Qualcomm rides 5G demand to near record financial results

With the return of Apple as a customer and the momentum behind 5G smartphones, Qualcomm was expected to report big revenue and earnings numbers for the quarter ended Dec. 31.

The San Diego company did just that on Wednesday, especially on the profit front.

Fiscal second quarter revenue hit $8.235 billion, up 62 percent from the same quarter last year and the second highest on record under Generally Accepted Accounting Principles.

Qualcomm earned $2.455 billion, or $2.12 per share, for the quarter under GAAP — a 165 percent gain over the prior year.

Adjusted earnings, which exclude certain charges, came in at $2.17 per share, ahead of Wall Street analysts’ consensus estimate of $2.06.

Still, the company’s shares tumbled 6.7 percent in after-hours trading, perhaps because revenue was slightly below the $8.27 billion estimated by Wall Street analysts.

Qualcomm supplies processors and technology to smartphones and other connected devices. It could have sold more, said President Cristiano Amon. But it was held back a bit because of supply constraints at the world’s chip-making factories, which are being swamped with orders.

“There are shortages across the entire industry,” said Amon, who will take over as chief executive officer next month. “There are a couple of things driving that – a V-shaped recovery across many sectors, the acceleration of the digital transformation, and especially for Qualcomm, we have seen opportunity with the expansion of our addressable market.”

5G and Apple were a big part of the quarter’s gains. Qualcomm has returned to supplying baseband chips to iPhones last year after the companies ended a two-year legal dispute. Apple’s strong results last week highlight the traction for its devices over the Christmas quarter.

That translated to iPhone component suppliers such as Qualcomm. Its chip division’s revenue grew 81 percent year over year to $6.53 billion.

But gains came not only from 5G smartphones but also from Internet of Things, automotive and other adjacent industries that are adopting wireless connectivity — a key piece of Qualcomm’s growth strategy beyond handsets.

“To show growth in Radio Frequency Front End, growth in Internet of Things, growth in automotive, those are all very good signs,” said Jim McGregor, principal analysts with Tirias Research, a tech industry consulting firm.

With 5G, Qualcomm expanded its portfolio of processors to include RF Front chips — the filters, switches, amplifiers and other semiconductors near the smartphone antenna that help manipulate wireless signals.

RF Front End sales generated $1 billion in the quarter, up from $413 million during the same quarter last year.

“In just a few years we have emerged as one of the largest RF supplies in the smartphone ecosystem,” said Chief Executive Steve Mollenkopf, “with a long-term roadmap supporting 4G and 5G sub-6 bands as well as millimeter bands, allowing us to expand our RF leadership.”

Qualcomm also posted $1 billion in revenue from non-smartphone, Internet of Things devices, such as Wi-Fi network gear, virtual reality headsets and other connected gadgets.

Looking ahead, Qualcomm expects 5G smartphones sales will surge 450 million to 550 million this year, up from 225 million in 2020.

Qualcomm also could benefit from Huawei move to spin off its smartphone division amid U.S. trade sanctions. Qualcomm didn’t supply many chips to Huawei, which has 16 percent of overall smartphone sales, in the past. But the spin-off of the Honor brand could open the door for its competitors, which are Qualcomm customers, to gain market share.;

Looking ahead, Qualcomm expects a seasonal slowdown in the current quarter. It forecast sales of $7.2 billion to $8 billion and adjusted earnings of $1.55 to $1.75 per share.

Wall Street analysts forecast March quarter sales of $7.07 billion and adjusted earnings of $1.56 per share.

Qualcomm released results Wednesday after markets closed. The stock ended trading at $162.30 but fell to $151.40 in after-hours trading.