Qualcomm announced its fiscal Q4 2020 and full-year earnings report last week, and the market liked it, its stock soaring up to 13%. While I usually don’t write about a company’s earnings as an industry analyst, I will write when I believe those earnings signify some kind of milestone for the company, management or product line. This was true for Qualcomm’s Q4 results. The company also broke out its growth areas to give investors even more granularity into its businesses.
I want to provide the news, the numbers and then weigh in on them. I appreciated spending some time with Qualcomm CEO Steve Mollenkopf after the earnings call to get a better perspective.
Here were my Q4 earnings highlights per the press release and presentations. These are non-GAAP numbers:
- Revenue: +35% (above high end of guide)
- QCT: +38% (above the high end of guide)
- QTL: +30% (above the high end of guide)
- EBTaxes: +78%
- Net Income: +76%
- EPS: +86% (above the high end of guide)
Wall Street appeared to be equally pleased with the company’s fiscal Q1 2021 non-GAAP EPS range from $1.95 to $2.15, well above its Q4 actuals of $1.45.
For the first time, the company also increased its market breakouts’ granularity for fiscal 2019, 2020, and by 2020 quarter. Here are the segments for fiscal 2020:
- Handsets: $10,461M
- RFFE: $2,362
- Automotive: $644
- IoT: $3,026
Simply speaking, investors like when companies provide more granularity into its level of business in different markets. Investors have to do less work to fill in their spreadsheets and are more educated investors.
Needless to say, Qualcomm crushed its fiscal Q4 2020, Q1 2021 forecast and, I believe, increased trust and lowered risk through reporting granularity.
What it all means
I pulled out a few key “so whats” out of the earnings and the breakout.
The 5G smartphone wheel is turning quickly and is accelerating, and 5G is good for Qualcomm. 5G represents a 1.5X ASP multiplier across modem and RF for the company and I think will result in margin expansion. From my scorecard, most every 5G promise the company had made has come true. Millimeter-wave, the faster 5G is a great case. Two years ago, its modem and RF competitors said it couldn’t be done. Literally, pundits said technically it wouldn’t work. If you look at Apple’s top to bottom millimeter-wave in the US, Qualcomm was proven right.
When the company told investors a year ago the industry would ship 175M to 225M 5G handsets, more pundits scoffed. The pandemic hit, the company stuck to its guide, pundits scoffed again, and Qualcomm reiterated the guide. Given Apple 5G went top to bottom (albeit late), Samsung went deep and early, Huawei and Xiaomi went deep, I believe the industry will exceed those 225M 5G units. This is why I believe in the company’s hard to imagine 5G handset forecast for fiscal 2021, 450M to 550M handsets. I have been attacked for agreeing with this number, but I believe as I was for 2020, I will be right for 2021. For 2021, the real Apple 5G effect will have taken roost, and companies like Samsung, Huawei, Xiaomi, and Vivo will be placing 5G at even lower prices.
Qualcomm the largest mobile RFFE company?
While the digital modem gets all the glamor, it takes two subsystems for 5G to tango, digital and analog. This is why I was so pleased when the company broke out the analog RFFE portion of the financials. If you annualize the Q4 $852M, by my count, Qualcomm’s mobile RF numbers make it the largest company in this space, larger than Broadcom, Qorvo, and Skyworks. Let that sink in. The company only started taking this business seriously five years ago, and now it’s on top. If you’re wondering how this is possible, go back and do your research on its competitors on millimeter-wave. Some of its competitors said it was not technically feasible and therefore didn’t invest in it—big mistake.
Automotive with an $8B backlog
Qualcomm has talked more and more about its automotive business each successive year. And why not? It seems like every six months, the company is increasing its backlog forecast. It did it again this quarter, where it increased its automotive forecast to $8B. While the significant growth will likely come in at fiscal 2022, it reported some impressive 2020 ($644M) and 2019 ($640M) numbers. I was most shocked to realize that these revenue levels were larger than NVIDIA, which gets a lot more credit in the automotive market than Qualcomm. Most of Qualcomm’s current automotive revenue is telematics, where it has the #1 share, a little of it is in-dash electronics (referred to as “cockpit”) and no ADAS or self-driving- yet. I had the chance to catch up with new automotive lead automotive SVP Nakul Duggal and you can see our interview here.
Substantial $3B IoT business
Over the past few years, Qualcomm has talked more and more about its IoT business, which tilts to the consumer side but moving to the commercial and industrial markets. Think of WiFi, Bluetooth, and cellular connectivity in mesh routers, smartwatches, Bluetooth earbuds, smart speakers and the upcoming 5G home connectivity, called FWA or “fixed wireless access.” This business’s size is impressive, especially when I compare them to Synaptics ($1.3B 2020 revenue) and Silicon Labs ($838M 2019 revenue). While the companies aren’t direct competitors, they operate in related markets. While the $3B revenue is impressive, I also know that the company isn’t satisfied without taking its fair share of the so-called “trillion devices” I and others have forecasted.
The road ahead
So we know that 5G is big, getting bigger and that Qualcomm is incredibly competitive in this phenomenon that has the likelihood of changing how people work and play. While that sounds like marketing-speak, it’s true. Every generation of high-speed, low-latency connections has changed the game every single time, and I don’t see why 5G will be different. I think 5G will be more impactful than any previous “G” as it’s much more scalable and, therefore, end user and developer useful and carrier profitable for many more use cases.
The 5G upside is easy for me to see- lower-priced 5G smartphones, 5G connected PCs, 5G connected homes and businesses, 5G connected cars, 5G connected factories, and over time, a portion of those trillions of IoT devices.
So what’s the next thing we should be looking at Qualcomm for? I remember when many investors ignored the company’s automotive and RFFE proclamations five years ago. I will be more closely looking at the company’s infrastructure efforts in AI and VRAN. Time will tell, but I have learned in the decade I have been covering the company that it is conservative and rarely says anything that isn’t backed with data and doesn’t end up being true. I’m looking forward to hearing what’s next for Qualcomm for the next five years and better understanding and tracking its current markets, products, and growth areas. For now, investors should feel very good where the company came from and where the company is headed.