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 11% year over year to $7,892 million, as strength in adjacent platforms beyond mobile (automotive and IoT) was more than offset by lower demand in handsets. The company is witnessing healthy traction in EDGE networking that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets.

Automotive and IoT revenues rose 58% and 7%, respectively, to $456 million and $1,682 million, while handset revenues were down 18% to $5,754 million. EBT margin decreased to 28% from 35%.

Qualcomm Technology Licensing (QTL) revenues totaled $1,524 million, down 16% year over year due to lower licensing revenues. EBT margin declined to 73% from 77%.

Cash Flow & Liquidity

Qualcomm generated $3,095 million of net cash from operating activities in the fiscal first quarter compared with $2,057 million a year ago. At quarter-end, the company had $4,808 million in cash and cash equivalents and $15,431 million of long-term debt. The company repurchased 11 million shares for $1.3 billion during the quarter.

Q2 Guidance

For the second quarter of fiscal 2023, Qualcomm expects GAAP revenues of $8.7-$9.5 billion due to rapid deterioration in demand and high channel inventory. Non-GAAP earnings are projected to be $2.05-$2.25 per share, while GAAP earnings are likely to be $1.53-$1.73 per share. Revenues from QTL are expected to be between $1.25 billion and $1.45 billion. For QCT, the company anticipates revenues between $7.4 billion and $8 billion.

Zacks Rank & Stocks to Consider

Qualcomm currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 12.7%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

Cambium Networks Corporation CMBM, sporting a Zacks Rank #1, is well-poised to benefit from robust demand for wireless broadband connectivity and the acceptance of its new products. Being the leading provider of access network solutions, it benefits from cost-effective operations. Cambium capitalizes on its cloud-based network management software that enables operators to seamlessly design, deploy and manage their networks from cloud-to-tower-to-edge.
 
Cambium has a long-term earnings growth expectation of 16%. It delivered an earnings surprise of 109.3%, on average, in the trailing four quarters.

Motorola Solutions, Inc. MSI carries a Zacks Rank #2. It has a long-term earnings growth expectation of 9% and delivered an earnings surprise of 6.6%, on average, in the trailing four quarters.

As a leading provider of mission-critical communication products and services worldwide, Motorola has ensured a steady revenue stream from this niche market. The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem.

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