Earnings call transcript: Qualcomm Q2 2025 beats EPS forecasts, stock dips

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Overview

The earnings call highlights strong financial performance with significant year-over-year growth in non-GAAP revenues and EPS. The automotive and IoT sectors are particularly robust, with impressive growth rates. The company's commitment to returning 100% of free cash flow to shareholders is a positive signal. Although QTL revenues were flat and slightly below guidance, the overall sentiment remains positive due to strong performance in other areas. The Q&A session did not reveal major concerns, and the management's confidence in their strategy, despite macroeconomic uncertainties, supports a positive outlook.

Key Financial Performance

Non GAAP Revenues $10,800,000,000, up 17-21% year-over-year, driven by strength across handsets, automotive, and IoT.

Non GAAP Earnings Per Share (EPS) $2.85, up 17-21% year-over-year, reflecting strong revenue growth.

QTL Revenues $1,300,000,000, flat year-over-year, slightly below guidance due to lower handset units in emerging regions.

QCT Revenues $9,500,000,000, up 12% year-over-year, driven by strength in handsets, IoT, and automotive.

QCT Handset Revenues $6,900,000,000, up 12% year-over-year, benefiting from increased premium tier Android shipments.

QCT IoT Revenues $1,600,000,000, up 27% year-over-year, driven by demand for products with connectivity, processing, and AI technologies.

QCT Automotive Revenues $959,000,000, up 59% year-over-year, reflecting increased content in new vehicle launches.

EBITDA Margin 70%, flat year-over-year, slightly below guidance due to lower handset units.

Stockholder Returns $2,700,000,000, including $938,000,000 in dividends and $1,700,000,000 in stock repurchases.

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Operating Highlights

New Product Launches: Qualcomm announced the x85 4G modem, the world's most advanced AI-powered modem to antenna system, which will ship in handsets, automotive, and IoT products starting in the second half of the year.

AI Integration: Several new state-of-the-art small language and multimodal models were released, with some already running on Snapdragon platforms, indicating Qualcomm's strong position in the AI space.

Snapdragon 8 Elite: The Snapdragon 8 Elite platform is gaining traction with 90 flagship designs shipped or announced globally, including innovative flip-style devices.

PC Market Expansion: Qualcomm aims to achieve $4 billion in revenues from the PC segment by fiscal 2029, with over 85 designs in production or development.

XR Developments: Qualcomm reported over 15 designs of smart glasses from global partners, indicating growth in the XR market.

Market Positioning in Automotive: Qualcomm secured 30 new designs in automotive, including five ADAS programs, and aims for $8 billion in automotive revenues by fiscal 2029.

IoT Market Growth: IoT revenues increased by 27% year-over-year, driven by demand for products with connectivity, processing, and AI technologies.

China Market Dynamics: Despite tariffs, Qualcomm's position in China remains strong, with no signs of a slowdown in design traction.

Operational Efficiency in AI: Qualcomm's collaboration with Palantir and acquisitions of Edge Impulse and Focus AI enhance their capabilities in industrial IoT and AI.

Financial Performance: Qualcomm reported non-GAAP revenues of $10.8 billion and non-GAAP EPS of $2.85, reflecting strong performance across various segments.

Strategic Focus on AI and Edge Computing: Qualcomm is focused on driving the next wave of AI smartphones and growing non-handset revenues to $22 billion by fiscal 2029.

Capital Return Strategy: Qualcomm increased its capital return target to 100% of free cash flow in fiscal 2025, reflecting confidence in cash flow generation.

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Risk or Challenges

Macroeconomic Environment: Uncertainty around the global trade landscape and its impact on demand across Qualcomm's businesses. The company is closely monitoring the situation, particularly regarding tariffs.

Supply Chain Diversification: Qualcomm has a diversified global supply chain, which positions it well to navigate challenges arising from tariffs.

Tariff Impact: No material direct impact from tariffs observed yet, but potential indirect effects are being monitored.

Competitive Pressures: The competitive landscape remains stable, with Qualcomm maintaining strong relationships with major customers, particularly in the premium tier market.

China Market Dynamics: Concerns about customers potentially moving away from U.S. suppliers due to tariffs, but Qualcomm's unique product offerings and strong design traction in China mitigate this risk.

Regulatory Issues: Ongoing discussions regarding Huawei royalty revenue, with no updates on negotiations.

Economic Factors: General macroeconomic uncertainty affecting guidance and demand, particularly in the handset market.

Emerging Market Weakness: Weakness in emerging regions impacting handset unit sales, which could affect revenue.

Customer Order Patterns: No significant pull-ins from customers noted, indicating stable ordering patterns.

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Guidance & Outlook

Non-Handset Revenue Target: Qualcomm aims to grow non-handset revenues to $22 billion by fiscal 2029.

Automotive Revenue Target: Qualcomm is on track to reach $8 billion in automotive revenues by fiscal 2029.

Industrial IoT Revenue Target: Qualcomm targets $4 billion in industrial IoT revenues by fiscal 2029.

XR Revenue Target: Qualcomm aims for $2 billion in XR revenues by fiscal 2029.

Acquisitions: Qualcomm acquired Edge Impulse and Focus AI to enhance its capabilities in industrial IoT and edge AI.

AI Integration: Qualcomm is integrating AI capabilities into its platforms to enhance real-time insights and data-driven decisions.

Q3 Revenue Guidance: For Q3, Qualcomm forecasts revenues between $9.9 billion and $10.7 billion.

Q3 EPS Guidance: Non-GAAP EPS is projected to be between $2.60 and $2.80.

QTL Revenue Guidance: QTL revenues are expected to be approximately flat year-over-year, between $1.15 billion and $1.35 billion.

QCT Revenue Guidance: QCT revenues are expected to be between $8.7 billion and $9.3 billion, reflecting approximately 12% year-over-year growth.

Operating Expenses Guidance: Non-GAAP operating expenses are estimated to be approximately $2.25 billion.

Capital Return: Qualcomm is increasing its capital return target to 100% of free cash flow for fiscal 2025.

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Shareholder Return Plan

Dividends Paid: $938,000,000 in dividends were paid to stockholders.

Stock Repurchases: $1,700,000,000 was spent on stock repurchases.

Capital Return Target: Qualcomm increased its capital return target to 100% of free cash flow for fiscal year 2025.

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Key Q&A

Q:Could you maybe spend a couple of minutes talking through what kind of assumptions you’re baking into, in particular your guidance in the handset market?

A:Our approach on tariffs is really our guidance reflects our current assessment of the financial impact from it. We do not see any material direct impact to us at this point. The landscape obviously is dynamic, so we’re closely monitoring.

Q:I think a quarter ago, you expressed some optimism, but certainly didn’t include it any Huawei royalty revenue in the model. Any updates to share on those negotiations?

A:There really aren’t any updates. Discussions will be ongoing, but we don’t have any updates right now.

Q:If I can start on the IoT segment and just in relation to the it seems like that is the segment you saw the most upside related to your own expectations for the quarter. If you can just flesh out what drove that upside?

A:In the IoT area, we saw tremendous growth in the quarter. We reported results. So 27% year over year growth. And we saw growth across all three areas, so consumer, networking and industrial.

Q:Can you talk about your M and A pipeline and strategy here?

A:If you look, we had made acquisitions in the past to create our automotive business, which we feel very confident about how complete our roadmap is. We made acquisitions such as Nuvia, which enable us to create an opportunity in compute.

Q:Is there anything besides just the macro that you would sort of point us away from thinking of that as like a normal Q3?

A:As we look at the fourth quarter, obviously, the underlying factor there is the macro environment. And so we’ve reflected the best information we have today.

Q:How do you handicap your China business? Are you seeing signs of the customers wanting to move away from U.S. suppliers like you and move more to MediaTek?

A:At this point, we feel their position is strong because it has to do with how unique our product is and how relevant our product is for the global ambition for our customers.

Q:Could you break out the relative strength of the two buckets that would drive that the China business and then your other large customer?

A:From a subsidy perspective in China, what we’ve seen is really the total units for the March came in line with expectations.

Q:What does that mean for the growth of the PC business within IoT this year?

A:We started at the top of the road map and established ourselves as the performance leader. And since then, we’ve introduced a total of four platforms, which addresses PCs all the way down to $600.

Q:Can you talk about the growth drivers in auto?

A:There are a couple of drivers. I think if you remember when we outlined and disclosed the pipeline, we said one third of that was ADAS.

Q:Could you address maybe competition, whether you guys are seeing either more or less pressure, particularly at the high end?

A:Competitive landscape has not changed for us at all. I think if we break that down by customer group, I think we have on Samsung a relationship that is very stable.

Q:Why does this work so well in mobile?

A:It’s interesting. There’s it seems to be a little bit of an impatience I think about what’s happening with AI, especially with mobile and PCs.

Q:What was the reasoning behind boosting the free cash flow return to 100% return to shareholders?

A:We’ve had very strong cash flow for the last couple of years. And so we’ve seen our cash balance grow.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer regarding updates on Huawei royalty revenue negotiations, stating that discussions will be ongoing without providing any specifics.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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