Qualcomm (QCOM.O) released its third-quarter financial report for the fiscal year 2024 (ending in June 2024) after the US stock market on the morning of August 1, 2024, Beijing time, with the following key points:

1. Overall Performance: Revenue & Profit, Basically in Line with Expectations. Qualcomm achieved revenue of $9.393 billion in the third quarter of the 2024 fiscal year (24Q2), an 11.1% year-on-year increase, slightly better than market expectations ($9.21 billion). The company's revenue growth in this quarter was mainly driven by the growth of the smartphone and automotive businesses; the company achieved a net profit of $2.129 billion in this quarter, an 18.1% year-on-year increase, slightly lower than market expectations ($2.174 billion), with the year-on-year growth mainly driven by revenue.

2. Business Segments: Growth in Both Smartphone and Automotive Sectors. Smartphones are still the largest segment of the company's various businesses, accounting for over 60%. Although the smartphone business showed some year-on-year growth, it is still relatively low, mainly due to insufficient industry demand. The automotive business achieved a growth rate of 86.9% this quarter, but as it accounts for less than one-tenth, its impact on the company's performance is relatively small.

3. Qualcomm's Performance Guidance: $Qualcomm(QCOM.US) For the fourth quarter of the 2024 fiscal year (24Q3), the expected revenue is $9.5-10.3 billion (market expectation $9.7 billion) and adjusted earnings per share of $2.45 to $2.65 (market expectation $2.48).

Dolphin's View: Qualcomm's financial report this time is generally in line with expectations.

In terms of revenue and profit in this quarter, the company's performance basically met the guidance expectations, with year-on-year growth driven by the smartphone and automotive businesses. Considering the guidance provided by the company for the next quarter: For the fourth quarter of the 2024 fiscal year (24Q3), the expected revenue is $9.5-10.3 billion (market expectation $9.7 billion) and adjusted earnings per share of $2.45 to $2.65 (market expectation $2.48). Both revenue and profit are expected to rebound in the next quarter, but are close to market expectations.

Dolphin believes that with the release of new products in the second half of the year and the recovery of demand from customers such as smartphones, the company's performance will improve. However, based on the company's guidance, the overall recovery pace is basically in line with market expectations. Although markets like AI PCs can bring new increments to the company, the performance of the smartphone market directly affects the company's final performance as smartphones currently account for over 60% of the company.

After experiencing a stock price adjustment, the current PE ratio of the company has returned to below 20 times, placing it in a relatively neutral position. However, in order to further open up the upside potential, it still requires better-than-expected performance in the mobile phone or AI sectors.

Here is Dolphin's specific analysis of Qualcomm's financial report:

I. Overall Performance: Revenue & Profit, Basically Meeting Expectations

1.1 Revenue

In the third quarter of fiscal year 2024 (24Q2), Qualcomm achieved revenue of $9.393 billion, a year-on-year increase of 11.1%, slightly better than market expectations ($9.21 billion). The company's revenue growth accelerated this quarter, mainly driven by the smartphone and automotive businesses.

1.2 Gross Profit

In the third quarter of fiscal year 2024 (24Q2), Qualcomm achieved a gross profit of $5.219 billion, a year-on-year growth of 12%. The year-on-year growth rate of gross profit exceeded that of revenue, mainly due to the year-on-year increase in gross profit margin.

Qualcomm's gross profit margin in this quarter was 55.6%, up 0.5 percentage points year-on-year, in line with market expectations (55.6%). The company's gross profit margin remains relatively stable, staying above 55%, which also reflects the company's bargaining power in the industry chain. With the recovery of the smartphone market, the company's gross profit margin is expected to rise.

Qualcomm's inventory in the third quarter of fiscal year 2024 (24Q2) was $6.02 billion, a year-on-year decrease of 9.2%. Although the company's inventory situation continues to improve, the relatively high inventory still affects the recovery of the gross profit margin.

1.3 Operating Expenses

Qualcomm's operating expenses in the third quarter of fiscal year 2024 (24Q2) were $2.923 billion, a year-on-year increase of 2.9%, with both sales and R&D expenses showing varying degrees of growth.

Specifically, looking at the breakdown of expenses:

1) R&D Expenses: The company's R&D expenses this quarter were $2.259 billion, a year-on-year increase of 1.7%. As a technology company, R&D expenses remain the largest item of investment for the company, with little year-on-year change;

2) Sales and Administrative Expenses: The company's sales and administrative expenses this quarter were $664 million, a year-on-year increase of 7.4%, with sales expenses having a certain correlation with revenue

1.4 Net Profit

In the third quarter of fiscal year 2024 (24Q2), Qualcomm achieved a net profit of $2.129 billion, an 18.1% year-on-year increase, slightly below market expectations ($2.174 billion). The net profit margin for this quarter was 22.7%, maintaining profitability at the 20% level.

After excluding non-operating impacts such as investment income, the company's core operating net profit for this quarter showed a slight increase compared to the same period last year, mainly benefiting from the recovery in Android smartphone shipments, but the company's performance has not yet emerged from the bottom.

II. Business Segmentation: Growth in Both Mobile Phones and Automotive

Looking at Qualcomm's business segments, QCT (CDMA business) remained the company's largest source of revenue this quarter, accounting for 85.9%, mainly including chip semiconductor business; the remaining revenue mainly came from QTL (technology licensing) business, accounting for around 13.6%.

The QCT business is the most important part of the company, with specific details as follows:

2.1 Mobile Phone Business

Qualcomm's mobile phone business achieved revenue of $5.9 billion in the third quarter of fiscal year 2024 (24Q2), a 12.3% year-on-year increase. The growth in the quarter mainly came from the recovery in demand from Chinese Android manufacturers, but it remains relatively low.

Of the over $600 million year-on-year growth, it mainly includes a $443 million increase in chip shipments from OEM manufacturers and a $159 million increase in higher-tier Snapdragon products.

Looking at industry data, global smartphone shipments in the second quarter of 2024 reached 285 million units, a 7.6% year-on-year increase, with relatively stable growth. Although smartphone shipments have improved from the bottom, they still remain relatively low, staying below 300 million units. This is mainly due to the overall weak demand in the smartphone market.

The mobile phone business accounts for over 70% of the QCT business and has an impact of over 60% on Qualcomm's overall performance. In October this year, the company will showcase details of the next-generation Snapdragon 8 flagship mobile platform, the first platform to be supported by Qualcomm's OryonCPU, incorporating NPU AI functionality. Only when the mobile phone business significantly improves, can the company's performance see a substantial increase.

2.2 Automotive Business

Qualcomm's automotive business achieved revenue of USD 811 million in the third quarter of the 2024 fiscal year (24Q2), an 86.9% year-on-year increase. The automotive business is the fastest-growing segment among the company's main businesses, driven mainly by the increasing demand for new vehicles equipped with our Snapdragon digital cockpit products.

Although the company's automotive business continues to grow at a high rate, the current contribution of the automotive business to the company's total revenue is still less than 10%, with a relatively small impact on the overall performance of the company.

2.3 IoT Business

Qualcomm's IoT business achieved revenue of USD 1.359 billion in the third quarter of the 2024 fiscal year (24Q2), a decrease of 8.5% year-on-year. The decline in the IoT business has narrowed, but has not yet reversed. The current downturn in demand for consumer electronics products such as XR is the main factor contributing to the decline in the IoT business.

Qualcomm's IoT business mainly includes consumer electronics products, edge networking products, and industrial products. From the company's financial report, the Qualcomm Snapdragon X series platform that supports Copilot+ PCs is also listed in the IoT business. With the increasing demand for AI PCs, the IoT business is expected to return to growth.

Dolphin Research on Qualcomm

In-depth Analysis

December 20, 2022, "Qualcomm: Making Billions a Year, Is the Chip King Worth Only 10 Times PE?"

December 8, 2022, "Qualcomm (Part 1): The 'Big Boss' Behind Android Phones"

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February 1, 2024, Earnings Call "Phone Revenue, Will Experience Double-Digit Recovery (Qualcomm FY23Q4 Earnings Call)"

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