No Surprises In Qualcomm's (NASDAQ:QCOM) Q3 Sales Numbers But Quarterly Guidance Underwhelms

Adam Hejl /
2022/07/27 4:19 pm EDT

Wireless chipmaker Qualcomm (NASDAQ:QCOM) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 35.6% year on year to $10.9 billion. However, guidance for the next quarter was less impressive, coming in at $11.4 billion at the midpoint, being 3.85% below analyst estimates. Qualcomm made a GAAP profit of $3.73 billion, improving on its profit of $2.02 billion, in the same quarter last year.

Is now the time to buy Qualcomm? Access our full analysis of the earnings results here, it's free.

Qualcomm (QCOM) Q3 FY2022 Highlights:

  • Revenue: $10.9 billion vs analyst estimates of $10.8 billion (small beat)
  • EPS (non-GAAP): $2.96 vs analyst estimates of $2.87 (3.11% beat)
  • Revenue guidance for Q4 2022 is $11.4 billion at the midpoint, below analyst estimates of $11.8 billion
  • Free cash flow of $2.34 billion, roughly flat from previous quarter
  • Inventory Days Outstanding: 102, up from 89 previous quarter
  • Gross Margin (GAAP): 55.9%, down from 57.7% same quarter last year

Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM), is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Qualcomm's revenue growth over the last three years has been strong, averaging 26.1% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $8.06 billion to $10.9 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Qualcomm Total Revenue

This was a strong quarter for Qualcomm as revenues grew 35.6%, topping analyst estimates by 0.77%. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, Qualcomm believes the growth is set to continue, and is guiding for revenue to grow 22.1% YoY next quarter, and Wall St analysts are estimating growth 13.4% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Qualcomm Inventory Days Outstanding

This quarter, Qualcomm’s inventory days came in at 102, 28 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Qualcomm's Q3 Results

With a market capitalization of $167 billion, more than $6.84 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed seeing Qualcomm’s impressive revenue growth this quarter. And we were also glad to see that earnings outperformed analysts' expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, this quarter's results were not the best we've seen from Qualcomm. The company is down 2.91% on the results and currently trades at $148.7 per share.

Qualcomm may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.