A month has gone by since the last earnings report for Qualcomm (QCOM). Shares have lost about 9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Qualcomm due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Qualcomm Beats Q2 Earnings Estimates on Record Revenues
Qualcomm reported solid second-quarter fiscal 2022 results with record revenues, driven by the ramp-up in 5G-enabled chips and a surge in demand for essential products and services that are the building blocks for digital transformation in the cloud economy. Both the bottom line and the top line increased year over year and surpassed the respective Zacks Consensus Estimate, backed by the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario.
On a GAAP basis, net income in the March quarter improved to $2,934 million or $2.57 per share from $1,762 million or $1.53 per share in the prior-year quarter. The increase in GAAP earnings was primarily attributable to top-line growth.
Quarterly non-GAAP net income came in at $3,661 million or $3.21 per share compared with $2,185 million or $1.90 per share in the year-ago quarter. The non-GAAP earnings per share were largely driven by higher revenues across the board. The bottom line exceeded management’s guidance and beat the Zacks Consensus Estimate by 30 cents.
On a GAAP basis, total revenues in the fiscal second quarter were $11,164 million compared with $7,935 million in the prior-year quarter. The increase in revenues was driven by 5G ramp-up, chip design win momentum, RF front-end demand and a rise in consumer electronics revenues with diligent execution of operational plans and resilient business culture acting as catalysts. In addition, Qualcomm witnessed strong momentum in IoT across consumer, edge networking and industrial sectors, along with strength in Snapdragon portfolio within the automotive sector. The GAAP revenues in the quarter exceeded the company’s guided range.
Non-GAAP revenues in the reported quarter were $11,158 million compared with $7,925 million in the year-earlier quarter. The figure beat the consensus mark of $10,579 million, driven by 5G strength, high-performing core chipsets and new RF front-end content.
Quarterly revenues from Qualcomm CDMA Technologies (QCT) improved 52% year over year to $9,548 million, driven by strength in handsets and higher demand in adjacent platforms beyond mobile (RF front-end, automotive and IoT). The company is witnessing healthy traction in EDGE networking that helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets. The Wi-Fi 6 immersive home platforms continue to gain momentum. The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are also fueling emerging automotive industry trends such as the growth in connected vehicles, the transformation of the in-car experience and vehicle electrification. The Snapdragon digital chassis is an open and scalable cloud-enabled platform for telematics, connectivity, digital cockpit and Advanced Driver Assistance Systems (ADAS) that uniquely positions Qualcomm as the leading system solution provider for silicon, software, systems and services across multiple domains. RF front-end revenues of $1,160 million increased 28% year over year with solid demand for a fifth-generation modem-RF system that boasts advanced features such as AI integration, millimeter-wave and 5G connectivity. Handset revenues were up 56% to $6,325 million with continued traction from leading smartphone OEMs such as Samsung, Xiaomi, Oppo, Vivo and Honor, and increased adoption of Snapdragon mobile technology platform for premium and high-tier Android. Automotive and IoT revenues rose 41% and 61%, respectively, to $339 million and $1,724 million. EBT margin increased to 35% from 25%.
Qualcomm Technology Licensing (QTL) revenues totaled $1,580 million, down 2% year over year due to a decline in revenues from lower-tier units. The company expects a healthy revenue stream from this segment with more than 150 5G license agreements. EBT margin decreased marginally to 73%.
Cash Flow & Liquidity
Qualcomm generated $2,698 million of net cash from operating activities in second-quarter fiscal 2022 compared with $2,911 million a year ago, bringing the respective tallies for the first six months of the fiscal to $4,755 million and $6,086 million. At the quarter-end, the company had $7,173 million in cash and cash equivalents and $12,195 million of long-term debt. The company repurchased 6 million shares for $951 million during the quarter.
For the third quarter of fiscal 2022, Qualcomm expects GAAP revenues of $10.5-$11.3 billion. Non-GAAP earnings are projected to be $2.75-$2.95 per share, while GAAP earnings are likely to be $2.35-$2.55 per share. Revenues from QTL are expected to be between $1.4 billion and $1.6 billion. For QCT, the company anticipates revenues between $9.1 billion and $9.6 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 9.03% due to these changes.
Currently, Qualcomm has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Qualcomm has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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