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Qualcomm’s Chipset Margin on the Higher End of Its Guidance



QCT’s financial performance in fiscal 2Q16

In the previous part of the series, we saw that Qualcomm (QCOM) beat analysts’ estimates even after reporting declining earnings in fiscal 2Q16. Let us see how the company’s QCT (Qualcomm CDMA Technologies) segment performed in fiscal 2Q16 and examine the factors that led to its revenue declines.

In fiscal 2Q16, QCT’s revenue fell by 24.7% YoY (year-over-year) to $3.3 billion as MSM (mobile station modem) shipments fell by 18.9% YoY to ~189 million units. The shipments were 2% above the midpoint of the guidance as the demand from China (MCHI) grew.

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QCT’s operating margin fell from 16.9% in fiscal 1Q16 to 5% in fiscal 2Q16. The margin was on the higher end of the low- to mid-single-digit guidance as the ASP (average selling price) of 3G and 4G handsets equipped with Qualcomm chipsets rose by 6% YoY to $205–$211. The price rose due to a favorable product mix and higher content per device.

Qualcomm’s wins and losses

While Qualcomm (QCOM) showed the positive side of the earnings, the fact is that the company’s earnings have declined over the year. This decline reflects a significant reduction in contributions from a major customer, possibly Apple (AAPL). Apple scaled back its iPhone production until March 2016 and is now believed to extend it to June 2016.

Qualcomm’s fiscal 2Q15 results were also low. The company lost a major customer—Samsung (SSNLF)—which moved to custom-made SoCs (system-on-chips). Over the year, this situation became aggravated as Qualcomm’s S810 (Snapdragon 810) failed to gain orders due to overheating and performance issues.

Qualcomm’s newly launched S820 has secured over 115 design wins, including the Samsung Galaxy S7, LG G5, Xiaomi Mi5, as well as handsets from Sony (SNE), HTC, and HP (HPQ). However, it seems that the actual sales of S820 were low in fiscal 2Q16 due to softness in the premium market. The company stated that the impact of its S820 sales would be reflected in fiscal 2H16.

In the coming part of this series, we will look at the company’s guidance for QCT.


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