What’s The Outlook Like For Qualcomm After A Mixed Fiscal 2018?

Wireless technology behemoth Qualcomm (NYSE:QCOM) published its Q4 FY’18 results on Wednesday, November 7, reporting a better than expected set of results that were driven by stronger demand for the company’s chipsets from Chinese smartphone vendors, although this was partially offset by lower revenues from Apple. The company has guided for revenues of $4.5 billion to $5.3 billion for Q1 FY’19, marking a decline of about 18% year-over-year at the midpoint, while adjusted EPS is projected to come in at between $1.05 to $1.15. Below we take a look at some of the key factors that drove the company’s results and what lies ahead for Qualcomm.

View our interactive dashboard analysis on Qualcomm’s Qualcomm’s expected performance over 2019 to see our forecasts and valuation estimate.

Chinese OEMs And RF Front End Sales

While Qualcomm shipped 232 million chips over Q4 FY’18, marking a 5% year-over-year increase, its provided a tough outlook for Q1 FY’19, with chipset shipments projected to come in at 175 to 195 million units, down from 237 million in the year-ago quarter,. This will be driven primarily by the loss of business from Apple, which has excluded Qualcomm’s chips from its latest iPhone XS, XS Max and XR, in favor of components from Intel. That said, Qualcomm is looking at other avenues to ramp up its chipset sales. For one, the company is gaining traction in China, where OEMs such as Xiaomi and One Plus are opting for more premium chips from the company’s Snapdragon 700 and 800 lineup. Qualcomm is also ramping up sales of its RF front-end business, which the company indicated almost doubled year-over-year during FY’18, driven by its deal with TDK as well as more orders from key OEMs. RF front-end includes the various components that come between the antenna and the modem system. Qualcomm expects to grow RF front-end revenues by a double-digit percentage in fiscal 2019.

Licensing Operations 

Qualcomm’s QTL business had another relatively tough quarter, with revenues coming in at $1.14 billion, weighed down by the licensing dispute with Apple and its contract manufacturers who have been withholding fees owed to Qualcomm (the total arrears were reported to stand at about $7 billion). However, Qualcomm noted that the broader market trends in the 3G/4G space remained favorable, driven by higher average selling prices for devices, which in turn help the company’s revenues. While Qualcomm has made changes to its licensing practices, capping the fees it charges to smartphone vendors, it is looking to broaden its unit sales. The company is also banking on 5G to drive the growth of its licensing business, noting that it has 20 agreements signed to date based on its 5G licensing framework.

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