QCOM Financial Analysis

Analysis Date: 2/6/2025

Business Model

Qualcomm operates through two main revenue streams: QCT (Qualcomm CDMA Technologies) which generates revenue from equipment and services, primarily the sale of integrated circuits and system software; and QTL (Qualcomm Technology Licensing) which generates revenue from licensing intellectual property, including patents essential to wireless products.

Revenue Sources

• Equipment and Services (QCT): Sale of integrated circuits and system software for mobile handsets, automotive, and IoT (Internet of Things) including consumer, industrial and edge networking.
• Licensing (QTL): Royalties from licensing intellectual property portfolio, primarily patents essential to and/or useful in the manufacture and sale of wireless products.

Income Statement Analysis

• Total Revenue increased by 17.45% year-over-year, driven by a significant increase in Equipment and Services revenue (19.55%) and a moderate increase in Licensing revenue (6.61%). This indicates strong demand for Qualcomm's products and services. (Pro)
• Cost of Revenues increased by 19.69%, slightly outpacing revenue growth, leading to a minor decrease in gross margin percentage. (Neutral to Slight Con)
• Research and Development expenses increased by 6.39%, but as a percentage of revenue, it decreased, indicating improved efficiency in R&D spending relative to revenue growth. (Pro)
• Selling, General, and Administrative expenses increased by 15.31%, but as a percentage of revenue remained stable, suggesting controlled SG&A spending relative to revenue increase. (Neutral)
• Operating Income saw a strong increase of 21.41%, reflecting healthy core business performance. (Pro)
• Interest Expense decreased by 8.43%, slightly improving profitability. (Pro)
• Investment and Other Income, Net increased by 14.62%, contributing positively to pre-tax income. (Pro)
• Income Tax Expense significantly increased by 201.32%, leading to a lower percentage increase in Net Income compared to Operating Income. This substantial increase in tax expense needs further investigation to understand its drivers and sustainability. (Con)
• Net Income increased by 14.92%, a solid growth but lower than the Operating Income growth due to the surge in income tax expense. (Neutral)

Balance Sheet Analysis

• Cash and Cash Equivalents increased by 11.01%, indicating a stronger liquidity position. (Pro)
• Accounts Receivable decreased by 9.65%, potentially suggesting improved collection efficiency or changes in sales patterns. (Pro, needs further context)
• Inventories slightly decreased by 1.87%, indicating efficient inventory management amidst revenue growth. (Pro)
• Other Current Assets increased significantly by 20.79%, requiring further investigation to understand the nature of these assets and the reason for the increase. (Neutral, needs further investigation)
• Property, Plant, and Equipment decreased by 4.40%, potentially due to depreciation exceeding capital expenditures or asset disposals. (Neutral)
• Total Liabilities slightly decreased by 0.64%, indicating stable liability management. (Neutral)
• Retained Earnings increased by 3.58%, driven by net income, contributing to overall equity growth. (Pro)
• Accumulated Other Comprehensive Income decreased significantly by 53.49%, primarily due to foreign currency translation losses and net unrealized losses on securities and derivatives. This is a con as it reduces overall equity, but OCI is often volatile and may not represent core operational issues. (Con, but needs context)

Capital Allocation

Qualcomm's capital allocation strategy is focused on returning value to stockholders through dividends and share repurchases, while also investing in future growth through strategic acquisitions and R&D. In Q1 2025, Qualcomm returned $2.7 billion to stockholders, including $1.8 billion in stock repurchases and $942 million in dividends. The company also actively pursues strategic acquisitions and investments to expand its technology portfolio and market reach, as evidenced by the increase in 'Acquisitions and other investments, net of cash acquired' in the cash flow statement. Reinvestment is evident in continued R&D spending, although it increased at a slower pace than revenue growth, indicating operating leverage.

Management Commentary

In fiscal Q1, we delivered record revenues of $11,700,000,000 and non GAAP earnings per share of $3.41 Our chipset business achieved record revenues of $10,100,000,000 the first ten billion dollars quarter for QCT, including record quarterly handset and automotive revenues.

Licensing business revenues were $1,500,000,000 W e're off to a great start in fiscal 'twenty five. Our mobile roadmap is the strongest in our history with exceptional traction for Snapdragon in premium tier handsets and we are delivering growth across our diversification initiatives.

This quarter, automotive and IoT revenues grew 61% year over year and 36% year over year respectively.

We are committed to achieving $22,000,000,000 on non handset revenues by 2029 as outlined during our twenty twenty four Investor Day.

QTL revenues of $1,500,000,000 and EBT margin of 75% were in line with expectations.

In QTL, we estimate revenues of $1,250,000,000 to $1,450,000,000 and EBT margins of 69% to 73%, reflecting normal seasonality for handset units.

On a sequential basis, the decline in QCT handset revenues is primarily driven by seasonality in shipments to Apple.

Overall Sentiment: Positive. Management expresses strong optimism and satisfaction with record financial results, particularly in QCT segment and diversification areas like automotive and IoT. They highlight strong product momentum and strategic execution, reinforcing a positive outlook for FY25.

Recommendation

Rating: Buy

Reason for Rating: Based on strong Q1 2025 performance, record revenues and EPS, robust growth in key segments like automotive and IoT, and positive management outlook, a 'Buy' recommendation is warranted. The company demonstrates strong execution and market leadership.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/6/2025, 10:06:55 AM