Shares of Qualcomm (QCOM -0.74%) jumped nearly 10% following the release of its fiscal 2022 second-quarter results on April 27, as investors gave a thumbs-up to the massive increase in the company's revenue and earnings.
The chipmaker's numbers comfortably bested Wall Street's estimates, and the guidance was also ahead of expectations. A closer look at Qualcomm's numbers and outlook will make it clear why investors were in an upbeat mood following the company's results.
Qualcomm crushes expectations thanks to solid smartphone demand
Qualcomm's fiscal Q2 revenue for the three months ending on March 27 shot up 41% year over year to a record $11.15 billion, while adjusted earnings increased 69% to $3.21 per share. Analysts were looking for $2.95 per share in earnings from the company on revenue of $10.6 billion, but robust demand for chips that are used in smartphones helped it easily clear those expectations.
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Qualcomm generated $6.3 billion in revenue from sales of smartphone processors, up 56% over the prior-year period. This impressive growth was driven by an increase in Qualcomm's share of the premium smartphone processor market. For instance, the chipmaker's Snapdragon processors are powering 75% of Samsung's Galaxy S22 flagship smartphones this year. The Korean giant was using Qualcomm's processors in 40% of its Galaxy S21 flagship devices last year.
Management points out that the company has been gaining traction with other leading smartphone OEMs (original equipment manufacturers) as well. These include the likes of Xiaomi, Oppo, and Vivo -- companies that have been dominating the smartphone sales chart across the globe. Qualcomm says that it is the "mobile technology platform of choice for premium and high tier Android" smartphones at these OEMs.
It is worth noting that Samsung, Xiaomi, Oppo, and Vivo together accounted for 55% of global smartphone sales in the first quarter, according to market research firm Canalys. Another impressive thing about Qualcomm is that its handset-related revenue increased impressively even though global smartphone shipments were down 11% year over year in the first quarter of 2022, indicating that Qualcomm is indeed gaining share in the smartphone processor market.
According to Counterpoint Research, Qualcomm's share of the smartphone application processor market had increased to 30% in the fourth quarter of 2021 from 23% in the year-ago period. The company's latest numbers indicate that the trend has continued.
Meanwhile, the demand for Qualcomm's front-end radio frequency (RF) modules is also increasing nicely thanks to the growing adoption of 5G smartphones. The company recorded $1.2 billion in revenue from sales of front-end RF modules last quarter, up 28% from the year-ago period. The good part is that Qualcomm is now the leading seller of front-end RF modules, according to Strategy Analytics. The chipmaker had a 20% share of this space in 2020, and Strategy Analytics estimates that it may have pulled ahead of its peers in 2021.
With the front-end RF module market expected to clock 11% annual growth through 2026 thanks to the growing adoption of 5G smartphones, this market should unlock another solid revenue opportunity for Qualcomm given its growing share of this space.
A solid guidance points toward better times
Qualcomm anticipates earnings of $2.75 per share to $2.95 per share in the current quarter on revenue of $10.5 billion to $11.3 billion. Analysts were looking for $10 billion in revenue, but the solid momentum of the smartphone business has paved the way for a stronger performance. The midpoint of Qualcomm's guidance points toward impressive year-over-year growth, as the company had generated adjusted earnings of $1.92 per share in the prior-year period on revenue of $8 billion.
More importantly, the secular growth of the smartphone market, especially 5G devices, should help Qualcomm sustain its terrific momentum in the long run. Global 5G subscriptions are expected to jump from 554 million last year to 3 billion in 2025, according to third-party estimates, which should set Qualcomm up for impressive growth.
Not surprisingly, analysts expect Qualcomm's earnings to increase at an annual pace of nearly 15% for the next five years. That would be a massive improvement over the negative earnings growth the company has recorded in the last five. But it won't be surprising to see Qualcomm clock faster earnings growth in the future given the new catalysts that could come into play.
All of this indicates that Qualcomm could turn out to be a top semiconductor pick in the long run, which is why investors should consider buying the stock while it is still cheap. Qualcomm is trading at just 14 times trailing earnings as compared to its five-year average earnings multiple of 27. The stock is also cheaper than the S&P 500's earnings multiple of 25.
Qualcomm's post-earnings spike could make the stock go parabolic (when the stock makes an upward price run that looks like the right side of a parabolic curve), so now would be a good time to go long.
