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Qualcomm (QCOM) Q2 Earnings Miss Estimates on Lower Revenues
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Qualcomm Incorporated (QCOM - Free Report) reported weak second-quarter fiscal 2023 results, impacted by a challenging macroeconomic environment, inflationary pressures and soft recovery in China, resulting in lower-than-expected demand and elevated inventory levels. While the top line beat the Zacks Consensus Estimate, the bottom line missed the same despite the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. Shares declined sharply post earnings release owing to a soft outlook due to limited market visibility and high channel inventory levels.
Net Income
On a GAAP basis, net income in the March quarter declined to $1,704 million or $1.52 per share from $2,934 million or $2.57 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 $2,420 million or $2.15 per share compared with $3,661 million or $3.21 per share in the year-ago quarter due to lower-than-expected revenues owing to soft demand trends. The bottom line missed the Zacks Consensus Estimate by a penny.
QUALCOMM Incorporated Price, Consensus and EPS Surprise
On a GAAP basis, total revenues in the fiscal second quarter were $9,275 million compared with $11,164 million in the prior-year quarter. Despite solid automotive revenues, the top line decreased on soft demand patterns and elevated inventory levels owing to market uncertainty and macroeconomic woes. High inflationary pressures and soft economic recovery in China further compounded the problems. 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 $9,268 million compared with $11,158 million in the year-earlier quarter. The quarterly revenues beat the consensus mark of $9,080 million.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 17% year over year to $7,942 million, as strength in the automotive platform was more than offset by lower demand in handsets and channel inventory drawdown within the IoT business. Despite solid potential in the EDGE networking business that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets, the company witnessed lower demand owing to an uncertain landscape.
Automotive revenues rose 20% to $447 million, while handset and IoT revenues were down 17% and 24%, respectively, to $6,105 million and $1,390 million. EBT margin for the QCT segment decreased to 27% from 35%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,290 million, down 18% year over year due to lower licensing revenues. EBT margin declined to 68% from 73%.
Cash Flow & Liquidity
Qualcomm generated $1,457 million of net cash from operating activities in the fiscal second quarter compared with $2,698 million a year ago, bringing the respective tallies for the first half of fiscal 2023 and fiscal 2022 to $4,552 million and $4,755 million. At quarter-end, the company had $3,488 million in cash and cash equivalents and $15,486 million of long-term debt. The company repurchased 7 million shares for $903 million during the quarter.
Q3 Guidance
For the third quarter of fiscal 2023, Qualcomm expects GAAP revenues of $8.1-$8.9 billion due to rapid deterioration in demand and high channel inventory. Management expects the uncertain macroeconomic outlook, high inflation and a slower recovery in China to adversely impact demand as customers remain cautious with their purchasing decisions, further leading to inflated inventory levels. Non-GAAP earnings are projected to be $1.70-$1.90 per share, while GAAP earnings are likely to be $1.24-$1.44 per share. Revenues from QTL are expected to be between $1.15 billion and $1.35 billion. For QCT, the company anticipates revenues between $6.9 billion and $7.5 billion.
Arista Networks, Inc. (ANET - Free Report) , 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 14.2% and delivered an earnings surprise of 14.7%, 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.
Comtech Telecommunications Corp. (CMTL - Free Report) , carrying a Zacks Rank #2, is a solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.
Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data throughput. It holds leadership positions in the market for high-throughput modems used in cellular backhaul.
IHS Holding Limited (IHS - Free Report) , carrying a Zacks Rank #2, is another key pick. Based in London, the United Kingdom, it is one of the largest independent owners, operators, and developers of shared communications infrastructure in the world by tower count.
IHS Holding has more than 39,000 towers across its 11 markets: Brazil, Cameroon, Colombia, Egypt, Kuwait, Nigeria, Peru, Rwanda, South Africa and Zambia. The stock has gained 58.5% in the past six months.
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Qualcomm (QCOM) Q2 Earnings Miss Estimates on Lower Revenues
Qualcomm Incorporated (QCOM - Free Report) reported weak second-quarter fiscal 2023 results, impacted by a challenging macroeconomic environment, inflationary pressures and soft recovery in China, resulting in lower-than-expected demand and elevated inventory levels. While the top line beat the Zacks Consensus Estimate, the bottom line missed the same despite the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. Shares declined sharply post earnings release owing to a soft outlook due to limited market visibility and high channel inventory levels.
Net Income
On a GAAP basis, net income in the March quarter declined to $1,704 million or $1.52 per share from $2,934 million or $2.57 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 $2,420 million or $2.15 per share compared with $3,661 million or $3.21 per share in the year-ago quarter due to lower-than-expected revenues owing to soft demand trends. The bottom line missed the Zacks Consensus Estimate by a penny.
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 second quarter were $9,275 million compared with $11,164 million in the prior-year quarter. Despite solid automotive revenues, the top line decreased on soft demand patterns and elevated inventory levels owing to market uncertainty and macroeconomic woes. High inflationary pressures and soft economic recovery in China further compounded the problems. 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 $9,268 million compared with $11,158 million in the year-earlier quarter. The quarterly revenues beat the consensus mark of $9,080 million.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 17% year over year to $7,942 million, as strength in the automotive platform was more than offset by lower demand in handsets and channel inventory drawdown within the IoT business. Despite solid potential in the EDGE networking business that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets, the company witnessed lower demand owing to an uncertain landscape.
Automotive revenues rose 20% to $447 million, while handset and IoT revenues were down 17% and 24%, respectively, to $6,105 million and $1,390 million. EBT margin for the QCT segment decreased to 27% from 35%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,290 million, down 18% year over year due to lower licensing revenues. EBT margin declined to 68% from 73%.
Cash Flow & Liquidity
Qualcomm generated $1,457 million of net cash from operating activities in the fiscal second quarter compared with $2,698 million a year ago, bringing the respective tallies for the first half of fiscal 2023 and fiscal 2022 to $4,552 million and $4,755 million. At quarter-end, the company had $3,488 million in cash and cash equivalents and $15,486 million of long-term debt. The company repurchased 7 million shares for $903 million during the quarter.
Q3 Guidance
For the third quarter of fiscal 2023, Qualcomm expects GAAP revenues of $8.1-$8.9 billion due to rapid deterioration in demand and high channel inventory. Management expects the uncertain macroeconomic outlook, high inflation and a slower recovery in China to adversely impact demand as customers remain cautious with their purchasing decisions, further leading to inflated inventory levels. Non-GAAP earnings are projected to be $1.70-$1.90 per share, while GAAP earnings are likely to be $1.24-$1.44 per share. Revenues from QTL are expected to be between $1.15 billion and $1.35 billion. For QCT, the company anticipates revenues between $6.9 billion and $7.5 billion.
Zacks Rank & Stocks to Consider
Qualcomm currently has a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arista Networks, Inc. (ANET - Free Report) , 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 14.2% and delivered an earnings surprise of 14.7%, 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.
Comtech Telecommunications Corp. (CMTL - Free Report) , carrying a Zacks Rank #2, is a solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.
Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data throughput. It holds leadership positions in the market for high-throughput modems used in cellular backhaul.
IHS Holding Limited (IHS - Free Report) , carrying a Zacks Rank #2, is another key pick. Based in London, the United Kingdom, it is one of the largest independent owners, operators, and developers of shared communications infrastructure in the world by tower count.
IHS Holding has more than 39,000 towers across its 11 markets: Brazil, Cameroon, Colombia, Egypt, Kuwait, Nigeria, Peru, Rwanda, South Africa and Zambia. The stock has gained 58.5% in the past six months.