Smartphone chipmaker Qualcomm Inc. today reported fiscal fourth-quarter financial results that surpassed analysts’ expectations, offered strong guidance for the current quarter, and talked up its prospects in artificial intelligence, sending its stock up more than 3% in extended trading.

The company reported a net profit for the quarter of $1.49 billion, down 48% from the $2.87 billion income it recorded a year earlier. Earnings before certain costs such as stock compensation came to $2.02 per share, while revenue fell 24% from a year earlier, to $8.67 billion. The results were better than expected, with analysts modeling earnings of just $1.91 per share on sales of $8.51 billion.

For the full year, Qualcomm’s revenue declined 19%, to $35.83 billion, while its net income fell 44%, to $7.23 billion.

Qualcomm’s fortunes are directly linked to the smartphone industry, which has been in a slump for almost two years following a COVID-19 pandemic-driven boom in sales. The company’s processors sit at the heart of almost every high-end Android smartphone and most low-end handsets too. It also supplies key components for Apple Inc.’s iPhones and iPads.

Though smartphone sales have been declining, Qualcomm Chief Financial Officer Akash Palkhiwala said on a conference call there are reasons to be optimistic going forward. “We are seeing early signs of stabilization in demand for global 3G, 4G and 5G handsets,” he told analysts. He added that the company now expects total shipments of its handset chips to decline in the “mid- to high single-digit percentage” in 2023 compared with a year earlier, which is better than it had previously expected.

That may well be the reason for Qualcomm’s optimistic guidance for the current quarter. Officials said they’re expecting fiscal first-quarter 2024 earnings of between $2.25 and $2.45 per share, with sales of between $9.1 billion and $9.9 billion. That’s ahead of Wall Street’s call for $2.23 per share in earnings and $9.2 billion in sales. The midpoint of its revenue guidance also suggests slight growth from the same period in fiscal 2023.

In the quarter just gone, Qualcomm’s CDMA Technologies business segment, which covers chips for smartphones, cars and other smart devices, delivered revenue of $7.37 billion, down 26% from a year earlier. Within that segment, handset chip sales fell 27%, to $5.46 billion, above Wall Street’s target of $5.34 billion.

The QCT business also includes sales of automotive chips, which rose 15% in the quarter, to $535 million. It’s still a small segment, but officials will be pleased at their ability to drive growth by persuading more carmakers to use its chips. As for the internet of things unit within QCT, it delivered sales of $1.38 billion, down 31% from a year ago.

Qualcomm Technology Licensing, the business unit that generates revenue from the company’s numerous patents, reported $1.26 billion in sales, down 12% from a year earlier and in line with consensus estimates.

Despite the substantial revenue declines across its key business segments, Qualcomm’s ability to beat Wall Street’s expectations gave both its investors and the broader markets something to cheer about, due to its status as a bellwether in the global smartphone and mobile industries, said Charles King of Pund-IT Inc.

“Those sectors have been suffering for the past two years so a bit of bright light is welcome,” King explained. “Whether that optimism is warranted remains to be seen, but other than soft spots in its IoT business, Qualcomm delivered the goods for its own shareholders and gave countless others reason for hope.”

In recent months, Qualcomm has been trying to position itself as a player in the artificial intelligence industry. Its most advanced chips support features that enable some kinds of AI workloads to be processed on device, and it believes this can help it profit from the huge interest enterprises have shown in the technology.

Last month, the company announced its latest flagship mobile processor, the Snapdragon 8 Gen 3, which is expected to power the next generation of top-end Android smartphones. The Snapdragon 8 Gen 3 features an NPU, or neural processing unit, that offers up to 98% higher performance than Qualcomm’s previous-generation silicon.

Together with various AI-optimized components, the new chip forms a subsystem called an AI Engine that will enable flagship smartphones to run neural networks with up to 10 billion parameters. The AI Engine allows large language models to process up to 20 tokens per second, which corresponds to a few words or sentences.

In a statement, Qualcomm Chief Executive Cristiano Amon told investors that the latest chip will “establish Qualcomm as a leader in on-device generative AI and mobile computing performance.”

In September, Qualcomm surprised investors when it announced it will continue to supply Apple with 5G modems for iPhone handsets until at least 2026. Previously, it had been suggested that Apple might switch to a different modem supplier. The announcement was a big boon for Qualcomm, as it’s often said that the iPhone maker is one of its biggest customers, accounting for more than 20% of its annual revenue.

During the quarter, Qualcomm also revealed it will cut 1,258 jobs, the latest in a string of cost-cutting measures it has implemented over the past year to try to offset its declining revenue.

Holger Mueller of Constellation Research Inc. praised Amon and his executive team for reducing the company’s cost base by more than $500 million while avoiding cuts to its research and development budget. “This is what helped Qualcomm to generate the income it did,” Mueller said. “The new Snapdragon chip has a lot of promise, but it’s likely that the company will face a few more challenging quarters before it starts growing its revenue significantly again.”

Photo: Qualcomm