Recently, Qualcomm released its financial report for the fourth quarter of the 2023 fiscal year (Q3 2023). During the reporting period, Qualcomm achieved revenue of $8.631 billion, a year-on-year decrease of 24%, and net profit of $1.489 billion, a year-on-year decrease of 48%.
At this point, Qualcomm has also submitted its transcripts for the entire fiscal year 2023 (Q4-2023, 2022), with a total revenue of $35.8 billion, a year-on-year decrease of 19%, and a net profit of $7.232 billion, a year-on-year decrease of 44%.
For the decline in performance, Qualcomm and the industry have long anticipated it. The core reason is the weakening consumer demand in the entire mobile phone market, which makes it difficult for Qualcomm, as an upstream company in the industry chain, to sell its products. In its financial report, Qualcomm stated that it estimates that consumer demand for smartphones in 2023 will decrease by a medium to high single digit percentage compared to 2022, and the main reason for the decrease in demand is due to the weak macroeconomic environment.
Mobile business or turning point
In the fourth quarter of the 2023 fiscal year, Qualcomm's revenue from the semiconductor division QCT was $7.374 billion, a year-on-year decrease of 26%. Among them, revenue from the mobile phone business was $5.456 billion, a year-on-year decrease of 27%, revenue from the automotive business was $535 million, a year-on-year increase of 15%, and revenue from the IoT business was $1.383 billion, a year-on-year decrease of 31%.
This downward trend is not only reflected in one quarter, but throughout the 2023 fiscal year. The report shows that Qualcomm's QCT division's revenue in the 2023 fiscal year decreased by 19% year-on-year to $30.382 billion, with a 22% decline in the mobile phone business, a 24% increase in the automotive business, and a 19% decline in the IoT business.
In addition, Qualcomm's revenue from the patent licensing department QTL in the fiscal year 2023 was $5.306 billion, a year-on-year decrease of 17%. Among them, revenue in the fourth quarter was $1.262 billion, a year-on-year decrease of 12%.
Among various businesses, the automotive business is a highlight, but its size is too small to reverse Qualcomm's overall performance. In its financial report, Qualcomm also cited industry data to showcase the prospects of its automotive business. According to analyst data, it is expected that 71% of new cars produced in 2030 will be equipped with embedded cellular connectivity, of which 71% will be equipped with 5G connectivity. In 2023, 63% of newly produced vehicles will be equipped with embedded cellular connections.
For Qualcomm, the mobile phone business, which accounts for over 63% of revenue, remains the backbone of the company's performance. The good news is that the mobile phone market has released signs of recovery. Recently, Xiaomi President Lu Weibing stated in an interview with 21st Century Economic Report reporters that he expects the global market to grow by 5% in 2024, with shipments from the Chinese market reaching 280 million units, while shipments from the Chinese market this year are about 268 million units.
IDC data also shows that the actual shipment volume of smartphones in China has achieved a year-on-year growth of 0.4% in the third quarter of this year, and the year-on-year growth trend continued in the first half of October. Therefore, the Chinese mobile phone market is expected to enter a turning point in the fourth quarter of 2023. So in the next quarter's financial report guidelines, Qualcomm also gave a high expected estimate - revenue in the first quarter of the 2024 fiscal year will reach $9.1 billion to $9.9 billion.
Variables of Key Accounts
Although the entire market is about to recover, Qualcomm has to face some hidden concerns.
According to financial reports, in history, only a few customers have accounted for a significant portion of Qualcomm's consolidated revenue. For example, in the 2023 fiscal year, only revenue from Apple and Samsung accounted for 10% or more of their combined revenue, respectively.
But whether it's Samsung or Apple, their relationship with Qualcomm is undergoing subtle changes. For example, Samsung has developed its own integrated circuit products, which have been and are currently used in some of their devices. Qualcomm expects that in the future, Samsung will also use its own products in some or all of their devices instead of using Qualcomm's products. In addition, Samsung is also selling its integrated circuit products to third parties and competing with Qualcomm.
In addition to Samsung, Apple also uses Qualcomm's competitors' modems in certain devices. Despite reaching a new chip supply agreement with Apple in September this year, Qualcomm will provide Snapdragon 5G modems and RF systems for its smartphones launched in 2024, 2025, and 2026.
But Qualcomm believes that Apple acquired Intel's modem assets in December 2019 and is using these assets to develop its own modem products. Therefore, Apple will use its own modem products for some or all of its future devices.
In addition to the two major customers mentioned above, Qualcomm also mentioned in its financial report that a significant portion of its revenue comes from Chinese device manufacturers. However, some customers in China are already developing their own integrated circuit products, while others may develop their own integrated circuit products in the future and use such integrated circuit products in their devices.
Bet generative AI
In addition to its current automotive and IoT businesses, Qualcomm is also seeking more growth opportunities in its mobile business. And the PC business is Qualcomm's next goal.
At the recent 2023 Snapdragon Summit, Qualcomm released the latest PC chip - Snapdragon X Elite, which is based on Qualcomm's self-developed Oryon CPU. According to the disclosed performance data, this CPU has surpassed the ARM based Apple M2 Max and X86 based i9-13980HX.
Although PC shipments cannot match smartphones, this is still a huge market. According to IDC data, the global PC shipment volume in the third quarter of this year was 68.2 million units. Although it still decreased by 7.6% year-on-year, the decline rate has significantly narrowed compared to the previous two quarters. In addition, PC shipment volume has achieved consecutive quarter on quarter growth. Obviously, Qualcomm hopes to get a piece of the market.
Moreover, according to Qualcomm President and CEO Armon, both the Snapdragon X Elite for PCs and the third-generation Snapdragon 8 for smartphones are specifically designed by Qualcomm for generative AI.
Anmeng said, "We have entered a new era of generative AI, and the changes it brings will be unprecedented. It will change our thinking and innovation in using terminals, change the way we innovate, change the way we search and interact with terminals
In the era of AI, terminal side generative AI is crucial for creating a powerful, fast, personalized, efficient, secure, and highly optimized experience. What Qualcomm wants to do is provide a computing platform for terminal side generative AI.
Specifically, Snapdragon X Elite supports running generative models with over 13 billion parameters on PC terminals without the need for cloud resources. And the third generation Snapdragon 8 can support running a model with 10 billion parameters on mobile terminals. A few months ago, these could only be implemented in the data center.
Anmeng said that Qualcomm is transitioning from being a communications company to a computing and processing enterprise driven by AI. As of the close of the US stock market on November 2nd, Qualcomm's stock price closed at $117.36 per share, up 5.83%, with a total market value of $130.9 billion.