The big story developing around the global semiconductor market for 2023 is a decline in the first half of the year, followed by a rebound in the second half. Many companies, including those focused on PCs and data centers, have confirmed as much in their financial outlooks provided during first-quarter 2023 earnings calls.

But a second-half comeback may not be in the game plan over at leading mobile chip designer Qualcomm (QCOM 1.62%). The smartphone market keeps worsening, and Qualcomm management said excess inventory needs more time to be sold off. The good news is that Qualcomm stock is cheap by several metrics. Is it still a good value in light of this updated information?

Is Qualcomm conceding defeat in 2023?

First are the headline numbers from Qualcomm's Q2 fiscal 2023 (the three months ending in March 2023). Revenue was $9.28 billion, near the high end of guidance provided a few months ago but, nevertheless, down 17% from last year. And as with any business tied to cyclical manufacturing, profit was down even more as sales took a slide. Earnings per share (EPS) fell 41% year over year, or 33% on an adjusted basis. EPS came in right in the middle of the guidance management provided.

Of far more importance was guidance. For fiscal Q3, Qualcomm said to expect revenue in the range of $8.1 billion to $8.9 billion and adjusted EPS to be $1.70 to $1.90. At the midpoint, that implies a year-over-year revenue decline of 22% and an adjusted EPS decline of 39%. For the record, revenue and adjusted EPS jumped 37% and 54%, respectively, in Q3 last year. Thus, Qualcomm isn't completely giving up all of the gains it picked up in the last few years as the era of 5G got rolling.

But the real sour note was on guidance for the balance of fiscal 2023 and into fiscal 2024 (corresponding to the second half of calendar year 2023). While other consumer electronic chip companies are forecasting a return to growth in the back half of this year, Qualcomm is not. That's a bit more negative than the language last quarter. Specifically, CEO Cristiano Amon had this to say on the earnings call:

The evolving macroeconomic backdrop has resulted in further demand deterioration, particularly in handsets, at a magnitude greater than we previously forecasted. As a result, we're operating under the assumption that inventory drawdown dynamics remain a significant factor for at least the next couple of quarters. Additionally, while expectations are for a rebound in China demand in the second half of the calendar year, we have not seen evidence of meaningful recovery and are not incorporating improvements into our planning assumptions.

In other words, current smartphone sales -- particularly in China, which is still rebounding from a long COVID-19 lockdown -- aren't reducing inventory as quickly as I thought they would. This dynamic will likely keep a lid on any sales recovery for much of this year.

Don't focus on individual battles but on the overall war

If you're looking for some silver lining like I am, here's one nugget: Qualcomm remains highly profitable even in a nasty, prolonged downturn. Even with sales down in the dumps, free cash flow (FCF) throughout the first half of this fiscal year was $3.7 billion -- flat compared to the same period last year and a FCF profit margin of 20%. As it often does, all of this FCF was used to pay the dividend ($1.68 billion and currently yielding 2.8% a year) and fund share repurchases ($2.17 billion) through the first half of fiscal 2023.

And bear in mind that FCF includes spending on future chip development. Qualcomm continues to advance its high-end processors for smartphones and other mobile devices, an important development as Amon and company think the full force of generative AI (like ChatGPT, Stable Difusion, DALL-E, etc.) will be unlocked once some of that powerful computing is pulled out of the cloud and processed locally on-device.

Amon highlighted how their latest Android smartphone processor was recently demonstrated to be capable of running text-to-image service Stable Diffusion. More advances in this AI department are expected later this year.

In the battle to diversify beyond smartphones, progress is also being made in automotive. Sales in this segment actually grew 20% year over year to $447 million last quarter. Automotive tech is still small at Qualcomm, but it's making rapid progress. Amon said they are eyeing a few opportunities to potentially make an acquisition and accelerate growth in autos.

But the big question here is whether this future growth -- which has likely been pushed off into 2024 and beyond -- makes Qualcomm stock a buy today. I, for one, remain steadfast in the belief that this stock is too cheap to ignore. It trades for less than 16 times the trailing-12-month FCF or just 11 times trailing-12-month EPS. As was the case last quarter, I'll reiterate that the valuation could worsen as this year progresses and EPS falls. But Qualcomm is proving more than capable of maintaining stable FCF.

This latest quarter wasn't great, but Qualcomm is still a top semiconductor stock to buy in my book.