Qorvo’s Smartphone Outlook Weighs on This Holding, But It Doesn't All Add Up
AMD confirms our thinking about the AI PC opportunity ahead.
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Looking over our holdings following last night’s and this morning’s sea of earnings reports, we’re seeing shares of Qualcomm QCOM and Applied Materials AMAT trade off ahead of Samsung’s quarterly results Thursday.
While Samsung is a large customer of both Qualcomm and Applied Materials, given its size in the smartphone market and its chip operations, the pressure on QCOM today reflects what RF chip company Qorvo QRVO had to say last night. However, we do not see the same headwind at Qualcomm given its wide product offering, especially with Qorvo’s positive comments about Apple’s AAPL smartphone business in the September quarter. Qorvo also lacks the AI PC opportunity we find at Qualcomm.
While we are tempted to pick up more QCOM shares, we also recognize Thursday brings not only quarterly results from Samsung but also from Apple. With expectations for Apple’s iPhone comments and guidance wide enough to drive a truck through we’d rather leave a few dollars on the table than get hurt because we didn’t wait for a few more puzzle pieces to be put on the table.
With AAPL up 35% over the last six months, even the slightest shortfall could spur some selling in those shares and in QCOM. Should that happen, subject to where they settle out, we have room to pick up more of both as the Apple Intelligence-led iPhone upgrade cycle unfolds and AI PC shipments ramp. We continue to suspect Qualcomm and Arm Holdings ARM will iron out a new licensing deal, but we’ll be sure to weigh comments when they both report on November 6.
Qorvo Impacted by Android Market Shift to Low-Tier Models
During its earnings call last night, Qorvo discussed a shift in the Android market to lower-tier smartphones from mid-tier ones that led it to revise its smartphone revenue outlook. While flagship and premium smartphone market demand for Android smartphones remains favorable, Qorvo’s lack of exposure in the lower tier led it to slash its 2024 guidance.
One of the nice things about Qualcomm is its diverse product offerings across the smartphone market. More than likely the strength in flagship and premium models flagged by Qualcomm means this mix shift in the Android market should be only a modest headwind.
Despite that guidance cut, Qorvo’s results showed its ACG mobile segment revenue climbed 17% sequentially, which it attributed to the seasonal ramp of new products especially at its “largest customer” better known as Apple. That is also a nice positive for Qualcomm’s soon-to-be-reported September quarter as well as Universal Display OLED, which will report after today’s market close.
AMD Supports Our AI PC Thesis for Qualcomm
It is important to remember that not all chip companies are the same, meaning they may address different end markets, and that can make a big difference. For example, while Qorvo and Qualcomm both participate in the smartphone market, Qorvo doesn’t share the same AI PC opportunity that Qualcomm does. We’ve discussed ramping volumes and the incremental revenue opportunity that brings for Qualcomm in the second half of 2024 and beyond.
Adding to our optimism on what this means for Qualcomm from a revenue and profit perspective, last night Advanced Micro Devices AMD said it sees good momentum around AI PCs. During their earnings call, AMD called for the AI PC market to grow faster than the mid-single-digit growth AMD sees for the overall PC market next year.
At the time of publication, TheStreet Pro Portfolio was long QCOM, AMAT, OLED and AAPL.
