Qualcomm's (NASDAQ:QCOM) Q1 Sales Top Estimates But Stock Drops

Kayode Omotosho /
2022/02/02 4:18 pm EST
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Wireless chipmaker Qualcomm (NASDAQ:QCOM) beat analyst expectations in Q1 FY2022 quarter, with revenue up 29.9% year on year to $10.7 billion. Guidance for next quarter's revenue was $10.6 billion at the midpoint, 11.1% above the average of analyst estimates. Qualcomm made a GAAP profit of $3.39 billion, improving on its profit of $2.45 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 FY2022 Highlights:

  • Revenue: $10.7 billion vs analyst estimates of $10.4 billion (2.59% beat)
  • EPS (non-GAAP): $3.23 vs analyst estimates of $3 (7.59% beat)
  • Revenue guidance for Q2 2022 is $10.6 billion at the midpoint, above analyst estimates of $9.54 billion
  • Free cash flow of $1.47 billion, up 127% from previous quarter
  • Inventory Days Outstanding: 82, up from 75 previous quarter
  • Gross Margin (GAAP): 59.8%, up from 57.6% 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 25.5% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $8.23 billion to $10.7 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 good quarter for Qualcomm as revenues grew 29.9%, topping analyst estimates by 2.59%. This marks 6 straight quarters of revenue growth, implying we are mid-cycle for Qualcomm, as a typical upcycle tends to last 8-10 quarters.

Qualcomm believes the growth is set to accelerate, and is guiding for revenue to grow 33.5% YoY next quarter, and Wall St analysts are estimating growth 13.3% 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 82, 8 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 $198 billion, more than $11.3 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 the very optimistic revenue guidance Qualcomm provided for the next quarter. And we were also excited to see that earnings outperformed Wall St’s 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. But investors might have been expecting more and the company is down 8.14% on the results and currently trades at $172.9 per share.

Should you invest in Qualcomm 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.