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Qualcomm feels the squeeze because you don't want a new smartphone right now

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Qualcomm reported a 12 percent year-on-year slide in revenue for the first quarter of its fiscal 2023 amid weakening global demand in the smartphone market.

The telecoms chipmaker generated $9.46 billion worth of sales for the quarter ended December 25 2022, down from $10.7 billion a year ago. Its net income was $2.23 billion, a reduction of 34 percent.

Qualcomm shares were down 3 percent after an extended trading session following the results.

However, it wasn't all bad - for company execs and investors - thanks to continued growth in Qualcomm's automotive and IoT business sectors, according to president and CEO Cristiano Amon.

"In the current quarter, combined auto and IoT revenues represented 27 percent of total QCT revenues reflecting continued progress on revenue diversification," Amon said on the company's earnings call.

At the CES event last month, Qualcomm unveiled a single-chip automotive product intended to consolidate all the various digital processing workloads in a vehicle into one platform.

For its QCT (Qualcomm CDMA Technologies) business serving the phone and mobile network sectors, Amon indicated that its revenue of $7.9 billion was down 11 percent year-on-year as a result of weaker handset demand and inventory drawdown.

"As the handset industry continues to experience reduced demand, we are now expecting elevated channel inventory levels to persist at least through the first half of calendar '23," he said, adding that "multiple end industries within IoT are also experiencing weaker-than-expected demand and elevated inventory levels."

According to IDC, worldwide smartphone sales fell 18.3 percent in Q4 to 300.3 million, and were down 11.3 percent for the year to 1.2 billion.

In light of the current macroeconomic and demand environment, Amon said Qualcomm would be implementing further spending reductions and streamlining its operations, but attempting to do so without losing sight of the "significant growth and diversification opportunities ahead."

Chief financial officer Akash Palkhiwala filled in more detail on the issues facing the semiconductor industry, not just Qualcomm itself.

"The environment continues to be dynamic with challenging macroeconomic conditions and COVID headwinds in China, driving industry-wide demand weakness. Given this uncertainty, we are incorporating a negative bias for 3G, 4G, 5G handset volumes for calendar '23 relative to calendar '22," he said.

"Based on our current assessment, we expect QCT customers to continue to draw down on inventory, at least through the second and third fiscal quarters," Palkhiwala forecast, but added: "At this point, we're optimistic that the demand and channel inventory may normalize during the second half of the calendar year, and we remain in a strong position to take advantage of the opportunity when it occurs."

In response to a question about whether Qualcomm was feeling any impact from new US export restrictions on China, and Huawei specifically, EVP Alex Rogers said his company had not heard anything official from the US Department of Commerce.

"What we've seen are news reports to the effect that Commerce is considering not issuing new licenses to Huawei. And we haven't heard anything from Commerce itself. Qualcomm has a set of licenses that we've had for a while that basically allow us to ship 4G and other chipsets, including Wi-Fi, to Huawei," he said. "Those will continue for some number of years."

Qualcomm's forecast for the next quarter is for revenues between $8.7 billion and $9.5 billion, which means it expects to hold its ground or see another drop.

However, part of this can be attributed to seasonal sales cycles, according to Palkhiwala.

"From a handset perspective, what we've assumed in the March quarter is a standard seasonal decline, and I said this in my prepared remarks from December into March," he said. ®

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