Qualcomm (NASDAQ:QCOM) Q2: Strong Sales, Provides Optimistic Guidance For Next Quarter

Adam Hejl /
2022/04/27 4:11 pm EDT
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Wireless chipmaker Qualcomm (NASDAQ:QCOM) reported Q2 FY2022 results that beat analyst expectations, with revenue up 40.6% year on year to $11.1 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $10.9 billion at the midpoint, 9.07% above what analysts were expecting. Qualcomm made a GAAP profit of $2.93 billion, improving on its profit of $1.76 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) Q2 FY2022 Highlights:

  • Revenue: $11.1 billion vs analyst estimates of $10.5 billion (5.32% beat)
  • EPS (non-GAAP): $3.21 vs analyst estimates of $2.92 (10% beat)
  • Revenue guidance for Q3 2022 is $10.9 billion at the midpoint, above analyst estimates of $9.99 billion
  • Free cash flow of $2.2 billion, up 49.7% from previous quarter
  • Inventory Days Outstanding: 89, up from 82 previous quarter
  • Gross Margin (GAAP): 58.3%, up from 56.7% 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 29.2% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $7.93 billion to $11.1 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 40.6%, topping analyst estimates by 5.32%. This marks 7 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 35.2% YoY next quarter, and Wall St analysts are estimating growth 13% over the next twelve months.

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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 89, 16 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 Q2 Results

With a market capitalization of $150 billion, more than $11.5 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 were impressed by how strongly Qualcomm outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the inventory levels increase. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 4.32% on the results and currently trades at $141 per share.

Qualcomm may have had a good quarter, so should you 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.