Qualcomm Sees 'Robust' 5G Transition, Huawei Ban Squeezing Supply
Global adoption of 5G and "increasingly complex technical requirements" are driving a multiyear industry transition that “plays to our strength,” said outgoing Qualcomm CEO Steve Mollenkopf on a fiscal Q1 call Wednesday. See quarterly materials here. Strong demand for 5G handsets, and growth in RF front-end, automotive and IoT, drove a record 62% year-over-year increase in revenue to $8.2 billion for the quarter ended Dec. 27. Profit jumped 165% to $2.5 billion, but “the strong performance and outlook would have been even stronger had we not been supply constrained,” said Mollenkopf.
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In Q&A, President Cristiano Amon attributed semiconductor supply constraints to higher demand resulting from the ban on Huawei equipment in various markets. Amon succeeds Mollenkopf as CEO June 30 (see personals section, Jan. 6). Huawei has 16% of the global smartphone market, and “that becomes available to us across all of our OEMs, so that's driving a situation that demand is outpacing supply.” The stock closed 8.8% lower Thursday at $147.97.
For the next two quarters, Qualcomm sees demand “significantly outpacing supply given the constraints affecting the industry,” said Chief Financial Officer Akash Palkhiwala. Beyond Q3, the company forecasts strong growth across its QCT segment, driven by device launches, design win traction and strength in adjacent platforms.
Qualcomm expects total handsets to grow in high single digits for calendar 2021, assuming an impact from COVID-19 in the first half. “With Apple now in our revenue stream, there's a different seasonality than we've had in the past,” said Palkhiwala. The company expects the situation "to normalize toward the second half," Amon said; it projects share gains in the premium smartphone segment for the fiscal year. Qualcomm has over 120 design wins for the recently launched premium-tier Snapdragon 888 mobile platform, Palkhiwala said.
Qualcomm expects an expansion of the addressable market for 5G phones, pegging it for calendar 2021 at 450 million-550 million units, up from about 225 million last year, said Amon. "The 5G transition is robust," he said: "The device ecosystem has moved on."
A 7% drop in 3G, 4G and 5G handset shipments in Q1 was steeper than the 5% reduction the company forecast. Palkhiwala attributed lower-than-expected results to impact from COVID-19 and “softness in domestic China shipments.” Global 3G, 4G and 5G handset shipments fell 12% for calendar 2020. Automotive revenue grew 44% vs. the year-ago quarter to $212 million. Telematics and digital cockpit products benefited from an “industry rebound,” said Palkhiwala.
Mollenkopf referenced a “strong pipeline for further growth” in smartphones, with 120 5G license agreements signed in the quarter, up from 111 license agreements last quarter. Qualcomm has become one of the largest RF suppliers in the smartphone ecosystem, supporting 4G and 5G sub-6 bands, along with 5G millimeter-wave bands, he said.
Amon said: "You need millimeter-wave for the full potential of 5G," especially for more advanced applications beyond smartphones. MmWave is a requirement for premium devices in the U.S., "and we're very pleased to see that one of our large customers had brought mmWave across all price points of their devices." Germany initiated auction rules for mmWave at 26 GHz, he noted, and China is likely to have mmWave for 2022. The chipmaker guided to handset revenue of $4.2 billion, a 79% bump, for fiscal Q2, and a 157% increase in the RF front-end segment to $1.1 billion. Palkhiwala forecast overall revenue of $7.2 billion-$8 billion for the quarter.