Qualcomm Incorporated (QCOM Quick QuoteQCOM - Free Report) recorded solid fourth-quarter fiscal 2024 results, with adjusted earnings and revenues beating the Zacks Consensus Estimate, driven by healthy demand trends in Android handsets and automotive businesses. Both metrics improved year over year, led by the strength of the business model, revenue diversification and the ability to respond proactively to the evolving market scenario.

QCOM Rides on Snapdragon Mobile Platform

Qualcomm envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio. With the accelerated rollout of 5G technology, the chip manufacturer is benefiting from investments toward building a licensing program in mobile. The company is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. 

Leveraging processors with multi-core CPUs with cutting-edge features, amazing graphics and worldwide network connectivity, Qualcomm Snapdragon mobile platforms are fast with superb power efficiency. Smartphones and mobile devices built with Snapdragon mobile platforms enable immersive augmented reality and virtual reality experiences, brilliant camera capabilities, superior 4G LTE and 5G connectivity with state-of-the-art security solutions.

Automotive, IoT Businesses Buoy QCOM

The company intends to harness artificial intelligence to meet increased demands for essential products and services that are the building blocks of digital transformation in a cloud economy. Qualcomm continues to focus on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge. It is witnessing healthy traction in EDGE networking that helps to transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets. IoT revenues soared 22% in the fiscal fourth quarter to $1.68 billion on new product launches and channel inventory normalization.

The buyout of Veoneer, Inc. has offered Qualcomm a firmer footing in the emerging market of driver-assistance technology as it aims to extend the Snapdragon Ride Advanced Driver Assistance Systems (ADAS) portfolio. The Arriver business of Veoneer operates the dedicated software unit focused on sensor perception and drive policy, including a full stack of features and functions. With the acquisition, Qualcomm has incorporated Arriver's Computer Vision, Drive Policy and Driver Assistance assets into its ADAS portfolio to deliver an open and competitive platform for automakers to better compete with rivals within the self-driving vehicle market.

Automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Automotive revenues surged 68% to a record high of $899 million, driven by increased content in new vehicle launches with its Snapdragon Digital Chassis platform. This was the 16th consecutive quarter in which Qualcomm recorded double-digit growth in automotive revenues.

Price Performance

Over the past year, Qualcomm has gained 38% compared with the industry’s growth of 51.7%, outperforming peers like Hewlett Packard Enterprise Company (HPE Quick QuoteHPE - Free Report) but lagging Broadcom Inc. (AVGO Quick QuoteAVGO - Free Report) .

One-Year Price Performance

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Estimate Revision Trend

Despite solid quarterly results, earnings estimates for Qualcomm for 2024 have moved down 15 cents to $10.83 over the past seven days, while the same for 2025 has declined 18 cents to $11.99. This indicates a bearish sentiment due to a placid long-term business outlook of the company.

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Margin Pressure Dents QCOM Prospects

Over the years, Qualcomm's margins have declined due to high operating expenses and R&D (research & development) costs. Although the margins improved in the fiscal fourth quarter, the company expects softness in the handset market and a weaker overall mix of devices in the future. Shift in the share among original equipment manufacturers at the premium tier has reduced Qualcomm's near-term opportunity to sell integrated chipsets from the Snapdragon platform. Aggressive competition from low-cost chip manufacturers and established players in the mobile phone chipset market is also likely to hurt Qualcomm's profits. Although the global smartphone market is expected to maintain its momentum over the next three to four years, a major portion of this growth is expected to come from the low-cost emerging markets, which are likely to weigh on Qualcomm's margins.

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End Note

With solid quarterly results and healthy revenue-generating potential driven by robust demand trends, Qualcomm appears to be a solid investment proposition. A strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers. 

However, stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. High R&D costs eroded its profitability to a large extent. With declining earnings estimates, the stock is witnessing a negative investor perception. Qualcomm is reportedly undertaking job cuts and retrenchments to sustain its business in China, raising questions about its long-term viability plans in the communist country. With a Zacks Rank #3 (Hold), Qualcomm appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.