Qualcomm reported strong quarterly earnings with revenues up 5% and net income up 13%. The 1.5x larger ASPs of 5G vs. 4G are beginning to be seen. “Our strong fiscal first quarter financial performance reflects a significant inflection point for Qualcomm as we begin to realize the benefits from the ramp of 5G,” said Steve Mollenkopf, CEO of Qualcomm.
Qualcomm key results:
- Licensing revenues were up 41% year-over-year
- 5G design wins are up to 85 OEMs; virtually all are also designing in QCOM’s RF front-end
- Currently, mmWave hardware is in the US market; QCOM expects mmWave to launch in Japan and Korea in 2020; Europe, China, and other countries later; eventually all regions
- Expectations that 5G will fall to $285 in China and at this price point it would be able to address about 40% of the market
- Snapdragon 855 is ramping and 2/3 of the 5G pipeline is taking its second 5G platform
- QCOM expects sales of 175 million to 225 million 5G handsets in 2020
- Apple is paying royalties again and QCOM expects to begin recording equipment revenues for new chipset modules under their multi-year chipset agreement with Apple in the second half of fiscal 2020
- Huawei did not pay royalties during the quarter and negotiations appear to be ongoing
- Lawsuit against the FTC still in appeal
- Quarterly gains were slightly offset by 4G premium tier stalling before the ramp of 5G and lower modem sales to Apple (QCOM was designed out of recent models)
For more on recent QCOM LTE platforms launching, see here.
5G is beginning to ramp:
It is not only Qualcomm’s positive year-over-year gains that show that 5G is beginning to ramp. Skyworks and Qorvo results show the same. This is just the beginning. Later in 2020 and 2021 will see 5G driven into lower price tiers and more global carriers serious about getting data traffic moved over to 5G infrastructure.
5G smartphones are the immediate opportunity. 5G suppliers are also seeing meaning revenues coming from fixed wireless opportunities. Soon other opportunities including high definition streaming, new markets in IoT, and 5G aiding assisted driving will be live.
For more on the application processor landscape, see here.
Qualcomm, like most other tech companies, is baking-in some downside to its upcoming quarters due to the corona virus. It is different for different OEMs. The business disruption from the virus can impact supply chains, product development, production or customers. For some OEMs, only one of these are threatened. For others, all of them are threatened.
Most technology companies are being cautious. Most are postponing travel to/from China. Many are limiting all travel (to see customers, attend global industry events, for example). Precautions are being re-evaluated weekly.
Many companies are reluctant to guide past one quarter due to the massive uncertainty caused by the coronavirus.
The coronavirus has put the risk of the Phase 1 trade agreement between China and the US on the back burner. If the coronavirus threats are mitigated over the next two months, more attention will be back on the China – US trade deal. The deal was limited and ambiguous. It did, however, stop new tariffs on smartphones, consumer electronics, and other goods. Some tariffs were reduced to 7.5% from 15%. Some tariffs have remained at 25%. The details on technology transfer agreements and intellectual property protections remain unknown.
China is reducing some tariffs in February on US goods including crude oil, soybeans and meat products. This may be a good faith move to help China receive some flexibility in other parts of the trade agreement. Some of the large purchase obligations may be more difficult due to the slowdown the coronavirus put into the Chinese and global economy. Look for limited new agreements until after the US election in November. Until then, there will remain uncertainty within the mobile and technology segments.