Qualcomm (NASDAQ:QCOM) Reports Weak Q1

Anthony Lee /
2023/02/02 4:11 pm EST

Wireless chipmaker Qualcomm (NASDAQ:QCOM) fell short of analyst expectations in Q1 FY2023 quarter, with revenue down 11.6% year on year to $9.46 billion. Qualcomm made a GAAP profit of $1.99 million, down on its profit of $3.39 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) Q1 FY2023 Highlights:

  • Revenue: $9.46 billion vs analyst estimates of $9.57 billion (1.14% miss)
  • EPS (non-GAAP): $3.23 vs analyst estimates of $2.35 (37.2% beat)
  • Revenue guidance for Q2 2023 is $9.1 billion at the midpoint, below analyst estimates of $9.41 billion
  • Free cash flow was negative $426 million, down from positive free cash flow of $812 million in previous quarter
  • Inventory Days Outstanding: 156, up from 119 previous quarter
  • Gross Margin (GAAP): 57.2%, down from 59.8% 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 28% annually. But as you can see below, last year quarterly revenue declined from $10.7 billion to $9.46 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 difficult quarter for Qualcomm, with revenue declining 11.6%, missing analyst estimates by 1.14%. Qualcomm's revenue is continuing to decline, signal that the current downcycle is deepening.

Revenue growth went from positive to negative this quarter, and Qualcomm expects it to stay negative next quarter with an estimated decline of 18.4% YoY and analysts think the declines will continue, with next twelve months estimated at 1.22% declines.

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 156, 74 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 Q1 Results

Sporting a market capitalization of $155 billion, more than $8.23 billion in cash and with positive free cash flow over the last twelve months, we're confident that Qualcomm has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly Qualcomm outperformed analysts’ earnings expectations this quarter. And we were also glad to see the improvement in operating margin. On the other hand, it was less good to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is up 2.99% on the results and currently trades at $140 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.