After smashing second-quarter sales and profit predictions on Wednesday, Qualcomm Inc (QCOM.O) estimated third-quarter revenue above analyst expectations, owing to its decision to focus on a growing non-handset sector to offset a potential impact from slowing smartphone demand.

Qualcomm shares rose roughly 5% in after-hours trading on the company’s strong earnings outlook and record quarterly sales for the previous quarter.

Consumers have been harmed by China’s lockdowns, Ukraine’s war, and growing prices, which have prevented them from spending on electronic devices such as phones. Qualcomm, on the other hand, has remained unaffected thus far.

“The market in China is changing a bit. I think we’re kind of less impacted by it because we’re really focused on the premium and high-tier” smartphone market, Chief Executive Officer Cristiano Amon .

Smartphone companies will want to focus on selling more profitable high-end phones as the supply chain constraints manufacturing, while consumers will want to buy inexpensive phones as inflation and uncertainty hold them back from purchasing, according to Runar Bjrhovde, an analyst at research company Canalys.

Read This:-Elon Musk bought Twitter for $44 billion.

The “sweet spot,” according to him, will be in the mid-range ($300-$800) smartphones, where Qualcomm has a stronghold and solid connections with the OEMs who dominate this market segment.

Qualcomm’s good results, along with Meta Platforms’ (FB.O) unexpected profit beat, lifted Apple Inc.’s (AAPL.O) shares up nearly 1% in after-hours trade, giving investors hope for a strong showing when the iPhone maker reports earnings on Thursday.

“These (Qualcomm) results lay the groundwork to make a strong case that the smartphone business is still strong after the traditionally strong holiday quarter,” said Dan Morgan, senior portfolio manager at Synovus Trust Company, who added that Qualcomm makes modem solutions for Apple accounts for 25% of its sales.

Apple, on the other hand, is developing its own processors to replace Qualcomm’s. Qualcomm, according to analysts, is prepared for the inevitable.

“Qualcomm is certainly relying on the Android market, leaning into it heavily as they anticipate losing Apple’s business for its modem chips. Within Android, Samsung is the clear leader in premium handsets, and will likely be an important customer for Qualcomm in the future,” said Logan Purk, an analyst at Edward Jones.

Amon stated at the company’s earnings conference that the “relationship with Samsung will only grow,” noting that Qualcomm processors made up around 75 percent of the high-end CPUs in the current Samsung Galaxy S22 smartphone, up from roughly 40 percent in Samsung’s previous phone and replacing Samsung chips.

Qualcomm has been diversifying its income sources, including catering to other areas such as automotive, in order to minimize its reliance on cellphones.

Qualcomm’s automotive business pipeline, for example, has grown to $16 billion from $13 billion late last year, owing in part to a new agreement with manufacturer Stellantis, according to Amon.

During the second quarter, sales from chips for automotive and internet-connected devices increased by 41% and 61%, respectively, while revenue from its mainstay mobile business increased by 56%, aided by the new Snapdragon introduction.

Qualcomm is also open to investing in an IPO by Arm Ltd, which creates blueprints that chipmakers, including Qualcomm, use to manufacture processors, according to Amon. The British chip technology business is owned by SoftBank Group Corp (9984.T).

According to IBES statistics from Refinitiv, Qualcomm expects current-quarter sales to range between $10.5 billion and $11.3 billion, compared to analyst projections of $9.98 billion.

The company’s adjusted revenue for the quarter ended March 27 was $11.16 billion, which was higher than analysts’ expectations of $10.6 billion.

Qualcomm made $3.21 per share excluding items, topping projections of $2.91.

Take a second to support EPOST DESK on Patreon!

LEAVE A REPLY

Please enter your comment!
Please enter your name here