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Qualcomm (QCOM) Beats on Q4 Earnings Despite Lower Revenues
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Qualcomm Incorporated (QCOM - Free Report) reported relatively soft fourth-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.
Although the bottom and top line beat the respective Zacks Consensus Estimate, both metrics declined year over year despite the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. However, shares were up post-earnings release owing to a bullish outlook due to early signs of market stabilization and recovery in demand.
Net Income
On a GAAP basis, net income in the September quarter declined to $1,489 million or $1.32 per share from $2,873 million or $2.54 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 $2,277 million or $2.02 per share compared with $3,548 million or $3.13 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 10 cents.
QUALCOMM Incorporated Price, Consensus and EPS Surprise
On a GAAP basis, total revenues in the fiscal fourth quarter were $8,631 million compared with $11,396 million in the prior-year quarter. The quarterly revenues beat the consensus mark of $8,550 million. Despite solid automotive revenues, the top line decreased on soft industrial IoT demand patterns and elevated inventory levels within the handset business 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 the Snapdragon portfolio within the automotive sector. Non-GAAP revenues in the reported quarter were $8,665 million compared with $11,387 million in the year-earlier quarter.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 26% year over year to $7,374 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 exceeded our revenue estimates of $7,231.7 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 15% to $535 million, while handset and IoT revenues were down 27% and 31%, respectively, to $5,456 million and $1,383 million. This was the 12th consecutive quarter in which Qualcomm recorded double-digit growth in automotive revenues. EBT margin for the QCT segment decreased to 26% from 34%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,262 million, down 12% year over year due to lower licensing revenues. The segment’s revenues missed our estimates of $1,269.3 million. EBT margin declined to 66% from 69%.
Cash Flow & Liquidity
Qualcomm generated $4,090 million of net cash from operating activities in the fiscal fourth quarter compared with $1,446 million a year ago, bringing the respective tallies for fiscal 2023 and fiscal 2022 to $11,299 million and $9,096 million.
At fiscal 2023-end, the company had $8,450 million in cash and cash equivalents and $14,484 million of long-term debt compared with respective tallies of $2,773 million and $13,537 million in fiscal 2022. The company repurchased 4 million shares for $400 million during the quarter.
Q1 Guidance
For the first quarter of fiscal 2024, Qualcomm expects GAAP revenues of $9.1-$9.9 billion due to early signs of market stabilization, recovery in market demand with the upcoming holiday season and portfolio strength. Non-GAAP earnings are projected to be $2.25-$2.45 per share, while GAAP earnings are likely to be $1.82-$2.02 per share. Revenues from QTL are expected to be between $1.3 billion and $1.5 billion. For QCT, the company anticipates revenues between $7.7 billion and $8.3 billion.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from 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 18.7% and delivered an earnings surprise of 12%, 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.
Bandwidth Inc. (BAND - Free Report) , carrying a Zacks Rank #2, is another key pick from the broader industry. It delivered an earnings surprise of 372.9%, on average, in the trailing four quarters.
Headquartered in Raleigh, NC, Bandwidth operates as a Communications Platform-as-a-Service provider, offering avant-garde software application programming interfaces for voice and messaging services. It is the only application programming interface platform provider that owns a Tier 1 network with enhanced network capacity, primarily catering to business enterprises.
United States Cellular Corporation (USM - Free Report) , carrying a Zacks Rank #2, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.
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Qualcomm (QCOM) Beats on Q4 Earnings Despite Lower Revenues
Qualcomm Incorporated (QCOM - Free Report) reported relatively soft fourth-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.
Although the bottom and top line beat the respective Zacks Consensus Estimate, both metrics declined year over year despite the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario. However, shares were up post-earnings release owing to a bullish outlook due to early signs of market stabilization and recovery in demand.
Net Income
On a GAAP basis, net income in the September quarter declined to $1,489 million or $1.32 per share from $2,873 million or $2.54 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 $2,277 million or $2.02 per share compared with $3,548 million or $3.13 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 10 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 fourth quarter were $8,631 million compared with $11,396 million in the prior-year quarter. The quarterly revenues beat the consensus mark of $8,550 million. Despite solid automotive revenues, the top line decreased on soft industrial IoT demand patterns and elevated inventory levels within the handset business 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 the Snapdragon portfolio within the automotive sector. Non-GAAP revenues in the reported quarter were $8,665 million compared with $11,387 million in the year-earlier quarter.
Segment Results
Quarterly revenues from Qualcomm CDMA Technologies (QCT) declined 26% year over year to $7,374 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 exceeded our revenue estimates of $7,231.7 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 15% to $535 million, while handset and IoT revenues were down 27% and 31%, respectively, to $5,456 million and $1,383 million. This was the 12th consecutive quarter in which Qualcomm recorded double-digit growth in automotive revenues. EBT margin for the QCT segment decreased to 26% from 34%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,262 million, down 12% year over year due to lower licensing revenues. The segment’s revenues missed our estimates of $1,269.3 million. EBT margin declined to 66% from 69%.
Cash Flow & Liquidity
Qualcomm generated $4,090 million of net cash from operating activities in the fiscal fourth quarter compared with $1,446 million a year ago, bringing the respective tallies for fiscal 2023 and fiscal 2022 to $11,299 million and $9,096 million.
At fiscal 2023-end, the company had $8,450 million in cash and cash equivalents and $14,484 million of long-term debt compared with respective tallies of $2,773 million and $13,537 million in fiscal 2022. The company repurchased 4 million shares for $400 million during the quarter.
Q1 Guidance
For the first quarter of fiscal 2024, Qualcomm expects GAAP revenues of $9.1-$9.9 billion due to early signs of market stabilization, recovery in market demand with the upcoming holiday season and portfolio strength. Non-GAAP earnings are projected to be $2.25-$2.45 per share, while GAAP earnings are likely to be $1.82-$2.02 per share. Revenues from QTL are expected to be between $1.3 billion and $1.5 billion. For QCT, the company anticipates revenues between $7.7 billion and $8.3 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 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 18.7% and delivered an earnings surprise of 12%, 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.
Bandwidth Inc. (BAND - Free Report) , carrying a Zacks Rank #2, is another key pick from the broader industry. It delivered an earnings surprise of 372.9%, on average, in the trailing four quarters.
Headquartered in Raleigh, NC, Bandwidth operates as a Communications Platform-as-a-Service provider, offering avant-garde software application programming interfaces for voice and messaging services. It is the only application programming interface platform provider that owns a Tier 1 network with enhanced network capacity, primarily catering to business enterprises.
United States Cellular Corporation (USM - Free Report) , carrying a Zacks Rank #2, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.