Qualcomm anticipates layoffs amid macroeconomic uncertainties and risks in China

Qualcomm, the leading provider of mobile chips, gave a cautious revenue outlook for the current period, suggesting that the demand for mobile devices is still subdued. Qualcomm said its reliance on the Chinese market is risky amid China's import substitution and the US-China geopolitical tensions.

Qualcomm released its financial results for the fiscal third quarter of 2023, which ended on June 25. The company's sales fell by 22.72% year-on-year to US$8.451 billion, with net income plummeting to US$1.803 billion, down 51.66% from a year ago.

Qualcomm said that the weakness in the macroeconomic environment had a severe effect on revenues, and its customers continued to draw down on their inventories, which remained at higher levels. Sales generated by Qualcomm's QCT segment (Qualcomm CDMA Technologies), the largest revenue source for the company, declined by 23.5% year-on-year, primarily driven by lower handset and IoT revenues, and QTL (Qualcomm Technology Licensing) decreased by 19% compared to the quarter of the previous year.

Amid the AI wave, Cristiano Amon, CEO of Qualcomm, said that as AI use cases proliferate to the edge, on-device AI has the potential to drive an inflection point across Qualcomm's products, and the company is best positioned to lead the transition, given the unmatched accelerated computing performance with the power efficiency of its platforms.

As for guidance for the fiscal fourth quarter, Qualcomm foresees an ongoing slowdown, with revenue expected to be US$8.1-8.9 billion, lower than the corresponding quarter of 2022. QCT revenues are projected to be US$6.9-7.5 billion, and QTL revenues to between US$1.15 billion and US$1.35 billion.

According to Qualcomm's 10-Q document, the company expected the current macroeconomic environment challenges to continue and that its customers would keep drawing down on their inventories, and both of these dynamics would continue to hurt Qualcomm's revenues, results of operations, cash flows, and historical QCT seasonal trends.

Qualcomm's 10-Q document further said that given the continued uncertainty in the macroeconomic and demand environment, it would take additional restructuring actions to enable continued investments in key growth and diversification opportunities, including large-scale workforce reductions. Qualcomm anticipated these additional actions to be substantially completed in the first half of fiscal 2024.

Despite being the major market for Qualcomm, China continued to be risky for the mobile chip provider in terms of geopolitics and market competition. Qualcomm, which derives a significant portion of revenues from Chinese OEMs, said that some China-based customers have already developed, and others may potentially develop, their own chips for use in their devices instead of relying on Qualcomm's products. Qualcomm added that the risks of the business concentration in China are exacerbated by the US-China tensions.

The outlook raises renewed worries for the smartphone industry grappling with its most significant downturn in years. Bloomberg Intelligence released a note saying that the recovery would be delayed due to inventory drawdowns and sluggish global demand for smartphones, particularly in China. Despite Apple's upcoming iPhone launch being seen as a potential growth catalyst, the lukewarm guidance indicates that it might not be sufficient to overcome the challenges.

Soruce: Qualcomm, August 2023

Soruce: Qualcomm, August 2023