Qualcomm Overcomes Chip Shortage To Deliver Record Q2 Results; $163 FVE, Shares Undervalued

Qualcomm reported fiscal second-quarter revenue above management’s guidance, with the firm benefiting from the ongoing ramp of 5G smartphones and broad-based chip demand. Despite the ongoing chip shortage, the firm has secured sufficient supply to achieve significant growth via multi-sourcing initiatives, including the use of foundry partners such as TSMC and Samsung, as well as second-tier foundries such as UMC and GlobalFoundries for products made on mature process nodes. Chipset, or QCT, sales were boosted by share gains at Android smartphone original equipment manufacturers, or OEMs, and greater 5G chip content. Notably, Qualcomm has increased its premium tier processor share for Samsung’s Galaxy S22 smartphones to 75%, up from 40% in the Galaxy S21. Despite headwinds in the Chinese smartphone market, management remained confident in growth for the rest of the year, which we attribute to increased 5G penetration. We are maintaining our $163 fair value estimate and see shares of narrow-moat Qualcomm as undervalued at current levels.