Qualcomm (QCOM) is set to announce its second-quarter earnings this Wednesday, following a report that it is developing a smartphone chip in collaboration with OpenAI. Ming-Chi Kuo, an analyst from F International Securities, indicated that Qualcomm’s chip is anticipated to enter mass production by 2028. This endeavour aims to challenge the dominant positions of Apple (AAPL) and Google (GOOG) in the smartphone market, a feat that several companies including Amazon (AMZN), Meta (META), and Microsoft (MSFT) have struggled to accomplish.
However, the timing of this announcement coincides with ongoing difficulties in the smartphone market. A global memory crisis is affecting supply chains, resulting in higher prices and diminishing demand for entry-level smartphones. According to the International Data Corporation (IDC), global smartphone shipments declined by 4.1% in the first quarter of the year, totalling 289.7 million units—ending a growth streak that had continued for ten quarters since mid-2023. IDC stated that this initial decline could signal further downturns for the remainder of the year, describing it as a “mild precursor” to anticipated market challenges.
Bernstein Research’s Stacy Rasgon warned that the smartphone sector could see unit shipments decrease by double digits this year. Given that Qualcomm’s primary source of revenue comes from its handset business, which is under pressure, the company is seeking to diversify its revenue streams by expanding into data centre chip sales, as well as automotive and robotics sectors. Nonetheless, Rasgon believes that these diversification efforts may not be sufficient to counterbalance the expected decline in smartphone unit shipments.
For the upcoming second quarter, analysts, as per Bloomberg consensus estimates, expect Qualcomm to report earnings per share (EPS) of $2.55 and revenue of $10.56 billion. This marks a decrease from the previous year’s second quarter, where the EPS was $2.85 with revenue reaching $10.83 billion. The projections indicate that Qualcomm’s handset segment is anticipated to experience the most significant decline, with an expected drop of 12.5% year-on-year to around $6.05 billion. Meanwhile, the company’s QCT division, which comprises revenues from handsets, automotive, and internet-of-things, is forecasted to decline by 3.5% to an estimated $9.13 billion. Qualcomm’s licensing segment is projected to generate sales of approximately $1.32 billion.
Qualcomm’s CEO, Cristiano Amon, may offer some positive insights during a keynote address at the upcoming Computex conference in Taiwan, titled “AI Together.” This event could provide clarity on the company’s strategies for its data centre operations and potential growth within that sector.
In summary, Qualcomm is navigating a challenging landscape as it prepares for its quarterly earnings report amidst a contracting smartphone market. While its efforts to innovate and diversify may bear fruit in the long-term, current trends suggest significant hurdles ahead in the near future.
