Qualcomm (NASDAQ:QCOM) Posts Better-Than-Expected Sales In Q1, Inventory Levels Improve

Petr Huřťák /
2024/01/31 4:08 pm EST

Wireless chipmaker Qualcomm (NASDAQ:QCOM) reported Q1 FY2024 results beating Wall Street analysts' expectations, with revenue up 5.1% year on year to $9.94 billion. The company expects next quarter's revenue to be around $9.3 billion, in line with analysts' estimates. It made a non-GAAP profit of $2.75 per share, improving from its profit of $2.37 per share in the same quarter last year.

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Qualcomm (QCOM) Q1 FY2024 Highlights:

  • Market Capitalization: $163 billion
  • Revenue: $9.94 billion vs analyst estimates of $9.52 billion (4.4% beat)
  • EPS (non-GAAP): $2.75 vs analyst estimates of $2.37 (16.1% beat)
  • Revenue Guidance for Q2 2024 is $9.3 billion at the midpoint, roughly in line with what analysts were expecting
  • EPS (non-GAAP) Guidance for Q2 2024 is $2.30 per share at the midpoint, above analysts' expectations of $2.24 per share
  • Free Cash Flow was -$230 million, down from $3.80 billion in the previous quarter
  • Inventory Days Outstanding: 132, down from 160 in the previous quarter
  • Gross Margin (GAAP): 56.6%, down from 57.2% in the 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.

Processors and Graphics Chips

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 solid, averaging 18.2% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $9.46 billion in the same quarter last year to $9.94 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

While Qualcomm beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 5.1% year on year. Qualcomm's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.

Qualcomm returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 0.3% year-on-year growth next quarter, and analysts seem to agree, forecasting 7.2% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 132, which is 33 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Qualcomm's Q1 Results

We were impressed by Qualcomm's strong improvement in inventory levels. We were also excited its EPS outperformed Wall Street's estimates. While next quarter's revenue guidance was roughly in line, EPS guidance was above. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is up 2.5% after reporting and currently trades at $152.17 per share.

So should you invest in Qualcomm right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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