• Automotive and IoT segments were the bright spots and remained on a growth trajectory.
• H1 2023 will see inventory correction with some demand coming back in H2 2023.
• The current weakness in the semiconductor industry is more cyclical than structural.

The fabless semiconductor industry has been posting weaker Q4 2022 revenues due to cyclical headwinds, weak global macroeconomic conditions and COVID-19 pandemic. After MediaTek’s muted numbers, Qualcomm has also reported a decline during the quarter. QCT’s (Qualcomm CDMA Technologies’) revenues declined 11% YoY in Q4 2022 (Q1 in Qualcomm’s FY2023) to $7.9 billion while QTL’s (Qualcomm Technology Licensing’s) revenues declined 16% to $1.5 billion due to weak handset sales. The automotive segment grew 58% YoY to $456 million driven by the Snapdragon digital chassis.

The outlook for H1 2023 remains weak, almost in line with MediaTek’s view. Inventory drawdown will happen in Q1 2023 and Q2 2023. Also, according to Counterpoint, the smartphone market will see flat growth on an annual basis. But the momentum is expected to come back in H2 2023 with inventory restocking and China reopening. To maintain healthy growth margins, we expect pricing discipline and an increase in the cost of new chipsets.

Sources: Qualcomm, Counterpoint Semiconductor Tracker

October-December quarter analysis

• In Q4 2022, Qualcomm’s revenues declined 12% YoY to reach $9.5 billion.
• QCT’s chipset revenues declined 11% YoY to $7.9 billion and QTL’s licensing revenues declined 16% to $1.5 billion due to weak handset sales.
• Within QCT, handset revenues declined 18% YoY to $5.7 billion. From Q4 onwards, RFFE revenues are being accounted for within each sub-segment. Qualcomm’s share in the Samsung Galaxy S23 series has grown from 75% to 100%. Overall, the higher inventory is affecting the handset business revenue.
• IoT revenues grew in single digits (7%) because of Edge Networking from the Wi-Fi access points and gateway routers.
• The automotive segment grew 58% annually to $456 million driven by the Snapdragon digital chassis.
• According to our RFFE report, Qualcomm’s RFFE revenues declined 18% YoY in Q4 2022. Handsets captured a dominant share in RFFE revenues. Qualcomm, which is already a leader in smartphone RFFE, has so far designed a win pipeline of over $900 million in the automotive segment and $405 million in revenues in the IoT segment.

Outlook

• According to the Counterpoint Market Outlook service, the smartphone market will be flat YoY in 2023. H1 2023 will see inventory correction while some demand will come back in H2 2023. We forecast excess smartphone AP/SoC inventory to return to normal levels by the end of H2 2023.
• FWA continues to have a big potential in driving IoT revenues, aided by both Sub-6GHz and mmWave. In India, Jio has publicly stated it will cover 100 million homes. Qualcomm is an investor in Jio and will gain from the modem and Wi-Fi-based content in 5G FWA.
• In 2021, Qualcomm acquired NUVIA, which enables custom CPU and design. Qualcomm has developed custom Oryon CPUs on ARM. This will further drive growth. We expect Arm-based laptops to have a 25% market share in five years.
• Further migration to Wi-Fi 6/6E, Wi-Fi 7, mesh networks and smart utility meters, trackers, e-mobility, parking meters, home automation and security, and other location-based solutions in the industrial sector is a key revenue driver.
• Qualcomm guided 2023 revenues in the range of $8.7 billion to $9.5 billion and non-GAAP EPS of $2.05 to $2.25. Their midpoint guidance includes an assumption of lower-end market demand and continued drawdown of channel.

The current weakness in the semiconductor industry is more cyclical than structural. We expect H1 2023 to be weak. With China opening up and inventory drawing down, H2 2023 will see some growth coming back to the market as OEMs start restocking and preparing for flagship launches. Also, on top of premium chipsets, there is an opportunity for Qualcomm in the low-mid AP/SoC which has been affected more than the premium segment. Qualcomm will try to get some share back from MediaTek in the low-mid segment.