Qualcomm going upward？and is Apple's baseband going to "stir the pot"?

Qualcomm (QCOM.O) released its fiscal year 2025 first quarter report (ending December 2024) after the U.S. stock market closed on February 6, 2025, Beijing time. The key points are as follows:

1. Overall performance: Revenue & profit continue to grow. Qualcomm achieved revenue of $11.67 billion in the first quarter of fiscal year 2025 (i.e., 24Q4), a year-on-year increase of 17.5%, better than market expectations ($10.93 billion). **The company's revenue growth continues to increase this quarter, mainly benefiting from the comprehensive recovery of mobile, automotive, and IoT businesses in the QCT segment; $Qualcomm(QCOM.US)achieved a net profit of $3.18 billion this quarter, a year-on-year increase of 14.9%, also better than market expectations ($3.04 billion), with growth mainly driven by the recovery of business.

2. Business segment breakdown: Core business continues to recover. The mobile business remains the largest segment of the company, accounting for over 60%. Driven by the launch of new products and the rebound in shipments from Android customers, the mobile business maintained double-digit growth this quarter. Additionally, the growth of automotive and IoT also exceeded expectations, mainly driven by increased demand for smart cockpits, AI PCs, and XR.

3. Qualcomm's performance guidance: Expected revenue for the second quarter of fiscal year 2025 (i.e., 25Q1) is $10.3-11.2 billion (market expectation $10.352 billion) and adjusted profit per share is expected to be $2.70 to $2.90 (market expectation $2.68). **

Overall view from Dolphin: Qualcomm's financial report data is quite good, but there are concerns in subsequent communications.

The company's revenue and net profit both achieved double-digit growth this quarter, meeting market expectations, mainly driven by the comprehensive recovery of mobile, IoT, and automotive businesses.

Benefiting from the subsidy policy in China that started in January 2025, Qualcomm's expectations for revenue and non-GAAP earnings per share for the next quarter are also good, both meeting market expectations. Although revenue and earnings per share saw a quarter-on-quarter decline, this is mainly due to seasonal factors.

Qualcomm's previous dispute with ARM has also reached some rulings, determining that Qualcomm did not violate the architecture license granted to Nuvia, and that Qualcomm's existing architecture license with ARM allows it to continue developing custom cores obtained through the acquisition of Nuvia, which will also benefit the company's related business development.

With the industry's recovery and the impact of subsidy policies, the company's mobile products and consumer electronics are expected to continue to grow. In addition, the deepening cooperation with mainstream manufacturers in AI PCs will also bring new growth for the companyOverall, the company's performance in 2025 is expected to maintain a positive trend.

However, after-hours trading saw a decline in the company's stock price, which Dolphin believes is mainly influenced by factors such as the earnings report conference call. The company's management mentioned:

"The assumption for the overall market is that shipment volume will remain flat year-on-year or grow in low single digits, without considering Chinese subsidies and the AI replacement wave." This indicates that the company has a relatively low expectation for the overall smartphone industry, affecting the growth rate of its corresponding business;

2) "The current agreement for the company's modem business (baseband business) with major client (Apple) only extends to 2026. If we assume no further cooperation, this portion of revenue would be zero." Based on industry context and company data, Dolphin estimates that Apple contributes approximately 10-20% of Qualcomm's revenue. If this cooperation ceases, it will directly impact Qualcomm's QCT business.

Although the company's earnings report and next quarter's expectations are still good, management revealed that "lower expectations for the smartphone market and potential changes in the baseband business" will directly affect Qualcomm's medium to long-term performance expectations, which will also impact market confidence in the company to some extent.

Here is Dolphin's specific analysis of Qualcomm's earnings report:

1. Overall Performance: Revenue & Profit, Continuing Growth

1.1 Revenue Side

Qualcomm achieved revenue of $11.669 billion in the first quarter of fiscal year 2025 (i.e., 24Q4), a year-on-year increase of 17.5%, better than market expectations ($10.93 billion). The company's revenue continued to recover this quarter, mainly driven by the comprehensive recovery of the smartphone, automotive, and IoT businesses.

1.2 Gross Profit Side

Qualcomm achieved a gross profit of $6.508 billion in the first quarter of fiscal year 2025 (i.e., 24Q4), a year-on-year increase of 15.7%.

The company's gross margin for this quarter was 55.8%, a year-on-year decline of 0.8 percentage points, in line with market expectations (55.8%). The company's gross margin remains relatively low, but with the recovery of the smartphone and related downstream markets, the gross margin is expected to rebound.

Qualcomm's inventory in the first quarter of fiscal year 2025 (i.e., 24Q4) was $6.303 billion, a slight year-on-year increase of 0.9%. Based on past data, Dolphin believes that the company's inventory situation has improved. The slight rebound over the past two quarters is mainly due to the company's increase in stocking new products, and the overall operational situation remains positive.

1.3 Operating Expenses

Qualcomm's operating expenses for the first quarter of fiscal year 2025 (i.e., Q4 2024) were $2.953 billion, an increase of 8.4% year-on-year. Due to faster revenue growth, the company's operating expense ratio continued to decline to 25.3% this quarter.

Looking at the specific expense items:

1) R&D Expenses: The company's R&D expenses this quarter were $2.23 billion, an increase of 6.4% year-on-year. As a technology company, R&D expenses remain the largest investment for the company, with the R&D expense ratio declining to 19.1% this quarter;

2) Sales and Management Expenses: The company's sales and management expenses this quarter were $723 million, an increase of 15.3% year-on-year, with sales-related expenses having a certain correlation with revenue.

1.4 Net Profit

Qualcomm achieved a net profit of $3.18 billion in the first quarter of fiscal year 2025 (i.e., Q4 2024), an increase of 14.9% year-on-year, better than market expectations ($3.043 billion). This quarter's net profit margin was 27.3%, with a slight decline in profitability.

After excluding the impact of non-operating items such as investment income, the company's operating profit this quarter saw a double-digit increase both year-on-year and quarter-on-quarter. This improvement was mainly driven by a gradual recovery in downstream sectors.

II. Business Segmentation: Core Business Continues to Recover

From Qualcomm's business segmentation, the QCT (CDMA business) remained the largest source of revenue this quarter, accounting for 86.4%, mainly including chip semiconductor business; the remaining revenue primarily came from QTL (technology licensing) business, accounting for about 13.2%.

Qualcomm's main growth this quarter was driven by the QCT business, with mobile, automotive, and IoT sectors all experiencing varying degrees of growth.

The QCT business is the most important part of the company, with specific segmentation as follows:

2.1 Mobile Business

Qualcomm's mobile business achieved revenue of $7.574 billion in the first quarter of fiscal year 2025 (i.e., Q4 2024), an increase of 13.3% year-on-year, better than market expectations ($7 billion). The growth this quarter was mainly driven by the launch of the Snapdragon 8 Elite platform's industry-leading performance, with sales and product added value of high-end Android models both improvingThis quarter, the sales of high-end Android models increased due to the enhanced demand from end consumers for recently launched flagship smartphones, as well as the improvement in the global market share of the Samsung Galaxy S25 series phones.

From industry data, the global smartphone shipment volume in the fourth quarter of 2024 was 332 million units, a year-on-year increase of 1.7%. Although the overall growth rate of smartphone shipments has relatively slowed down, the performance of the company's major clients in this quarter was still good .

Among Android brands, manufacturers such as VIVO and Xiaomi experienced varying degrees of growth this quarter, especially VIVO, which saw a year-on-year increase of 12.4% in smartphone shipments after experiencing impacts from inventory destocking in the supply chain. The shipment of new products and the recovery of related clients drove the company's mobile business to achieve double-digit growth.

Driven by policies such as subsidies in China, the company expects that the revenue from its mobile business in the next quarter will still grow by 10% year-on-year, continuing the warming trend.

2.2 Automotive Business

Qualcomm's automotive business achieved revenue of $961 million in the first quarter of fiscal year 2025 (i.e., 24Q4), a year-on-year increase of 60.7%, better than market expectations ($902 million) . The automotive business is the fastest-growing segment among the company's main businesses, reaching a new high for the sixth consecutive quarter. As automakers adopt the company's high-performance, low-power computing and connectivity chips to bring next-generation experiences to consumers, the content of related products in newly launched vehicles continues to increase, driving this growth.

At the CES exhibition, Qualcomm actively established new partnerships with several companies. Collaborating with Ops, Alpine, Amazon, Google, Leapmotor, Mahindra, and Hyundai Mobis, it is driving the development of in-car artificial intelligence and advanced driver assistance systems using the Snapdragon digital chassis solutions; it has also expanded cooperation with first-tier suppliers such as Panasonic Automotive Systems, Garmin, and DCSV, adopting the Snapdragon Cockpit Elite platform to bring advanced intelligent technology to software-defined vehicles, enhancing user experience.

Driven by the demand for automotive intelligence, the company expects a 50% growth in its automotive business in the next quarter.

2.3 IoT Business

Qualcomm's IoT business achieved revenue of $1.549 billion in the first quarter of fiscal year 2025 (i.e., 24Q4), a year-on-year increase of 36.1%, exceeding market expectations ($1.394 billion). After experiencing a downturn, the company's IoT business has welcomed consecutive growth.

Qualcomm's IoT business mainly includes consumer electronics, edge networking, and industrial products. According to the company's financial report, the company benefited this quarter from new products launched, which utilize industry-leading processors and possess device-side artificial intelligence capabilities in the consumer, networking, and industrial sectors.

Currently, the company's IoT business revenue is primarily composed of consumer electronics, edge networking, and industrial products. Additionally, the company also includes AI PC products in its IoT business. The Snapdragon X series platform has over 80 designs in production or development, with a goal of commercializing over 100 by 2026, covering leading OEM manufacturers such as ASUS, Acer, Dell, HP, and Lenovo. In terms of market share, the Snapdragon X series accounted for over 10% of Windows laptops priced over $800 in the U.S. retail market in December. AI PCs are also expected to bring new growth for the company.

With the recovery in demand for consumer electronics and the growth of AI PCs, the company expects its IoT business to achieve a 15% growth in the next quarter.