Company Reports

Narrow-moat Qualcomm reported solid fiscal first-quarter results that were ahead of our expectations while providing investors with a decent outlook for the March quarter, as Android-based smartphone demand remains on the road to recovery. We maintain our $140 fair value estimate and view shares as fairly valued.

We expect Qualcomm’s chip business (QCT) and licensing business (QTL) to continue to generate healthy cash flow and reinforce the company’s narrow moat rating, as Qualcomm should remain an industry leader in chipsets and IP for 5G and below. Apple’s decision to build its own baseband chips, or modems, to displace Qualcomm should be a medium- to long-term headwind, but not a death blow, especially as Qualcomm is poised to grow in automotive and Internet of Things semis. In licensing, Qualcomm has been able to withstand a host of government inquiries and customer pushback in recent years, and we think QTL will maintain a hearty stream of high-margin royalty revenue over time.

We maintain our $140 fair value estimate and narrow moat rating for Qualcomm and continue to view shares as modestly undervalued. The firm’s durable competitive advantage, in our view, comes from patents, intellectual property, and decades of R&D expertise in wireless technologies.

Narrow-moat Qualcomm reported solid fiscal fourth-quarter results and provided investors with a decent outlook for the December quarter, as the company foresees an ongoing recovery in Android-based smartphone demand, especially among Chinese device makers. Further, we surmise that demand for chips going into Apple’s latest iPhones seems to be holding up well. We maintain our $140 fair value estimate and continue to view shares as undervalued.

We maintain our $140 fair value estimate for narrow-moat Qualcomm as the company announced a chip supply agreement with Apple that extends the timeline in which Qualcomm will be the primary 5G modem supplier into future iPhones. Shares are up about 4% on the news, but we still view Qualcomm as fundamentally undervalued.

Qualcomm reported soft fiscal third-quarter results and provided investors with a similarly tepid outlook for the September quarter in the face of challenging business conditions associated with a muted smartphone market. We maintain our $140 fair value estimate for narrow-moat Qualcomm and view shares as slightly undervalued.

We expect Qualcomm’s chip business (QCT) and licensing business (QTL) to continue to generate healthy cash flow and reinforce the company’s narrow moat rating, as Qualcomm should remain an industry leader in chipsets and IP for 5G and below. Apple’s decision to build its own baseband chips, or modems, to displace Qualcomm should be a medium- to long-term headwind, but not a death blow, especially as Qualcomm is poised to grow in automotive and Internet of Things (IoT) semis. In licensing, Qualcomm has been able to withstand a host of government inquiries and customer pushback in recent years, and we think QTL will maintain a hearty stream of high-margin royalty revenue over time.

Qualcomm reported fiscal second-quarter results in line with our expectations and management’s guidance. However, the firm provided a weaker outlook for next quarter than we had previously anticipated, due to ongoing macroeconomic headwinds and tepid smartphone demand alongside elevated inventories. Despite the industrywide outlook for a recovery in China consumer demand, management said they have not seen evidence of such a rebound, which is consistent with our views. Although we think the next few quarters will be challenging for narrow-moat Qualcomm, we anticipate a return to growth in fiscal 2024. We are maintaining our $140 fair value estimate. Shares fell 7% after-hours due to the disappointing outlook, which we think has created an attractive entry point for long-term investors that can look past an arduous near term.

Qualcomm reported fiscal first-quarter results slightly below our expectations, as macroeconomic weakness negatively impacted its smartphone-centric sales. The firm’s Android smartphone customers are still plagued by elevated channel inventories and tepid demand, especially in China. Management expects industrywide inventory levels to normalize by the second half of calendar 2023, but we are less optimistic about a quick turnaround and believe smartphone demand may not recover until 2024. We are maintaining our $140 fair value estimate as our outlook on a slower recovery is already incorporated in our model for narrow-moat Qualcomm. Shares look fairly valued at current levels.

Qualcomm's fiscal fourth-quarter revenue was consistent with our expectations, the firm benefiting from the ongoing ramp of 5G smartphones and broad-based chip demand. Guidance was lower than our expectations though. This was due to weakness in Android smartphones and consumer Internet of Things, due to macroeconomic headwinds and China's COVID-19 lockdowns that resulted in elevated channel inventories. For calendar 2022, smartphone volumes are estimated to be down in the low double digits. We lower our fair value estimate to $140 per share from $163, as we expect fiscal 2023 to be a cyclical downturn for Qualcomm. Shares fell 8% during after-hours trading and are undervalued. Management estimates there is about 8-10 weeks of elevated inventory in the channel, which we think will take at least a few quarters to work through.

We expect Qualcomm’s licensing business, the driver of the firm’s narrow moat rating, to continue generating solid cash flows, due to the ongoing ramp of 5G. However, government investigations into the business model have increased the possibility of negative effects on royalty revenue, reflected in our negative moat trend rating, even in light of the company's 2019 settlement with Apple and 2020 settlement with Huawei. Nonetheless, Qualcomm has been able to withstand these inquiries and maintain adequate royalty rates, and we think this will continue over time.

Qualcomm reported fiscal third-quarter revenue higher than our expectations (but in line with management’s guidance), with the firm benefitting from the ongoing ramp of 5G smartphones and broad-based chip demand. Despite softness in smartphone and consumer Internet of Things demand, the firm has enjoyed growth in other areas as well as greater content per handset via the shift to 5G. We believe the firm is also benefiting from greater Snapdragon share for Samsung’s Galaxy S22, which we think will increase with the S23. Notably, the firm announced a new multiyear agreement with Samsung in 2023, expanding the use of Snapdragon as well as a seven-year extension of Qualcomm’s patent license agreement with Samsung through 2030. Management remained confident in growth for the rest of the year, which we attribute to increased 5G penetration.

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.

Qualcomm reported fiscal first-quarter revenue at the high end of 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 been able to secure sufficient supply to achieve significant growth via multisourcing initiatives. These include leveraging key foundry partners such as TSMC and Samsung as well as second-tier foundries such as UMC for products made on mature process nodes. Chipset, or QCT, sales were boosted by share gains at Android smartphone OEMs and greater 5G chip content. With management's guidance consistent with our estimates, we maintain our $163 fair value estimate and see shares of narrow-moat Qualcomm as modestly overvalued at current levels.

On Nov. 16, Qualcomm hosted an investor day at which management discussed its outlook for the firm’s prospects. Notably, Qualcomm’s guidance assumes the firm will have only 20% share of Apple’s 2023 iPhone model, as it expects Apple to deploy its own modem by that time. While this is sooner than we had anticipated, we’re not surprised that Qualcomm expects Apple to shift to an internal modem solution, and we expect Qualcomm to be able to achieve midteens chip business, or QCT, growth via the ongoing 5G transition at Android OEMs as well as momentum in RF front-end, automotive, and IoT. We’re raising our fair value estimate to $163 per share from $144, as we incorporate the stronger growth outlook for narrow-moat Qualcomm’s QCT segment. However, with the stock up over 30% over the past two weeks, we recommend prospective investors seek a wider margin of safety before committing capital to the stock.

We expect Qualcomm’s licensing business, the driver of the firm’s narrow moat rating, to continue generating solid cash flows, due to the ongoing ramp of 5G. However, government investigations into the business model have increased the possibility of negative effects on royalty revenue, reflected in our negative moat trend rating, even in light of the company's 2019 settlement with Apple and 2020 settlement with Huawei. Nonetheless, Qualcomm has been able to withstand these inquiries and maintain adequate royalty rates, and we think this will continue over time.

We expect Qualcomm’s licensing business, the driver of the firm’s narrow moat rating, to see solid growth, due to the ramp of 5G networks in the coming years. However, government investigations into the business model have increased the possibility of negative effects on royalty revenue, reflected in our negative moat trend rating, even in light of the company's 2019 settlement with Apple and 2020 settlement with Huawei. Nonetheless, Qualcomm has been able to withstand these inquiries and maintain adequate royalty rates, and we think this will continue over time.

Qualcomm reported fiscal fourth-quarter results above the high end of management’s guidance, with the firm benefitting from the ongoing ramp of 5G smartphones and broad-based chip demand. Chipset, or QCT, sales were boosted by continued 5G adoption including Apple’s latest iPhones that feature Qualcomm’s modem and other content such as a transceiver and subsystem for the sub-6 GHz portion of the overall 5G module. For calendar 2021, management expects mid- to high-single-digit unit growth for smartphones, with 500 million to 550 million 5G handset shipments. We’re very impressed with Qualcomm’s non-handset growth, with aggregate RF front-end, auto, and Internet of Things sales surpassing $10 billion in fiscal 2021 (up 69% year over year). Based on management’s expectation of fiscal 2022 non-GAAP EPS growth to exceed 20%, we raise our fair value for narrow-moat Qualcomm to $144 per share from $136. We recommend prospective investors seek a wider margin of safety.

We expect Qualcomm’s licensing business, the driver of the firm’s narrow moat rating, to see solid growth, due to the ramp of 5G networks in the coming years. However, government investigations into the business model have increased the possibility of negative effects on royalty revenue, reflected in our negative moat trend rating, even in light of the company's 2019 settlement with Apple and 2020 settlement with Huawei. Nonetheless, Qualcomm has been able to withstand these inquiries and maintain adequate royalty rates, and we think this will continue over time.

On Aug. 5, Qualcomm announced it submitted an all-cash offer to acquire advanced driver assistant systems pure-play Veoneer for $37 per share, or $4.6 billion in equity value. Narrow-moat Veoneer previously agreed to a buyout bid from Tier I auto-parts supplier Magna for $31.25 per share, or $3.8 billion in equity value. Although Qualcomm already boasts a promising automotive design win pipeline of $10 billion, management is primarily interested in Arriver, which is Veoneer’s dedicated software unit for the development of ADAS and autonomous driving systems. Arriver was formed in January 2021 as a collaboration between Veoneer and Qualcomm (100% owned by Veoneer). We think Qualcomm wants to integrate its Snapdragon Ride platform and 5G expertise with Arriver’s computer vision, drive policy, and other ADAS capabilities. Given Magna already partners with Mobileye, we surmise Qualcomm’s management could be concerned its partnership with Veoneer could be at risk if Magna acquires it. That said, we believe there are likely more synergies between Veoneer and Magna as opposed to Qualcomm. Shares of narrow moat Qualcomm were down about 1% upon the news but continue to trade above our unchanged fair value of $136.