Qualcomm's bumper Q3 growth comes with supply constraints warning, but Intel may ride to the rescue

Company confirms it's investigating adding Chipzilla to multi-source vendor list, alongside TSMC and Samsung


Qualcomm's strong financials for the third quarter of 2021 come with a warning. Supply shortages aren't over yet – and the fabless chip maker may be turning to Intel to help meet demand.

To say Qualcomm's results look healthy is no understatement. The company reported [PDF] $8.06bn in revenue for the quarter ended 27 June, a 65 per cent gain year-on-year driven, CFO Akash Palkhiwala claimed in the company's earnings call, by "revenue diversification" including a shuffling of mobile technologies into the automotive market and "a partial recovery from the impact of COVID in the year-ago period."

The bulk of the company's revenue came, as always, from parts and IP destined for mobile handsets, which grew 57 per cent year-on-year to $3.863bn – though the biggest growth came from its radio-frequency (RF) front end business, which jumped 114 per cent to $957m. The Internet of Things (IoT) division grew 83 per cent to $1.399bn, while its automotive arm grew by the same amount but remains a relative tiddler at $253m in revenue. Licensing jumped to $1.632bn versus $1.09bn a year ago.

The company's net income was up 140 per cent year-on-year to $2.027bn.

Yet Cristiano Amon, Qualcomm's president and chief exec, had some words of warning amid the celebrations. "In spite of having great results, both revenue and EPS, all exceeding the right end of our guidance," he admitted during the call, "we still have demand outpacing supply. We have more demand than supply across all of our business. Overall, we continue to see a strong demand in every single business [division] outpacing supply."

It's a warning echoed by others in the industry. Apple's own record-breaking Q3 came with the admission of "significant supply constraints," while Microsoft blamed the same for a slump in Surface sales. Intel last week said there would be a silicon shortage until 2023.

"We're still on track to materially improve supply by the end of the calendar year," Amon promised investors. "We're securing incremental capacity across both leading and mature nodes and optimising the allocation of our products across the global supply chain.

"We're also making progress with our multi-sourcing initiatives. In fiscal Q3, the Snapdragon 778G, the first of several products from our multi-sourcing initiatives, was commercialised in record time and is now shipping in volume. Additional products from our multi-sourcing initiatives will be commercialised in the coming months. I would like to thank our employees, our suppliers, and our customers for helping us navigate the challenging supply environment."

"It's really a combination of two drivers," Palkhiwala said of Qualcomm's optimism. "We're seeing multi-sourcing initiatives that we've put in place over the last several months. We're seeing the benefit of that as we can use available capacity across the foundries. And then the second is, really, previously planned capacity builds with some of our suppliers that comes online towards the end of the year as well.

"So, both of those initiatives that we have previously discussed are in play and that's helping us. You're seeing some of the benefits of those initiatives in our September quarter guide, and we'll see even more benefit in the December quarter guide."

The company also confirmed that it was investigating adding Intel, which recently accelerated the opening of its fabrication facilities to third parties, to its multi-source vendor list, after expressing interest in its 20A process node.

"We are probably one of the few companies that given our scale is able to have multi-sourcing at the leading node," Amon claimed. "We have two strategic partners today, which are TSMC and Samsung, and we're very excited and happy about Intel deciding to become a foundry [service] and investing in leading node technology to become a foundry. I think that's great news for the United States' fabless [semiconductor] industry.

"We are engaged. We are evaluating their technology. We don't yet have a specific product plan at this point, but we're pretty excited about Intel entering into this space. I think we all determine that semiconductors are important, and resilient supply chain is only going to benefit our business."

The company is projecting a strong end to the year, too, with Amon stating it is "on track to realise approximately $10bn in combined revenues across IoT, RF front-end, and automotive" – all the result of Qualcomm's revenue diversification strategy – and hopes to "become the largest smartphone RF front-end supplier by revenue" in the world.

Qualcomm's share price rose 2.65 per cent in pre-market trading on the results after closing up an additional 1.07 per cent. The company did not respond to a request for additional comment in time for publication. ®

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