Qualcomm Solid results but 4Q guide hit by macro conditions

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 8 to 10. Analyst Certification on page 6. Price Objective Basis/Risk on page 6. 12443945 Qualcomm Solid results but 4Q guide hit by macro conditions; LT drivers remain intact Reiterate Rating: BUY | PO: 180.00 USD | Price: 153.42 USD Results impacted by tough macro conditions Revenues of $10.93bn were above Street’s $10.87bn; EPS of $2.96 was 10c higher, with gross and operating margins in line. Margins were driven by a combination of macro headwinds and Android weakness offset by strength in higher-tier handsets, especially in China. 4Q guidance was weaker than expected with revenues at $11.4bn, vs. Street’s $11.9bn, and EPS of $3.15, vs. $3.26, which includes a negative 20c EPS impact from macro headwinds and lower CY22 global and 5G handset shipment forecasts. We expect the 20c impact to persist in 1Q23, with an improvement throughout 2023 from the new agreement with Samsung which expands Qualcomm (QCOM) chipset market share within the Galaxy devices. Samsung also extended the company’s licensing agreement until 2030 and into 6G. The deflating handset demand is a risk, yet we believe it is already reflected in expectations, and remain confident in the company’s long-term revenue opportunities and diversification strategy beyond handsets. We reiterate our Buy and $180 PO that is based on P/E of 14.1x our new FY23E EPS (vs 13.7x prior). What we liked: premium-tier strength & Samsung deal QCT (semis) revenues of $9.4bn grew 45% YoY, in line with Street’s estimates. Handsets grew 59%, or 3% above expectations, to $6.15bn, driven by high/premium-tier Snapdragon sales, especially in China, despite some softness in mid-tier Androids. RFFE grew 9%, missing Street’s 17% expectations, as the mmWave market in China is not progressing and 5G demand weakens. Autos semis were also $10mn short, at $350mn, while IoT was in line at $1.83bn, driven by strength across enterprise and industrial devices, despite weakness in consumer. QTL (licensing) revenues of $1.52bn impacted by volume weakness, which was offset by better pricing in China as the market shifts to high-end devices. Lastly, the new Samsung agreement could take QCOM’s Galaxy market share from 75% closer to 100% in 2023, and offset some of the 4Q EPS weakness. What we didn’t like: macro headwinds & handset demand CY22 5G handset guidance declined from 750mn (midpoint) to 675mn, largely driven by weakness in the consumer environment, specifically among low/mid-tier smartphones and despite resilient premium-tier volumes. Qualcomm expects COVID measures in China to continue to negatively impact consumer handset sales