Qualcomm reported a very solid June quarter despite the stranglehold COVID-19 had on much of the world during the period. Two key items came out of Qualcomm’s earning call. First, the company stands by its forecast of 175 million to 225 million 5G smartphone shipments in 2020. In fact, Qualcomm added some confidence in that guidance, stating it expected smartphones to be at the high-end of that range. Much of the help came from strong 5G sales in China Counterpoint has written extensively on.
The second key announcement was of Qualcomm agreeing to a long-term licensing agreement with Huawei. Qualcomm will be paid $1.8 billion for back payments through June 2020. While Qualcomm EVP of QTL, Alex Rogers, stated the terms are confidential, the pact appears to be in broad agreement with current Qualcomm licensing terms. Qualcomm has no material volumes with Huawei selling chips due to US policy and Huawei having in-house hardware solutions. However, it is important because Huawei is still selling significant smartphone volumes in China even as volumes are tumbling in the rest of the world. Qualcomm will receive licensing payments on past and future device sales.
Other key takeaways from the quarter:
- Qualcomm guided to 145 million-165 million shipments during the September quarter. This is despite a delay in a key 5G flagship launch (probably Apple). OEMs usually buy chips two months before launch, so some will fall from the September quarter into the December quarter.
- The strong quarter is evidence smartphone markets are coming back – especially mature markets.
- The low-end of the market was impacted by COVID-19 more harshly. This hurt overall volumes but helped Qualcomm’s mix, ASPs and gross margins. A large portion of these sales were postponed but could come back, which should help recently announced 5G 600-series.
- Qualcomm added 15 new 5G licensees. There are almost 300 smartphones using 5G Snapdragons, and Qualcomm now supports every major handset OEM.
- RF front-end is now a major contributor for Qualcomm, registering about $750 million in revenue. Qualcomm expects its RF front-end market share to grow to 20%. Modem to antenna at the system level has tremendous integration and time-to-market benefits.
- Automotive remains an infotainment story with a pipeline of $7 billion. ADAS solutions remain ‘down the road’. Opportunities but certainly many challenges remain before significant automotive OEM announcements. COVID-19 has likely negatively impacted some work.
- COVID-19 has accelerated 5G hotspots, Wi-Fi and CPE sectors. Look for the fixed-wireless access market to be more competitive late in 2020.
- Other growth opportunities for Qualcomm:
- As vivo, OPPO and Xiaomi grow outside China, there is an opportunity for Qualcomm to gain share. It helps that Qualcomm is already supporting all major global operators with 5G.
- mmWave: Qualcomm is currently the only solution supporting global 5G in handsets. Others will certainly bring solutions, but Qualcomm does have a head start and will have a few generations under its belt. Rollouts of mmWave continue in the US and Japan, with China, South Korea, Russia, Finland, Italy and others expected to join by 2021.
- 5G edge compute applications: With prowess in low-power and high performance, this is a large opportunity for Qualcomm as 5G becomes more mainstream and unique cases increase.
