Qualcomm posted strong quarterly sales and forecast further growth in the year ahead, as the company managed to ease supply-chain constraints at a time of booming demand for 5G phones.
The chip giant, which supplies the cellular modems and other processors used in most of the world's top-end Android phones, also reported strong gains in new and emerging businesses that are vital to its future.
The company last week reported sales of $10.7 billion in its fiscal first quarter, ending in December, up 30% from a year ago. The company posted a profit of $3.4 billion, or $2.98 a share, up 38% from the prior year.
Overcoming Supply Woes
CEO Cristiano Amon said the chip giant's supply situation is improving despite unprecedented shortages of chips. But he said demand for its cellular modems and other ICs is still outstripping its ability to supply them. Qualcomm said it has taken steps to net additional production capacity in recent months, including having several foundries produce the same type of chips and pre-paying them to assure long-term supply.
"We still have more demand than supply," explained Amon, adding it would see "incremental improvements" to its supply throughout the year thanks to its dual-sourcing strategy and expansions efforts at foundry partners.
"We would ship more if we could," he added.
Qualcomm is in the eye of a global chip shortage that has led to delivery delays and production snags in many sectors, including in the automotive industry, which has been upended by supply challenges. The deficiency continues to spread into other sectors such as consumer goods and mobile phones, crimping supply and hiking costs. Industry analysts said the bottlenecks could hurt manufacturing output into late 2022.
Android Over Apple
QCT, Qualcomm’s core chip business, reported $8.85 billion in overall sales in its first quarter, up 35% from the same period a year ago. Sales of its smartphone-focused chips alone soared 42% to around $6 billion.
The company also forecast revenues in the current fiscal quarter of $11 billion, which would be ahead of analyst estimates of about $9.6 billion, per Bloomberg.
The upbeat outlook came after Apple said last month that supply constraints snagging its consumer devices in previous quarters have finally begun to ease.
But Qualcomm said mid-range, premium, and flagship phones that run on the Android OS—not Apple—propelled sales in the fiscal first quarter. Demand in its core baseband modem and apps processor business continued its strong growth streak. Annual growth rate for its Snapdragon family of chips, which are at the heart of virtually all of the world’s high-end Android phones, was around 60%.
Qualcomm has continued to profit from the exit of China's Huawei Technologies from the smartphone market after the United States restricted chipmakers who rely on U.S. technology from supplying chips to the electronics giant. Huawei’s flagship phones did not use Qualcomm chips, but rivals such as Honor, Oppo, Vivo, and Xiaomi are suctioning market share with premium-tier phones that use Qualcomm's chips.
“Android is a success story for us,” said Amon. "Snapdragon is becoming the preferred brand for premium-tier Android. Not a single one of our customers think about flagship without thinking of Snapdragon 8 series."
Last year, Qualcomm introduced its new Snapdragon 8 Gen 1 processor, which has been adopted by all major Chinese smartphone vendors, even as the company faces mounting competition from MediaTek.
"There are plenty of opportunities for us to grow and our competitors to grow," Amon said.
Apple's Modem Ambitions
The phone chip giant reported quarterly revenue as it looks ahead to a future without Apple, one of its largest customers Apple has been severing ties with many of its major chip suppliers, including Intel, in recent years.
Qualcomm supplies the 5G modem chips at the heart of the latest iPhone. But Apple is apparently in the late stages of building its first baseband modem in-house, threatening to reduce its relationship with Qualcomm.
Executives at Qualcomm have previously said that Apple’s switch to homegrown modems would hurt it. The company said it plans to supply only 20% of the cellular modems in the iPhone due to launch in 2023.
The company's management has revealed that Apple would account for only 5% of its sales by the end of 2024, but losing its slot in the iPhone would be more than balanced out by gains in other markets.
The company sells a wide range of radio-frequency (RF) front-end ICs, such as filters and power amplifiers, to Apple. Executives said it would continue to compete to sell these parts to Apple regardless of where the consumer electronics giant sources its modems. Sales in its RF front-end business totaled $1.1 billion in the fiscal first quarter, up 7% year-over-year. The business improved by 75% in 2021.
Qualcomm's technology licensing division, to which Apple also pays fees, grew 10% annually to $1.8 billion.
More Than Mobile
As it moves to defend its dominance in the 5G phone market, Amon, who was promoted to chief executive last year, has also been pushing the company to expand from its roots in modems and other mobile chips. Qualcomm said its new and emerging businesses, including chips targeting cars and IoT devices, rose to $4 billion, up 70% from a year ago.
Apple has nurtured the market for smart watches and premium wireless headphones such as the Apple Watch and AirPods. While Apple uses in-house chips in these devices, Qualcomm is building chips for everyone else’s devices. It is also investing aggressively in chips for augmented-reality devices such as Meta's Oculus and Microsoft's HoloLens, and in its new family of processors targeted at 5G base stations.
Qualcomm said sales in its IoT business unit soared 41% to $1.5 billion last quarter.
It is also ramping up its battle against Intel and AMD in personal computers. The company has rolled out several generations of chips for laptops that offer longer battery life and the ability to access 5G networks.
Qualcomm is designing computer chips for PCs based on blueprints from Nuvia, a startup it purchased last year. These chips will start sampling this year, with the first laptops based on those parts shipping in 2023. Qualcomm said Nuvia’s expertise would help boost the performance and power efficiency of its chips, which are the same characteristics that set apart Apple’s M1 chip for Macs, which is also Arm-compatible.
"There's going to be a big portion of the market that's going to transition to an Arm architecture," said Amon. "We are the best-positioned company to do that within the Windows ecosystem."
Down the Road
Qualcomm has also rolled out a range of offerings for the automotive sector, including high-performance chips for self-driving systems to other chips that power digital dashboard displays and connect cars to 5G networks. It has landed supply agreements with many of the world's largest automakers. GM revealed last month it will use a cluster of chips developed by Qualcomm in its Ultra Cruise self-driving system due out in 2023.
Qualcomm said sales in its automotive business jumped 21% to $256 million last quarter