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Qualcomm Incorporated (QCOM - Free Report) reported soft third-quarter fiscal 2023 results owing to a challenging macroeconomic environment, inflationary pressures and soft recovery in China, resulting in lower-than-expected demand and elevated inventory levels. While the bottom line beat the Zacks Consensus Estimate, the top 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 relatively grim outlook due to limited market visibility and high channel inventory levels.
Net Income
On a GAAP basis, net income in the June quarter declined to $1,803 million or $1.60 per share from $3,730 million or $3.29 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 $2,105 million or $1.87 per share compared with $3,356 million or $2.96 per share in the year-ago quarter due to lower-than-expected revenues owing to soft demand trends. The bottom line beat the Zacks Consensus Estimate by 6 cents.
QUALCOMM Incorporated Price, Consensus and EPS Surprise
On a GAAP basis, total revenues in the fiscal third quarter were $8,451 million compared with $10,936 million in the prior-year quarter. The quarterly revenues missed the consensus mark of $8,513 million. 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 $8,442 million compared with $10,928 million in the year-earlier quarter.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 24% year over year to $7,174 million, as strength in the automotive platform was more than offset by lower demand in handsets and channel inventory drawdown within the IoT business. The segment’s revenues fell short of our revenue estimates of $7,263.2 million. 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 13% to $434 million, while handset and IoT revenues were down 25% and 24%, respectively, to $5,255 million and $1,480 million. This was the 11th consecutive quarter in which Qualcomm recorded double-digit growth in automotive revenues. EBT margin for the QCT segment decreased to 24% from 32%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,230 million, down 19% year over year due to lower licensing revenues. The segment’s revenues exceeded our estimates of $1,210.6 million. EBT margin declined to 66% from 71%.
Cash Flow & Liquidity
Qualcomm generated $2,657 million of net cash from operating activities in the fiscal third quarter compared with $2,895 million a year ago, bringing the respective tallies for the first nine months of fiscal 2023 and fiscal 2022 to $7,209 million and $7,650 million. At quarter-end, the company had $6,087 million in cash and cash equivalents and $14,530 million of long-term debt. The company repurchased 4 million shares for $400 million during the quarter.
Q4 Guidance
For the fourth 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 $1.80-$2.00 per share, while GAAP earnings are likely to be $1.37-$1.57 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.
InterDigital, Inc. (IDCC - Free Report) , sporting a Zacks Rank #1, delivered an earnings surprise of 170.89%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 579.03%. It has a long-term earnings growth expectation of 13.9%.
It is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular and wireless 3G, 4G and IEEE 802-related products and networks.
Akamai Technologies, Inc. (AKAM - Free Report) , carrying a Zacks Rank #2 (Buy), delivered an earnings surprise of 4.9%, on average, in the trailing four quarters. It has a long-term earnings growth expectation of 10%.
Akamai is a global provider of content delivery network and cloud infrastructure services. The company’s solutions accelerate and improve the delivery of content over the Internet, enabling faster response to requests for web pages, streaming of video & audio, business applications, etc. Akamai’s offerings are intended to reduce the impact of traffic congestion, bandwidth constraints and capacity limitations on customers.
Motorola Solutions, Inc. (MSI - Free Report) carries a Zacks Rank #2. It has a long-term earnings growth expectation of 9% and delivered an earnings surprise of 6.9%, 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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Qualcomm (QCOM) Q3 Earnings Beat Estimates, Revenues Falter
Qualcomm Incorporated (QCOM - Free Report) reported soft third-quarter fiscal 2023 results owing to a challenging macroeconomic environment, inflationary pressures and soft recovery in China, resulting in lower-than-expected demand and elevated inventory levels. While the bottom line beat the Zacks Consensus Estimate, the top 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 relatively grim outlook due to limited market visibility and high channel inventory levels.
Net Income
On a GAAP basis, net income in the June quarter declined to $1,803 million or $1.60 per share from $3,730 million or $3.29 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 $2,105 million or $1.87 per share compared with $3,356 million or $2.96 per share in the year-ago quarter due to lower-than-expected revenues owing to soft demand trends. The bottom line beat the Zacks Consensus Estimate by 6 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 third quarter were $8,451 million compared with $10,936 million in the prior-year quarter. The quarterly revenues missed the consensus mark of $8,513 million. 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 $8,442 million compared with $10,928 million in the year-earlier quarter.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 24% year over year to $7,174 million, as strength in the automotive platform was more than offset by lower demand in handsets and channel inventory drawdown within the IoT business. The segment’s revenues fell short of our revenue estimates of $7,263.2 million. 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 13% to $434 million, while handset and IoT revenues were down 25% and 24%, respectively, to $5,255 million and $1,480 million. This was the 11th consecutive quarter in which Qualcomm recorded double-digit growth in automotive revenues. EBT margin for the QCT segment decreased to 24% from 32%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,230 million, down 19% year over year due to lower licensing revenues. The segment’s revenues exceeded our estimates of $1,210.6 million. EBT margin declined to 66% from 71%.
Cash Flow & Liquidity
Qualcomm generated $2,657 million of net cash from operating activities in the fiscal third quarter compared with $2,895 million a year ago, bringing the respective tallies for the first nine months of fiscal 2023 and fiscal 2022 to $7,209 million and $7,650 million. At quarter-end, the company had $6,087 million in cash and cash equivalents and $14,530 million of long-term debt. The company repurchased 4 million shares for $400 million during the quarter.
Q4 Guidance
For the fourth 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 $1.80-$2.00 per share, while GAAP earnings are likely to be $1.37-$1.57 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.
InterDigital, Inc. (IDCC - Free Report) , sporting a Zacks Rank #1, delivered an earnings surprise of 170.89%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 579.03%. It has a long-term earnings growth expectation of 13.9%.
It is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular and wireless 3G, 4G and IEEE 802-related products and networks.
Akamai Technologies, Inc. (AKAM - Free Report) , carrying a Zacks Rank #2 (Buy), delivered an earnings surprise of 4.9%, on average, in the trailing four quarters. It has a long-term earnings growth expectation of 10%.
Akamai is a global provider of content delivery network and cloud infrastructure services. The company’s solutions accelerate and improve the delivery of content over the Internet, enabling faster response to requests for web pages, streaming of video & audio, business applications, etc. Akamai’s offerings are intended to reduce the impact of traffic congestion, bandwidth constraints and capacity limitations on customers.
Motorola Solutions, Inc. (MSI - Free Report) carries a Zacks Rank #2. It has a long-term earnings growth expectation of 9% and delivered an earnings surprise of 6.9%, 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.