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Qualcomm (QCOM) Beats Q3 Earnings Estimates on Solid Demand

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Qualcomm Incorporated (QCOM - Free Report) reported solid third-quarter fiscal 2022 results, driven by the ramp-up in 5G-enabled chips and a surge in demand for essential products and services that are the building blocks for digital transformation in the cloud economy. Both the bottom line and the top line increased year over year and surpassed the respective Zacks Consensus Estimate on strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario.

Net Income

On a GAAP basis, net income in the June quarter improved to $3,730 million or $3.29 per share from $2,027 million or $1.77 per share in the prior-year quarter. The increase in GAAP earnings was primarily attributable to top-line growth.

Quarterly non-GAAP net income came in at $3,356 million or $2.96 per share compared with $2,200 million or $1.92 per share in the year-ago quarter. The non-GAAP earnings per share were largely driven by higher revenues across the board. The bottom line exceeded management’s guidance and beat the Zacks Consensus Estimate by 10 cents.

QUALCOMM Incorporated Price, Consensus and EPS Surprise 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 third quarter were $10,936 million compared with $8,060 million in the prior-year quarter. The increase in revenues was driven by 5G ramp-up, chip design win momentum, record automotive revenues, RF front-end demand and a rise in consumer electronics revenues with diligent execution of operational plans and resilient business culture acting as catalysts. In addition, 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 $10,928 million compared with $7,995 million in the year-earlier quarter. The figure beat the consensus mark of $10,881 million, driven by 5G strength, high-performing core chipsets and new RF front-end content.

Segment Results

Quarterly revenues from Qualcomm CDMA Technologies (QCT) improved 45% year over year to $9,378 million, driven by strength in handsets and higher demand in adjacent platforms beyond mobile (RF front-end, automotive and IoT). 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. The Wi-Fi 6 immersive home platforms continue to gain momentum. The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are also fueling emerging automotive industry trends such as the growth in connected vehicles, the transformation of the in-car experience and vehicle electrification.

The Snapdragon digital chassis is an open and scalable cloud-enabled platform for telematics, connectivity, digital cockpit and Advanced Driver Assistance Systems (ADAS)  that uniquely positions Qualcomm as the leading system solution provider for silicon, software, systems and services across multiple domains. RF front-end revenues of $1,046 million increased 9% year over year with solid demand for a fifth-generation modem-RF system that boasts advanced features such as AI integration, millimeter-wave and 5G connectivity. Handset revenues were up 59% to $6,149 million with continued traction from leading smartphone OEMs such as Samsung, Xiaomi, Oppo, Vivo and Honor, and increased adoption of Snapdragon mobile technology platform for premium and high-tier Android. Automotive and IoT revenues rose 38% and 31%, respectively, to $350 million and $1,833 million. EBT margin for QCT increased to 32% from 28%.

Qualcomm Technology Licensing (QTL) revenues totaled $1,519 million, up 2% year over year due to improvement in licensing revenues. The company has extended its patent license agreement with Samsung by seven years through the end of 2030 and expects a healthy revenue stream from this segment. EBT margin remained flat at 71%.

Cash Flow & Liquidity

Qualcomm generated $2,895 million of net cash from operating activities in the fiscal third quarter compared with $3,373 million a year ago, bringing the respective tallies for the first nine months of fiscal 2022 and fiscal 2021 to $7,650 million and $9,459 million. At the quarter-end, the company had $2,676 million in cash and cash equivalents and $13,600 million of long-term debt. The company repurchased 4 million shares for $500 million during the quarter.

Q4 Guidance

For the fourth quarter of fiscal 2022, Qualcomm expects GAAP revenues of $11-$11.8 billion. Non-GAAP earnings are projected to be $3-$3.30 per share, while GAAP earnings are likely to be $2.53-$2.83 per share. Revenues from QTL are expected to be between $1.45 billion and $1.65 billion. For QCT, the company anticipates revenues between $9.5 billion and $10.1 billion.

Zacks Rank & Stocks to Consider

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

A better-ranked stock in the broader industry is Sierra Wireless, Inc. (SWIR - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sierra Wireless has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 223.7%, on average, in the trailing four quarters. Over the past year, the stock has gained 18.1%. Earnings estimates for the current year have moved up 616.7% since July 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.

InterDigital, Inc. (IDCC - Free Report) , carrying a Zacks Rank #2, is another key pick for investors. It has a long-term earnings growth expectation of 15% and delivered a stellar earnings surprise of 141.1%, on average, in the trailing four quarters. Earnings estimates for the current year have moved up 49.5% since July 2021.

InterDigital is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. The company aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas. InterDigital’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.

Aviat Networks, Inc. (AVNW - Free Report) carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has been revised 15.7% upward since July 2021.

Aviat Networks pulled off a trailing four-quarter earnings surprise of 17.4%, on average. It has soared 179.6% in the past two years.