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Qualcomm's Quarterly Results Portend Good Things for the Semiconductor Industry

By Nicholas Rossolillo - May 3, 2021 at 7:45AM

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The 5G upgrade supercycle is here.

After a tough couple of years marked by U.S.-China trade disputes and then the coronavirus pandemic, Qualcomm (QCOM 1.66%) is back in growth mode. The leading mobile chip designer reported a 52% rally in revenue to $7.94 billion during its fiscal 2021 second quarter (the three months ended March 28, 2021), and net income surged 276% to $1.76 billion.

Consumers are back to purchasing smartphones again, and as they do so, devices equipped with 5G network-capable chips are featuring prominently. It adds up to higher-value sales for Qualcomm as the telecom industry enters a new era. But 5G is really only just the beginning.

The Qualcomm juggernaut is indicative of good things to come for the rest of the semiconductor industry as well. 

A woman laying on the floor and using a smartphone.

Image source: Getty Images.

Spending is up across the board

Qualcomm's earnings results weren't just a rebound from depressed sales during the pandemic a year ago. A global shortage of chips has emerged as all sorts of new consumer electronics and industrial equipment is in demand of circuitry. That's great news for a company like Qualcomm. The company's biggest end-market, smartphones, did account for most of the big jump in revenue in Q2. However, it's getting plenty of lift from other areas of its business as well, like networking equipment (included in RF front-end) and the automotive industry. 

Qualcomm Segment

Q2 2021 Revenue

 Change (YOY)

Handsets

$4.07 billion

53%

RF front-end

$903 million

39%

Automotive

$240 million

40%

Internet of Things (IoT)

$1.07 billion

71%

Technology licensing (QTL)

$1.61 billion

51%

Data source: Qualcomm. YoY = year over year. 

Qualcomm's forecast for the next quarter was pretty good too. Guidance includes its recently completed $1.4 billion acquisition of CPU maker Nuvia, which it plans to use to expand into new areas of the laptop and auto markets. At the midpoint of expectations, third-quarter 2021 revenue should be $7.5 billion (up 53% year over year) and earnings per share should be $1.34 (up 81%). This chip designer is well on its way to reaching new all-time highs for revenue and profitability as strong demand for its mobility hardware lifts business.

Great implications for chip investors

Besides the positive implications for Qualcomm itself, the latest report card portends good things for the chip industry overall in 2021 and beyond. Qualcomm is one of the largest semiconductor businesses around, but it only makes money from the design of chips and licensing of technology patents. Other companies handle actual fabrication of the chips. Qualcomm is thus a dog that wags the chip fabrication tail, which bodes well for the largest fabricators like Taiwan Semiconductor Manufacturing -- not to mention the outfits that supply chip fabs with the equipment they need. Qualcomm's report indicates there will be no shortage of new business for these firms. Mobile phone and auto electronics supplier NXP Semiconductor, which Qualcomm attempted to acquire a few years ago, similarly reported stellar results just a couple of days prior showing off a 27% year-over-year sales increase.  

Qualcomm's takeover of Nuvia and its plans to expand in the CPU chip space also have greater implications for the layout of the industry. Chipmaking giant Intel has had some stumbles in recent years, and its massive business worth some $80 billion a year is up for grabs. Qualcomm is but one designer trying to take a bite out of Intel's lead. AMD has been a pesky thorn in Intel's side for years, and NVIDIA made its own announced foray into CPUs recently. Qualcomm's success as of late, as mobility continues to expand and disrupt the computing industry status quo, forecasts great things for its smaller peers, and poses divide-and-conquest risk for Intel. 

One thing is clear: Qualcomm is participating in a new upcycle for semiconductors, and it's showing no signs of slowing anytime soon. At just shy of 21 times trailing 12-month earnings per share, this mobile chip leader is worth a look.

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