Qualcomm's (NASDAQ:QCOM) Q2 Sales Top Estimates But Quarterly Guidance Underwhelms

Kayode Omotosho /
2023/05/03 4:40 pm EDT

Wireless chipmaker Qualcomm (NASDAQ:QCOM) reported Q2 FY2023 results that beat analyst expectations, with revenue down 16.9% year on year to $9.28 billion. However, guidance for the next quarter was less impressive, coming in at $8.5 billion at the midpoint, being 6.85% below analyst estimates. Qualcomm made a GAAP profit of $1.7 billion, down on its profit of $2.93 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 FY2023 Highlights:

  • Revenue: $9.28 billion vs analyst estimates of $9.12 billion (1.7% beat)
  • EPS (non-GAAP): $2.15 vs analyst expectations of $2.16 (small miss)
  • Revenue guidance for Q3 2023 is $8.5 billion at the midpoint, below analyst estimates of $9.12 billion
  • Free cash flow was negative $486 million, down from positive free cash flow of $2.7 billion in previous quarter
  • Inventory Days Outstanding: 150, down from 156 previous quarter
  • Gross Margin (GAAP): 55.2%, down from 58.4% 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 26.2% annually. But as you can see below, last year quarterly revenue declined from $11.2 billion to $9.28 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

Despite Qualcomm revenues beating analyst estimates, this was still a slow quarter with a 16.9% revenue decline.

Qualcomm's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 22.3% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 0.5%.

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 150, 65 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Qualcomm's Q2 Results

Sporting a market capitalization of $129 billion, more than $6.68 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.

A highlight was Qualcomm’s improvement of their inventory levels this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was less good to see that the revenue growth was quite weak and both revenue and EPS guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 2.07% on the results and currently trades at $110.39 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.