To The Moon

• Qualcomm $Qualcomm(QCOM)$ has risen 42.23% in 2024 YTD.

• Qualcomm is a global leader in wireless technology innovation, specializing in developing and licensing advanced semiconductors and telecommunications technologies for mobile devices, automotive systems, and the Internet of Things.

• It is one of the world's leading fabless chipmakers.

Things you need to know about Qualcomm:

1) Attractive but High Cyclicality:

• Weak demand across handsets and IoT products caused revenue and operating income to drop by 51% and 19% respectively in FY2023.

• However, revenue and operating income are projected to rise by 68% and 7% respectively in FY2024.

• The operating profit margin was 24.92% in Q2 2024, compared to 22.53% in Q2 2023 and 34.56% in Q2 2022. 

Source: Bloomberg

Source: Bloomberg

2) Apple Will Continue to Use Qualcomm Chips Until 2026:

• Qualcomm will supply its Snapdragon 5G Modem RF systems for Apple’s smartphones launching from 2024 to 2026. However, Apple plans to eventually move away from Qualcomm. In 2019, Apple acquired Intel’s smartphone modem business but has yet to successfully develop a superior in-house modem.

• Qualcomm previously stated that it expects only 20% of Apple’s iPhones to use its chips by 2026.

• In its fiscal 2023 annual report, Qualcomm mentioned that revenues from Apple and Samsung each comprised 10% or more of its consolidated revenues.

• Bloomberg estimates that Apple and Samsung accounted for 22.3% and 17.5% of Qualcomm's revenue, respectively.

3) Samsung’s Use of Qualcomm Snapdragon Chips:

• Samsung has extended its deal to use Qualcomm Snapdragon chips for an unspecified period.

• In Samsung's latest S24 series, the premium S24 Ultra uses Qualcomm's Snapdragon 8 Gen 3 chipset, while the cheaper S24 and S24+ use Samsung's own Exynos 2400.

• This could imply that Samsung may eventually phase out Qualcomm’s chips in favor of its own.

4) Arm-Based Qualcomm Chips for AI PCs:

• Microsoft will use Qualcomm chips in its new Surface PCs and tablets for AI tasks. Qualcomm stands to benefit if there is a surge in demand for AI PCs.

• However, the exclusive agreement between Qualcomm and Microsoft is rumored to expire at the end of 2024.

• According to Canalys, 48 million AI-capable PCs will ship worldwide in 2024, representing 18% of total PC shipments. By 2028, there will be 205 million AI PC shipments, making up about 70% of total PC shipments, with a compound annual growth rate of 44% from 2024 to 2028.

• IoT accounts for 13% of Qualcomm's total revenue. Qualcomm categorizes its PC chip revenue in the IoT segment alongside other IoT products in consumer, edge networking, and industrial sectors. Despite likely faster growth, PC revenue still contributes insignificantly to overall revenue.

Source: Canalys

Conclusion:

I am neutral on Qualcomm primarily because:

1. Qualcomm remains highly reliant on the smartphone market, but both Samsung and Apple appear poised to reduce their dependence on Qualcomm Snapdragon chips in the future.

2. The growth in AI PCs may not significantly boost Qualcomm’s revenue quickly enough.

According to Bloomberg consensus, the 12-month target price for Qualcomm is USD 206.71, representing a 1.4% upside from yesterday’s closing price of USD 203.81.

I will also be conducting an in-person 2H2024 US Market Outlook seminar on July 11th at 7:00 PM.

Seminar Registration Link:

https://www.itiger.com/sg/marketing/USMOS