Qualcomm Q1 Takeaways And A Closer Look At Its QCT Performance

by Trefis Team
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Communications technology behemoth Qualcomm (NYSE:QCOM) published its Q1 FY’19 results on Wednesday, reporting stronger than expected earnings that were driven partly by better cost management and a new interim licensing agreement with Huawei. For Q2, the company has guided for adjusted EPS of between $0.65 to $0.75 per share, with revenues projected at between $4.4 billion and $5.2 billion. Below we provide a brief overview of the company’s results.

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

Updates On The Chipset Business

The company’s QCT business, which produces baseband chips and application processors for mobile devices, posted revenues of $3.7 billion, marking a decline of about 20% year-over-year, with EBT margins also declining to about 16%. This was driven primarily by the loss of business from Apple, which has excluded Qualcomm’s modems from its latest iPhone lineup in favor of components from Intel, causing chipset shipments to decline to 186 million units from 237 million a year ago. While things are expected to remain mixed on the shipment front in Q2 FY’19, with the company projecting between 150 million and 170 million shipments (year-over-year decline of about 14% at the midpoint) ASPs could improve meaningfully, driven by broader adoption of its newly launched Snapdragon 800 chipset.

Separately, the company said that its RF front-end business was also gaining traction, noting that a majority of the 5G designs it’s working on with the x50 modem come with RF front-end attached. RF front-end includes the various components that come between the antenna and the modem system of a wireless device. Qualcomm expects to gain an edge in this area in the long run as the market transitions to 5G, which will require tighter coupling between the modem, transceiver, RFFE, and antennas.

Licensing Operations Witness Some Positive Developments

Revenue’s from Qualcomm’s licensing business declined by 20% year-over-year to about $1 billion – with EBT margins also falling to 58% from 67% in the year-ago quarter – due to its litigation with Apple, which has been withholding licensing fees owed to Qualcomm. However, there were some positive developments over the quarter. For instance, the company noted that it had negotiated a new an interim patent agreement with Huawei Technologies, which would see the Chinese behemoth pay Qualcomm $150 million per quarter for three quarters as the two companies work towards resolving their patent disputes. The deal should help to alleviate some concerns surrounding the company’s ability to charge OEMs for its technology in the long run. Separately, Qualcomm made some progress with respect to its licensing program for next-generation 5G technologies, noting that it had signed on 35 customers. The company expects the QTL business to generate between $1 billion and $1.1 billion in revenue for Q2.

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