Qualcomm, a leading player in the mobile chip market, posted better-than-expected strong earnings. Although both revenue and net profit continued to decline compared to a year ago, they exceeded Wall Street estimates. It is being evaluated that the smartphone chip sector, which accounts for more than half of the revenue, has begun to enter a recovery phase.
On the 1st (local time), Qualcomm announced in its earnings report that its revenue for the third quarter of this year (the company's own fourth quarter) reached $8.67 billion (approximately 11.74 trillion KRW). This represents a 24% decrease compared to the same period last year but is higher than the market expectation of $8.51 billion. Net profit for the same period was $1.49 billion, down 48% year-over-year. Adjusted earnings per share were $2.02, also exceeding the market estimate of $1.91.
Qualcomm is an application processor (AP) company that acts as the brain of smartphones. Qualcomm’s APs are used in major smartphones such as Samsung Electronics and Xiaomi. Due to the economic recession, consumers have extended their smartphone replacement cycles, and it took longer than expected to deplete the excess supply from the COVID-19 pandemic boom, leading to a sluggish smartphone market and a direct hit to Qualcomm’s performance.
However, signs of a rebound in the market began to appear in the third quarter of this year. According to market research firm IDC, global smartphone shipments in the third quarter reached about 300 million units, showing a stagnant level compared to the same period last year and performing relatively well. In the second quarter, the global smartphone market had shrunk by 7.9%, marking nine consecutive quarters of decline.
Akash Palkhiwala, Qualcomm’s Chief Financial Officer (CFO), said during the conference call after the earnings announcement, "Early signs of stabilization in demand for global 3G, 4G, and 5G phones are being observed," adding, "We expect the overall mobile chip shipment decline this year to narrow to single digits."
The outlook for the upcoming fourth quarter is also positive. Qualcomm set its revenue target for the fourth quarter at $9.1 billion to $9.9 billion. The midpoint of this range is $9.5 billion, which exceeds the market expectation of $9.2 billion. The Wall Street Journal (WSJ) forecasted, "In addition, the contract to supply 5G (fifth-generation mobile communication) chips with Apple for the next three years starting in the latter half of next year will also act as a positive factor for earnings."
The cost-saving effects from restructuring are also becoming visible. Qualcomm recently conducted workforce restructuring to improve its business conditions and financial structure amid the downturn. Qualcomm stated, "We succeeded in reducing operating expenses by 7% more than originally targeted, and this was fully reflected in the third-quarter results."
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