Despite a strong fiscal first quarter, Qualcomm's shares tank after the report is released
Qualcomm reported better-than-expected fiscal first-quarter earnings today although in after-hours trading shares of the fabless chip designer plunged. First-quarter earnings came in at $3.41 per share which was 24% above last year's fiscal Q1 results and the earnings were far beyond the $2.96 earnings per share number that Wall Street expected. Revenue, at $11.67 billion, rose 18% on an annual basis.
The unit that designs and sells chips to mobile device manufacturers saw its revenue rise 13% year-over-year to $7.57 billion. Wall Street analysts speaking to FactSet were looking for Qualcomm to announce chip sales for mobile products of $7.04 billion which would have been an annual increase of only 5%; Qualcomm more than doubled that estimate. Demand was heavy for Qualcomm's Snapdragon chipsets used on premium, flagship smartphones according to company CEO Cristiano Amon.
Qualcomm also reaped the benefits of Samsung's decision to equip all of its Galaxy S25 flagship series handsets with the new Snapdragon 8 Elite for Galaxy application processor (AP). Typically, Galaxy S25 and Galaxy S25+ units outside of the U.S., China, and Canada would have been powered by Samsung's own Exynos 2500 AP. However, poor yields achieved by Samsung Foundry for 3nm chip production led Samsung to hold off using the Exynos 2500 AP until the Galaxy Z Flip 7 and Galaxy Z Flip FE are released this summer.
Last month we told you that Samsung's decision to use the Snapdragon 8 Elite for Galaxy AP on all Galaxy S25 series handsets resulted in the sale of 12 million additional Snapdragon 8 Elite for Galaxy chipsets by Qualcomm. These sales generated $2 billion in added revenue for the San Diego-based Qualcomm. This year, Qualcomm expects the revenue from sales of smartphone chips to rise 10%.
Samsung's Galaxy S25 AP decision added $2 billion to Qualcomm's coffers this year. | Image credit-Qualcomm
Qualcomm CEO Amon also pointed out that the company will benefit from the recent release of the DeepSeek R1 AI model out of China. That's because its Snapdragon chips can run DeepSeek on device rather than in the cloud. Qualcomm also sells the chips used by Meta to drive its popular Ray-Ban smart glasses. In addition, the first Snapdragon Elite chips for laptops went on sale last year and already Qualcomm has a 10% market share in chips for laptops priced at $800 and above.
So if everything is going good, why did Qualcomm's shares drop $7.98 or 4.54% in after hours trading when the numbers were released? The decline is being blamed on the company's Intellectual Property licensing revenue which has a high profit margin of 75% compared to 32% for chips. A small miss in expectations in this segment ($1.54 billion in revenue versus analysts' expectations of $1.56 billion) led to the sell-off in the stock.To make matters worse, 2025 licensing revenue is expected to be 2% lower than estimates.
75% of Qualcomm's chip revenue comes from its smartphone customers. The business is not a fast-growing one which has led Qualcomm to seek out sales of chips for high-end Android handsets which carry higher prices and higher margins. Qualcomm needs this business since it will start to lose sales of its 5G modem chips to Apple beginning with the iPhone SE 4 (expected to be released during spring 2025) and continuing later this year with the iPhone 17 line.
Qualcomm's fastest-growing business segment is its automotive unit which had a strong 61% gain in fiscal Q1 revenue to $961 million.
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