Qualcomm chips are down as smartphones stay on the shelf, looks to AI for rescue
Yes, maybe ChatGPT can write them a better earnings report next time
Qualcomm's top line sagged further during the second quarter of the chipmaker's fiscal 2023 with the slump in demand for smartphones set to continue.
As a major supplier of chips for the smartphone market, Qualcomm has been hit by weakened demand from consumers amid the wider economic situation, plus handset makers sitting on excess inventory.
The company said its revenue for Q2 ending March 26 was $9.275 billion, down 17 percent on the $11.164 billion reported for the same period last year, and also down from on the $9.46 billion it reported for the first quarter of this year.
Net income reported by Qualcomm was $1.704 billion, a steep 42 percent decline from the $2.934 billion the company was enjoying this time last year, and again a fall from last quarter's figure of $2.23 billion.
However, president and CEO Cristiano Amon put a positive spin on the results, saying they were in line with the company's prior guidance, and claimed the chipset business actually delivered revenues close to the high end of the guidance range at $7.9 billion.
Amon said the global economic situation had caused a further falloff in demand, particularly in handsets, to a level greater than the company had been expecting.
"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," he said during the company's earnings call.
Qualcomm had been expecting a rebound in demand in the large Chinese market in the second half of the calendar year, but Amon said the company has so far not seen evidence pointing to a recovery, and was therefore not banking on any improvements in its planning assumptions.
"As market visibility remains limited, we're actively managing operating expenses and will continue to evaluate additional opportunities to drive greater operating efficiencies without losing sight of the automotive and IoT growth opportunities ahead," he added.
Guidance for Q3 thus includes forecasts of weaker global handset sales and further using up of stockpiled inventory in the channel, Qualcomm said.
The company also estimates there will be a larger than normal decline in revenue for the QCT (Qualcomm CDMA Technologies) business serving the phone and mobile network sectors, which it is blaming on the timing of purchases by "a modem-only handset customer," possibly code for Apple.
Amon pointed to the announcement during the quarter of the Snapdragon X75 5G modem chipset, which Qualcomm touts as the first with support for the 5G Advanced update of mobile network technology and which it expects to be widely used in new handsets starting in 2024.
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He also claimed that the recently launched Snapdragon 7+ Gen 2 mid-tier mobile platform is seeing strong adoption, particularly among Chinese OEMs.
One area where Amon said that Qualcomm sees a significant opportunity ahead is in support for AI features in mobile devices and at the edge.
"Demand for generative artificial intelligence models is growing at an exponential rate. Generative AI models such as ChatGPT, Stable Diffusion and DALL-E have already scaled to millions of users in a short period of time," he stated.
"For these models to realize their full potential and scale, they will need to run locally on devices at the edge," Amon said, throwing in that Qualcomm demonstrated a Snapdragon-powered Android smartphone running a billion parameter foundational model for text-to-image applications at the most recent Mobile World Congress event.
Very large AI models are placing significant incremental demands on energy-intensive and expensive cloud computing infrastructure, Amon claimed, therefore a hybrid AI architecture making use of computing at the edge can offload or support cloud processing by running AI inferencing directly on the device.
"This is a new and exciting opportunity for Qualcomm in one of our priority investment areas," he said.
However, for the current quarter, Qualcomm said it is forecasting revenue to decline further to somewhere between $8.1 billion and $8.9 billion. Revenue from Android handsets and the company's Automotive segment is expected to to be roughly flat, with mid-single-digit growth coming from IoT.
Gartner's Anshul Gupta told The Reg the analyst house expects smartphone markets to remain weak in 2023 "falling by approximately 4 percent."
Gupta added: "The fall in demand is due to consumers deferring their spending on non-essential goods amid rising inflation, continued fear of recession, and a troubled economic environment. Slowing spending on 5G networks globally and longer replacement cycles in China continue to weaken smartphone growth drivers in 2023.
"On the supply side, incremental enhancements in smartphones remain a concern though foldable smartphones are emerging as a growth category."
Chief financial officer Akash Palkhiwala said he expected the dynamics impacting this third fiscal quarter to extend to the fourth quarter, but that Qualcomm is "well-positioned to benefit from an eventual recovery in the macro environment."
Anshyl Gupta, VP analyst at Gartner, told The Register the fall in smartphone demand was due to consumers "deferring their spending on non-essential goods amid rising inflation, continued fear of recession, and a troubled economic environment.
"Slowing spending on 5G networks globally and longer replacement cycles in China continue to weaken smartphone growth drivers in 2023. On the supply side, incremental enhancements in smartphones remain a concern though foldable smartphones are emerging as a growth category." ®