As a tech analyst, I frequently watch the quarterly earnings reports of the companies I follow closely. While these provide helpful snapshots of a company’s outlook, nothing compares to the wealth of information typically offered at annual Investor Days. These events give companies a chance to provide shareholders with the big picture stuff—context for the previous year’s numbers and how they fit into the company’s roadmap and strategy at large. Investors, current and prospective, look to companies with a well-defined vision and proof of progress, at the bottom line, of its successful execution. For me, an industry analyst, it gives me as close to “ground truth” as I can get that comes with an investor day.
Qualcomm held its annual Investor Day this week, and it did not disappoint. The event was a fount of helpful information, providing insight into the chip manufacturer’s growth areas and diversification, progress towards various strategic business goals, and its general plan for mobile world domination. Let’s look at the highlights of the day as I see them.
First, let’s look at Qualcomm’s last year by the numbers. Qualcomm Chief Financial Officer Akash Palkhiwala took the stage to share updates on the company’s key financial priorities—revenue growth, diversification, operating discipline and capital allocation. He led off with the news that Qualcomm is significantly exceeding the targets it set at Analyst Day 2019 (see Figure 1 below) as it shifts its earnings mix away from its traditional licensing business (QTL) and towards its chip manufacturing business (QCT). The latter encompasses Qualcomm’s myriad of handset modems, RF front-end, automotive and IoT chipset offerings.
Before we break down the past year’s QTL and QCT numbers, let’s look at FY21 overall. Revenue was up 55%, from $21.7B in 2020 to $33.5B in 2021. The company’s operating income climbed a whopping 98%, from $5.9B in 2020 to $11.8B in 2021. Of particular interest to Qualcomm’s investors was, of course, the company’s earnings per share, which rose from $4.19 last year to $8.54 in 2021—put into perspective, a 104% increase.
Regarding diversification within QCT, Qualcomm’s RF front-end, automotive and IoT revenue made significant gains on its handset modem business, the company’s traditional bread and butter. Individually, these non-handset segments showed record revenue growth:
- RF front-end revenue up 76%, from $2.4B in FY20 to $4.2B in FY21
- Automotive revenue up 51%, from $0.64B in FY20 to $0.97B in FY21
- IoT revenue up 67%, from $3B in FY20 to $5.1B in FY21
Qualcomm’s total non-handset revenue more than doubled over two years, from $4.8B in 2020 to $10.2B in 2021—38% of QCT’s overall FY21 revenue ($27B).
Additionally, Qualcomm expanded its operating margins, the purported result of employing a single technology roadmap across all products. Qualcomm claims this approach has reduced its non-GAAP operating expenses (as a percentage of revenue) by 11% since 2019, from 34% to 23%. During that same period, QCT’s earnings before taxes margins grew from 15% to 29%, a 14% increase.
Qualcomm nearly “Apple-Proof”
Let’s drill down into handsets, or, as they’re colloquially known, smartphones. The big, ongoing story in this area is Qualcomm’s ever-dwindling reliance on old frenemy Apple. Over the last few years, many talking heads speculated that Apple’s development of its own 5G modem would inevitably spell Qualcomm’s downfall. As I’ve said over and over, the company has effectively diversified itself to the point where it is nearly Apple-proof. This is a counter to the investors who have traditionally put what I believe is too much weight on Apple’s value to Qualcomm’s overall business.
Qualcomm drove this point home at Investor Day 2021, divulging that it expects only a 20% share of the 2023 iPhone launch. If that comes to bear, Apple revenue as a percentage of QCT should fall in the low single digits by the end of FY24. At the same time, Qualcomm chips will purportedly ship inside approximately 85% of all Android handsets worldwide in 2022, comprising about 87% of QCT’s handset SAM for the year. On the whole, Qualcomm projects its handset revenue to grow at least in line with its projected SAM, but its Android handset revenue is growing at a significantly faster rate. Its FY21 Android revenue was reportedly around 40% higher than its primary competitor (MediaTek, presumably), so it’s not even a close race. Qualcomm is running away with the Android market. The loss of its business with Apple, once considered vital, will not be enough to blunt this momentum.
Qualcomm put any further worries to rest by announcing a slate of two-year customer commitments on premium and high-tier smartphones from Xiaomi, Honor, Vivo and Oppo. That’s in addition to Qualcomm’s Samsung design wins across 2022 smartphone tiers, including the entire global allocation of Galaxy Z Fold series, Galaxy Z Flip series and a good portion of Galaxy S series. Circling back, does anyone still seriously think Apple’s 5G modem will “crush” Qualcomm’s prospects?
RF front-end gains and potential
The OEM landscape is shifting as Chinese companies, such as those with new commitments to Qualcomm, gain share. Qualcomm believes these changes, along with the transition to 5G, will expand its opportunity in premium and high-tier devices beyond that of only modems. That brings us to the topic of RF front-end, another area where Qualcomm, frankly, looks to be in great shape. RF front-end is a catchall term for the RF component of the modem-to-antenna solutions employed by connected handsets, cars and IoT devices.
With $3.9B worth of revenue in FY21, Qualcomm is already the market leader in RF front-end solutions for smartphones. As the global migration to 5G and adoption of mmWave technology continues, Qualcomm believes modem-to-antenna solutions will only extend its overall leadership in handsets. The company’s automotive RF front-end business is also looking promising, with over $0.6B worth of design wins currently in the pipeline. With up to 70% of cars expected to be connected by 2024, and each vehicle expected to include up to $30 worth of 5G RF content, Qualcomm has a significant opportunity to take advantage of here. Qualcomm’s IoT RF front-end solutions have also shown growth, bringing in approximately $0.3B of revenue in FY21. This segment also appears poised to explode as 5G proliferates in PCs, XR devices, wearables, tablets, wireless fiber and more. Keep your eye on WiFi 7 as this will be the company’s entry into the growing RFFE market for WiFi.
Qualcomm expects the roughly $17B RF front-end SAM to expand at a 12% CAGR, reaching $24B by 2024. Furthermore, the company projects its RF front-end revenue ($4.2B in FY21) to grow in line with this market growth. However, with commitments from major OEMs already on the books, don’t be surprised if Qualcomm exceeds those projections.
Automotive and IoT growth potential
Qualcomm also stands to benefit significantly from the increasing complexity and levels of autonomy of next-generation vehicles. Considering advancements in telematics and connectivity, the digital cockpit, ADAS and autonomy, Qualcomm projects its automotive SAM to grow from its current $3B to $15B in 2026. The company currently has $13B worth of design wins coming down the pipeline, a number that has doubled since Analyst Day in 2019. These design pipelines matter because automotive designs can take anywhere from 3 to 5 years to be realized as revenue. Looking to the future, Qualcomm expects 70% revenue coverage in its automotive business over the next five years with a high degree of confidence. Additionally, Qualcomm projects that its annual automotive revenue, totaling $1B in FY21, will balloon to roughly $3.5B in five years and around $8B in a decade.
Qualcomm kicked off its Investor Day announcing the expansion of its relationship with BMW Group related to ADAS. While you may have seen Qualcomm in BMW telematics and the dash, ADAS is new. From my understanding, cars with this functionality should be available model year 2025. Also of interest was the first time I saw anyone from GM cite Qualcomm and Super Cruise in the same sentence. So it’s official, Qualcomm is powering GM’s Super Cruise and that’s a very big deal.
The last non-handset area I’ll mention is IoT, where Qualcomm pulled in $5.1B of an estimated $42B SAM in FY21. Qualcomm expects its IoT SAM to grow significantly between now and FY24, driven by growth in edge networking, consumer devices (PCs and XR) and several industrial verticals. Of its $67B IoT SAM projected for 2024, Qualcomm hopes to grow its revenues in the segment up to $9B.
This section was very straight-forward but with very little insights about the PC market. We know that Nuvia-based solutions will sample in 2022 and be in devices in 2023, but Qualcomm was very conservative on how it believes it can perform in this giant, 300M unit, high ASP market.
Qualcomm painted a compelling picture at Investor Day 2021: a company on a distinct upward trajectory, driven by a concerted diversification into fast-growing segments that reduce its reliance on any specific company or product (cough, cough, Apple). Not only did Qualcomm show impressive financial growth across handsets, RF front-end, automotive and IoT, but it very clearly laid out why we can expect this revenue to continue to grow alongside the company’s expanding SAMs. As for its protracted split with Apple, Qualcomm’s runaway success with Android handset OEMs should do much to insulate it from the fallout it may incur from the split. All the while, the company’s opportunities in RF front-end, automotive and IoT space are poised to dramatically increase over the next decade, driven by enterprise digital transformation, the transition to 5G and a changing OEM landscape that elevates Qualcomm’s partners in China. Overall, it’s not a bad place to be if you’re Qualcomm.
Note: Moor Insights & Strategy writers and editors may have contributed to this article.