Qualcomm reported Q4 earnings last week. At one level, everything looked good. The company beat estimates and raised guidance for the December quarter. Smartphone volumes looked good, the company’s new Snapdragon applications processor is getting good feedback from customers and the automotive business ticked up. The stock traded up nicely the next day…
And then something went wrong. Two days after reporting, the stock dropped sharply giving up the previous day’s gains and closed lower on the week. In the absence of any hard news, clearly some people heard something they did not like. The chief culprit we heard was that in management call backs, investors got the impression that the strong handset numbers in the quarter may actually have been the result of China stimulus boosting consumer spending temporarily. Or maybe it was stocking ahead of fear of further US sanctions. Or maybe it was a sense that Qualcomm was actually seriously considering buying Intel, like for real considering it. Whatever the reason, animal spirits seemed to have possessed the stock.
Qualcomm remains a bit stuck. Our long-time view is that the stock is unlikely to be exciting until Automotive revenues become material to earnings. Auto sales cycles move slowly and so we will not see their impact until calendar 2026. The company is holding an investor day later this month, and we will likely get a better sense of what that timing looks like. For now, actual auto revenue is small, and we are left to make guesses as to the company’s ability to convert their “Design wins” into actual revenue. Qualcomm seems really well positioned in the market, with design wins at most of the incumbent and start-up auto makers, but this business is new to them, so it will take some time for the Street to explore that conversion rate.
Beyond automotive, the core mobile business is hard to get excited about. The smartphone market is saturated, and so little bumps like a PRC consumer spending spree can help a quarter or two, but do not make for a sustainable trend. Moreover, their mobile business now faces a wall of worry in the form of the Arm lawsuit, the pending loss of Apple, and the return of Huawei with their own chipsets. The good news in all of that is that Qualcomm has started making competitive apps processors again. Snapdragon lagged badly in recent years, posing a serious problem for customers who have all tried their hand at designing their own chips. The new Snapdragon, launched last month, looks highly competitive, and a return to form for a company that can still execute strongly when it is focussed.
In all of this, one thing stuck in our mind. When discussing the potential for Qualcomm to buy Intel, someone pointed out to us that if Broadcom and Qualcomm were both seriously looking at Intel, only Broadcom could actually afford to buy it. (And even they would be a bit stretched.) Broadcom’s market cap is now $823 billion to Qualcomm’s $181 billion. Not so long ago, the companies were the same size. In all of our conversations with the Street, we have come to think that the reigning sentiment around the company is apathy. Investors are just not that interested in talking about Qualcomm. This is down to the reasons we listed above – Qualcomm is not growing, and there are plenty of companies that are.
This is not necessarily a bad thing. Their core market may not be growing, but it is large and profitable. Even without Apple, Qualcomm will remain a force in mobile. That being said, we do wonder if the company is getting too comfortable taking few risks. They mostly sat out the semiconductor consolidation wave in the 2010’s. They have largely missed out on data center. Their AI story is really just another flavor of their mobile story. Admittedly, now is not a great time to be adding more risk, there is plenty of that in the world already, but at some point, maybe they should take some chances.
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