The company is positioning positioning itself to take advantage of the upcoming industrial revolution
In 1985, an American giant was born in San Diego, California, after seven former Linkabit employees decided to start QUAlity COMMunications under the leadership of Irwin Jacobs. Today, Qualcomm (Nasdaq: QCOM) is a pioneer in the semiconductor industry. It not only develops and commercializes foundational technologies used in mobile devices and other wireless products but also serves customers worldwide with digital telecommunications products and services.
The company operates through three main segments
Qualcomm Business Segments:
- QCT (Qualcomm CDMA Technologies) designs and delivers integrated circuits and system software based on 3G/4G/5G for mobile devices, wireless networks, the internet of things (IoT), broadband gateway equipment, and consumer electronic devices.
- QTL (Qualcomm Technology Licensing) grants licenses or rights to use portions of its intellectual property portfolio, including various patent rights used in the manufacture and sale of wireless products. It owns critical patents for 4G, 5G, CDMA2000, TD-SCDMA, and WCDMA mobile communication protocols.
- The QSI segment makes strategic investments in early-stage companies across industries and applications, including artificial intelligence, automotive, digital healthcare, enterprise, internet of things, mobile technologies, and networking. In addition, the company invests in designing and introducing new voice and data communications products and services besides new industries and applications.
Some of Qualcomm's latest innovative and smart products are The Snapdragon® Digital Chassis, Snapdragon® 8 Gen 1 Mobile, Qualcomm® FastConnect ™ 7800, and Snapdragon X70, the world's first 5G AI Processor.
Keeping all three segments working like a well-oiled machine is not an easy task. The company's business strategy follows a manufacturing business model through which it introduces various products and technologies to the market. It follows a multi-product model, offering wearables, wifi, networking, industrial loT, smart home, Bluetooth, smartphones, cameras, modem, processors, chipsets, software, tools, and services that help OEMs and developers bring technologies into products. It also provides solutions platforms, such as 4G, 5G, and legacy connectivity solutions, optimized software, RF systems, and products based on the end-use application of customer design. The company is well known for its semiconductors, with Snapdragon projected to be the most profitable and widespread chipset in its arsenal. The company also provides cellular modems, which offer connectivity to 5G/4G/3G/2G and CDMA. With the assistance of solidly-backed R&D, the company has developed a critical range of products for the cellular markets. The company makes all the possible efforts to provide the best solutions to its customers.
Qualcomm is a pioneer in research and development, the most critical success factor in its business model, which has helped the company to stay ahead of its competitors. The company's products are available to a broad category of customers, with its specialized products catering to different customer requirements. While its revenue depends on technological and product innovations, Qualcomm also earns from sales of integrated circuit products and licensing of its intellectual property, including patents and other rights. Many of the company's products and intellectual property are incorporated into consumer wireless devices, subject to seasonality and fluctuations in demand. Historically, the company's revenues have fluctuated based on consumer demand for devices, the launch timing of customer/licensee devices, or innovation cycles.
Qualcomm generated total revenue of $33,566 million in FY 2021, up by 42.6% or $23,531 million in FY-2020. Meanwhile, the company's net income jumped 74% to $9,043 million in 2021, up from the $5,198 million it earned in 2020. As of May 9th, 2022, Qualcomm's market cap stood at $157.45 billion.
The Q2, 2022 revenue from products sold for use in mobile handsets came in at $6,325 million, while sales of 4G, 5G sub-6, and 5G millimeter-wave RFFE equipment generated $1,160 million. In addition, Qualcomm reported revenues of $339 million from automobile products such as telematics and digital cockpit. Consumer (including computers, voice and music, and XR), edge networking (covering mobile broadband and wireless access points), and industrial (comprising handhelds, retail, transportation and logistics, and utilities) together generated $1,724 million in revenue.
Total QCT revenue was $9,548 million.
Earnings before tax (EBT) for the QCT segment were $3,340 million, accounting for around 35% of the QCT revenue. QCT revenues comprise equipment and services revenues, which were $9.4 billion and $6.2 billion in the second quarter of fiscal 2022 and 2021, respectively, and $18.0 billion and $12.6 billion in the first six months of fiscal 2022 and 2021.
Licensing revenues for the second quarter of 2022 were $ 1,580 million, and EBT was $1,154 million, accounting for 73% of the total QTL segment revenue.
Equipment and services revenues for the second quarter of 2022 were $6 million, and EBT was $(269) million. The drop in EBT was primarily due to a $353 million surge in net losses on investments, driven by the change in the fair value of marketable equity investments in early or growth-stage companies.
According to the management, QCT revenues rose primarily from the increase in handsets revenues, driven by the additional income per chipset from steeper average selling prices and a favorable mix toward higher-tier 5G products in handsets and IoT revenues. Besides, the higher RFFE and automotive revenues are due to the mounting demand for 4G/5G products from major OEMs (original equipment manufacturers) and automotive revenue, respectively. However, a drop in the estimated sales of 3G/4G/5G-based multimode products dragged the QTL licensing revenues.
Qualcomm Inc recorded a 40.69% surge in total revenue in Q1, 2022, with the average revenue growth of its peers up about 8.38% in the same quarter. Qualcomm also outperformed its competition in terms of margins and profits, reporting a net margin of 26.28% and a 66.52% jump in net income year on year in the first quarter of 2022, ahead of the average 62.19 percent growth reported by its peers.
The company's prospects are unquestionably appealing based on its past performance. According to AMA, the global wireless charging industry is expected to grow at an enormous pace of 38.9% by 2026, with the market value pegged at around $71.0 billion. The upsurge in R&D spending worldwide has supported the expansion of the wireless charging industry, and Qualcomm is vying to be a significant player in this sector.
The company also expects high consumer demand for 3G/4G/5G multimode and 5G products and services and also intends to incorporate Arriver's computer vision, drive policy, and driver assistance technologies into the Snapdragon automotive platform to deliver integrated software SoC ADAS (advanced driver assistance systems) to automakers and Tier-1 automotive suppliers. In addition, we expect its total serviceable market to increase by 12% annually through 2024.
Qualcomm reported long-term debt of $13,701 million for FY 2021, a significant decline from $15,206 million in the previous year. This is a good sign as the Federal Reserve has raised interest rates substantially, making borrowing more expensive.
The stock is currently priced at $124.62 (September 21 st , 2022), with the stock price targets ranging from $250.00 to $130.00 over the next 12 months. Also, of the 28 analysts polled, three have given the stock an outperform rating, nineteen have a buy rating, and ten a hold rating.
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