Qualcomm: New Growth Points In China Fraught With Competition And Chip Shortage Risks

On April 28, 2021, Qualcomm (QCOM) released its financial results for the second quarter of the fiscal year 2021. In the report, Qualcomm states that it achieved revenue of USD 7.94 billion, up 52.1% year on year, and a net profit of USD 1.76 billion, surging 276.5% year-on-year. At the same time, during the earnings call, the company shed light on its optimistic revenue expectations (from USD 7.1 billion to USD 7.9 billion) in the next quarter. As a result, Qualcomm's stock price rose 10% to close at USD 142 on April 29.

Qualcomm has maintained rapid growth for three consecutive quarters. On the one hand, this was due to the low base of last year's performance impacted by COVID-19. On the other hand, it is also from the increasingly strong demand for smartphone chips. In terms of revenue structure, Qualcomm CDMA Technologies (QCT) revenue contributed 79.2% of the total revenue, reaching USD 6.28 billion (up 53% from USD 4.10 billion in 2019). The revenue of Qualcomm Technology Licensing (QTL) reached USD 1.61 billion, up 51% from USD 1.07 billion in the last year, accounting for 20.3% of the total.

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Qualcomm's key revenue growth driver – the QCT business – includes four segments: handsets, RF front end (RFFE), automotive and the Internet of Things (IoT). This quarter, the handsets business accounted for 51.3% of the total revenue (USD 4.065 billion, with a year-on-year growth of 53%), remaining the largest contributor to the company's commercial success. The other QCT business segments also displayed competitive performance: the revenue from RFFE, automotive and IoT grew at 39%, 40% and 71%, respectively, showing Qualcomm's cross-industry technological prowess.

Notably, the company still derives a significant portion (59.5%) of its revenues from Chinese original equipment manufacturers (OEMs), back to the level of 2018. In 2018, China contributed 67.1% of the company's total revenue, while the level dropped to 47.8% in 2019 due to the relative edge in the US and Irish markets. We expect this figure to continue to rise in 2021.

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