Qualcomm beats, auto chip biz up 83% year over year

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John Fortt joins Closing Bell following Qualcomm’s earnings announcement. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

Qualcomm shares rose over 3% in extended trading on Wednesday after the chipmaker reported third fiscal-quarter earnings that exceeded analyst estimates and offered a strong forecast for the fourth quarter.

Here’s how the company did:

EPS: $1.92 per share, adjusted, vs. $1.68 per share as expected by analysts, according to Refinitiv.

Revenue: $8.00 billion, adjusted, vs. $7.58 billion as expected by analysts, according to Refinitiv.

Qualcomm revenue was up 63% from the same period last year, and earnings per share more than doubled annually in the quarter that ended on June 27. However, that’s a comparison to a quarter where Qualcomm saw less demand for its chips and technology amid the Covid-19 pandemic.

Qualcomm guided investors to a midpoint of $8.8 billion in sales in the current quarter and EPS around $2.25 per share.

Much of the growth was driven by chip sales. Qualcomm’s QCT semiconductor business reported $6.47 billion in revenue, a 70% increase annually. Handset chip sales made up the bulk of that business, though it was also the slowest growing component. RF front-end was the fastest-growing QCT segment, up 114% annually to $957 million in sales. RF front-end chips are an essential part of 5G.

New Qualcomm CEO Cristiano Amon, who took over on July 1, has prioritized the growth of the company’s RF front-end business, which gives the company an important component to sell to handset makers who may want to develop their own 5G modems.

Qualcomm’s IoT business, a part of QCT, which consists of low-powered chips to make other devices smart, grew 83% to nearly $1.4 billion.

The company is one of the main suppliers of parts and intellectual property for 5G handsets and networks that are currently being built. It stands to benefit from phone demand rising around the world as economies re-open. The company expects the number of smartphones shipped by its customers to grow “high single digits” in 2021, after decreasing 11% last year during the pandemic, and between 450 million and 550 million 5G smartphones to be shipped this year.

The company’s profitable Qualcomm Technology Licensing segment, which includes revenue from 5G patents and other handset technologies, rose 43% to $1.49 billion. QTL is a higher-margin business than Qualcomm’s chip sales.

Industry-watchers are paying attention to how Qualcomm navigates the global chip shortage. The company doesn’t manufacture its own chips. It has relationships with most of the major foundries around the world, including TSMC and Samsung. Intel said earlier this week that Qualcomm will be a customer for its new foundry, too.

In a statement, Qualcomm said it’s on track to improve chip supply by the end of 2021 and that it’s working to get additional factory capacity for high-end processors and chips that use older manufacturing processes, often called “mature nodes.”

In the quarter ending in June, Qualcomm paid $767 million in dividends and repurchased $630 million of its stock.

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