Fueled by robust growth in its Automotive business and solid sales in its core handset business, Qualcomm (QCOM, Financial) surpassed Q3 EPS and revenue estimates. The company provided a strong Q4 outlook, with its forecast for EPS and revenue both exceeding expectations at the midpoint of guidance ranges. Despite this, the stock has dropped sharply, extending a 27% decline since mid-June.
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Initially, the stock surged after QCOM's results and guidance were released. Key highlights include:
- Automotive revenue soaring by 87% year-over-year to $811 million.
- Handset revenue climbing by 12% to $5.9 billion.
- Increasing adoption and design wins for QCOM's Snapdragon Chassis, including more than ten in Q3.
- The emergence of AI-powered smartphones boosting the Handset business.
However, the initial positive sentiment faded during the earnings call, and the stock reversed course.
- QCOM provided a muted outlook for the handset market this year, indicating a sluggish recovery. CEO Cristiano Amon stated that global handset units are expected to be flat to slightly up year-over-year, reaffirming QCOM's Q2 forecast.
- Another factor dragging the shares down was Mr. Amon's disclosure that the license to export products to China-based Huawei was revoked on May 7, earlier than its expected expiration in late CY24. This will impact QCOM's revenue in Q4 and 1Q25, as incorporated in its guidance.
The main takeaway is that the anticipated AI-based growth catalyst for QCOM isn't materializing as quickly or powerfully as investors hoped. Currently, AI smartphones account for less than a quarter of the total market, and the non-AI smartphone market remains stagnant, as shown by QCOM's FY24 handset growth outlook. While the rapidly expanding Automotive business and new AI smartphones will eventually drive significant growth, this catalyst will take time to fully materialize.
