On November 7th Beijing time, Qualcomm and Arm released their latest financial reports, and Qualcomm's board of directors immediately approved a new $15 billion stock repurchase plan. Although both companies' quarterly performance exceeded market expectations, the market's response to the two companies was not consistent. After the release of the financial report, Qualcomm's after hours stock price rose by over 10%, while Arm's after hours stock price fell by over 5%.
In terms of overall revenue, the mobile phone business remains the main source of income for both companies. The latest financial report shows that revenue from the mobile phone sector accounts for approximately 60% and 40% of Qualcomm and Arm's overall revenue, respectively. Moreover, both companies stated at their financial reports that they have felt the recovery of the mobile phone industry.
Behind the Friction between Qualcomm and Arm
In the previous fiscal quarter, Qualcomm achieved revenue of $10.24 billion, with an estimated revenue of $9.91 billion; Adjusted earnings per share for the fourth quarter are $2.69, with an estimated $2.56. Arm's revenue is $844 million, with an expected $808 million; Net profit of 107 million US dollars, expected to be 104 million US dollars.
From a business perspective, in the fiscal year 2024, Qualcomm's QCT business (mobile, automotive, and other chip businesses) achieved revenue of approximately 33.2 billion yuan, a year-on-year increase of 9%, while its QTL business (technology licensing business) achieved revenue of approximately 5.6 billion US dollars, a year-on-year increase of 5%. In the QCT business, revenue related to mobile phones was $24.9 billion, revenue related to automobiles was $2.9 billion, and revenue related to IoT was $5.4 billion. The mobile phone business increased by 10% year-on-year, the automotive business reached a record high of 55% year-on-year growth, while IoT decreased by 9% year-on-year.
At present, Qualcomm has expanded from a company that only provides chips for mobile phones to a company that provides chips for fields such as mobile phones, computers, automobiles, and industrial manufacturing. Moreover, Qualcomm is continuously strengthening its self-developed capabilities. At this year's Snapdragon Summit, Qualcomm announced that its self-developed Oryon CPU architecture has entered the fields of mobile phones, computers, and automobiles.
Since the debut of its self-developed architecture Oryon CPU on PC earlier this year, Qualcomm has successively launched related products based on Oryon CPU for mobile phones and new energy vehicles in October, including Snapdragon 8 Ultimate Mobile Platform, Snapdragon Cockpit Ultimate Platform, and Snapdragon Ride Ultimate Platform. The latter two are respectively applied to the intelligent cockpit and intelligent driving fields of new energy vehicles.
Oryon has completed the final piece of the puzzle for our entire SoC (System on Chip), "said Christoper Patrick, Senior Vice President and General Manager of Mobile Business at Qualcomm, at the Snapdragon Summit in early October, calling the self-developed architecture of mobile chips a" turning point in the industry.
While Qualcomm is increasing its self-developed capabilities, it also means that the company is getting rid of its dependence on the Arm public version. Qualcomm and Arm were long-term partners, and according to publicly available information, Qualcomm has been using Arm's publicly available version of the core to develop chips since Snapdragon 835. But in 2021, Qualcomm acquired a CPU company called Nuvia at a high price, and Nuvia chips are based on Arm's authorization. Arm believes that Qualcomm used Nuvia's customized chip design without consent, which violates the previous authorization agreement between the two parties. In October, Arm claimed that it would revoke Qualcomm's right to use Arm's IP to design chips and appeal to the court. The dispute will be heard in December this year.
According to the latest financial report, Arm's revenue reached $844 million in the previous fiscal quarter, a historic high. Among them, licensing revenue was $330 million, a year-on-year decrease of 15%, and royalty revenue was $514 million, a year-on-year increase of 23%. Although Arm's royalty income continues to increase, there are reports that the company is strengthening its licensing business, increasing its profit margin, and reducing its dependence on royalty income.
From a business perspective, the import of Arm's latest V9 architecture into end customers is driving performance growth. Arm stated in its financial report that the V9 architecture has begun to be applied in the fields of mobile phones and cloud computing, and its single-chip licensing revenue is higher than the revenue brought by previous architectures such as V8 and V7. At the same time, Arm is expanding its revenue sources, shifting from primarily relying on mobile phone revenue in 2016 to providing computing chips and other products for diversified fields such as mobile phones, consumer electronics, cloud computing, automotive, and the Internet of Things.
Although Arm has a wide range of downstream applications and a well-established ecosystem, it is currently facing significant pressure. In addition to tearing ties with its long-term partner Qualcomm, it also needs to accept the challenge of open source architecture RISC-V. In last year's IPO prospectus, Arm explicitly stated that if open-source RISC-V related technologies continue to develop, it will threaten Arm's business model, and Arm's customers may switch to using RISC-V for free instead of Arm's products and services. Qualcomm, which had an authorization dispute with Arm, attempted to apply RISC-V to chip design early on, but it has not yet been used in major CPUs.
Mobile business still dominates
In the previous fiscal quarter, Qualcomm's smartphone related revenue was approximately $6.1 billion. Its latest Snapdragon 8 Ultimate Edition has been applied to flagship models of domestic smartphones such as Xiaomi, Honor, OPPO, and Vivo, and will soon be launched on brands such as Samsung and Asus. In the fiscal year 24, our revenue from Android phones increased by 20% year-on-year, and the revenue of Chinese mobile phone brands showed a high-speed growth compared to the previous period, "Qualcomm executives said at the financial report meeting.
For Arm, the mobile phone royalty revenue in the previous fiscal quarter increased by 40% year-on-year, and the royalty revenue of Arm V9 accounted for 25% of the total revenue. The growth of V9 royalties mainly comes from mobile chip manufacturers. Arm executives explained at the earnings conference that "the significant increase in mobile phone royalty income is mainly due to more mobile chip designers adopting the V9 architecture, which has higher royalty prices." At the same time, Arm stated, "The Chinese mobile phone market is showing strong growth momentum, with significant sales growth of Chinese mobile phone brands such as Xiaomi, OPPO, Vivo, and most of their flagship models adopting the V9 architecture. Next year, we will seek opportunities for V9 architecture to enter mid-range models
It is believed that the return of consumer demand for high-end mobile phone models, especially from China, is the main factor driving the rapid growth of revenue and profits for both companies.
According to the latest data from Counterpoint, global smartphone shipments in the third quarter of 2024 increased by 2% year-on-year, with both revenue and average selling price reaching historic highs in the third quarter. Samsung leads the market in terms of shipment volume, while Apple ranks second. Three Chinese manufacturers, Xiaomi, OPPO, and Vivo, rank third, fourth, and fifth respectively. The report believes that the year-on-year growth of the mobile phone market is mainly due to the improvement of macroeconomic conditions and the recovery of consumer demand.
In the future, edge AI will drive further growth in the mobile phone market, but this growth will take time to see. Qualcomm's recently released Snapdragon 8 Ultimate mobile platform supports edge side AI functionality. It also claimed at its earnings conference that the market demand for edge side AI is still in its early stages, but the market situation is changing and a turning point will emerge. In the future, the demand for edge side AI will become very strong. Arm also stated in response to investor questions, "It will take time to observe what value end-to-end AI can bring to consumers. Once the underlying technology matures and is deployed, various applications will emerge, and demand will become apparent. However, overall, we are very optimistic about the future demand in this area