Image Shown: Dividend growth idea Qualcomm Inc posted a solid earnings update and provided promising near term guidance on February 2. Image Source: Qualcomm Inc – First Quarter of Fiscal 2022 IR Earnings Presentation
By Callum Turcan
On February 2, dividend growth idea Qualcomm Inc (QCOM) reported first quarter earnings for fiscal 2022 (period ended December 26, 2021) that beat both consensus top- and bottom-line estimates. The semiconductor company issued guidance for the current fiscal quarter that calls for double-digit revenue and earnings growth versus fiscal year-ago levels, though shares of QCOM still dipped modestly in after-hours trading that day. We continue to like Qualcomm as an idea in the Dividend Growth Newsletter portfolio as the firm remains a free cash flow cow with a promising growth outlook.
Earnings Update
In the fiscal first quarter, Qualcomm grew its GAAP revenues 30% year-over-year to reach $10.7 billion. The company’s Qualcomm CDMA Technologies (‘QCT’) segment, which develops and supplies semiconductors (that are produced by third-parties), posted 35% year-over-year sales growth last fiscal quarter. Its high-margin licensing business, Qualcomm Technology Licensing (‘QTL’), posted 10% year-over-year sales growth last fiscal quarter as Qualcomm remains a leader in 5G technology.
As it concerns Qualcomm’s QCT segment, the firm experienced strong demand for its “chips” across the board as you can see in the upcoming graphic down below. Qualcomm has done a solid job meeting robust demand as best it can in the face of the ongoing semiconductor component shortage.
Image Shown: Demand for Qualcomm’s chips remained strong across the board last fiscal quarter. Image Source: Qualcomm – First Quarter of Fiscal 2022 IR Earnings Presentation
Qualcomm’s GAAP operating income rose by 53% year-over-year in the fiscal first quarter as it benefited from revenue growth, economies of scale, and the firm’s ample pricing power. The company’s GAAP operating margin rose over 540 basis points year-over-year last fiscal quarter to hit 36.1%. Qualcomm’s growth story is chugging along quite nicely.
Image Shown: Qualcomm’s top- and bottom-line both grew robustly last fiscal quarter. Image Source: Qualcomm – First Quarter of Fiscal 2022 Earnings Press Release
Qualcomm generated $1.5 billion in free cash flow last fiscal quarter while spending $0.8 billion covering its dividend obligations and another $1.2 billion buying back its stock. In our view, Qualcomm has ample room to aggressively boost its dividend going forward. The firm exited the fiscal first quarter with $4.4 billion in net debt on the books (inclusive of short-term debt) though its $11.3 billion in cash, cash equivalents, and current marketable securities position at the end of this period provides Qualcomm with ample liquidity to meet its near term funding needs. We view Qualcomm’s net debt load as manageable given its stellar free cash flow generating abilities and ample cash on hand.
Image Shown: Qualcomm has ample liquidity on hand to meet its near term funding needs, though we caution that the firm has a relatively modest net debt load on the books. Image Source: Qualcomm – First Quarter of Fiscal 2022 Earnings Press Release
Near Term Outlook
In conjunction with its latest earnings report, Qualcomm provided guidance for the second fiscal quarter. This guidance calls for ~34% year-over-year revenue growth (at the midpoint) and ~53% year-over-year non-GAAP EPS growth (at the midpoint) in the current fiscal quarter. That indicates Qualcomm’s promising growth story is expected to continue in earnest, at least in the near term, though the company’s longer term growth outlook is also quite bright. We covered Qualcomm’s metaverse growth ambitions in this article here. In the upcoming graphic down below, Qualcomm provides a snapshot of its near term guidance.
Image Shown: A snapshot of Qualcomm’s near term guidance, which calls for meaningful year-over-year revenue and non-GAAP diluted EPS growth. Image Source: Qualcomm – First Quarter of Fiscal 2022 Earnings Press Release
For comparison purposes, the upcoming graphic down below highlights Qualcomm’s performance during the second quarter of fiscal 2021 (period ended March 28, 2021).
Image Shown: A look at Qualcomm’s performance during the second quarter of last fiscal quarter, for comparison purposes. Image Source: Qualcomm – Second Quarter of Fiscal 2021 Earnings Press Release
Qualcomm also provided preliminary EPS guidance for the fiscal third quarter during its latest earnings update that calls for double-digit year-over-year growth on both a GAAP and non-GAAP basis as you can see in the upcoming graphic down below. The firm’s growth runway has long legs, in our view.
Image Shown: Qualcomm expects its growth story will continue in earnest over the coming fiscal quarters. Image Source: Qualcomm – First Quarter of Fiscal 2022 IR Earnings Presentation
Concluding Thoughts
Powerful secular tailwinds support Qualcomm’s longer term growth outlook in the realm of 5G, AI, autonomous and semi-autonomous driving activities, the Internet of Things (‘IoT’) trend, and more. Qualcomm views its addressable market opportunity growing by $100 billion by 2030 to hit $700 billion. We are big fans of Qualcomm’s income growth potential and continue to like the company as an idea in the Dividend Growth Newsletter portfolio. Shares of QCOM yield ~1.5% as of this writing. To read more about Qualcomm’s growth ambitions, check out our article from November 2021 (link here).
—–
Technology Giants Industry – FB, AAPL, GOOG, AMZN, MSFT, CSCO, V, MA, PYPL, INTC, ORCL, QCOM, TWTR, IBM, ADBE, NVDA, CRM, AMD, AVGO, BABA, BKNG, BIDU, TSM, FFIV, TXN, EBAY, ADP, PAYX, MU, KFY, MAN, KLAC, LRCX, AMAT, ADI, SIMO
Tickerized for QCOM, SWKS, AVGO, QRVO, CRUS, NVDA, AMD, NXPI, ADI, SONY, SSNLF, XLK, SMH
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.
Callum Turcan does not own shares in any of the securities mentioned above. Apple Inc (AAPL), Cisco Systems Inc (CSCO) and Microsoft Corporation (MSFT) are all included in both Valuentum’s simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio. Alphabet Inc (GOOG) Class C shares, Meta Platforms Inc (FB), Korn Ferry (KFY), PayPal Holdings Inc (PYPL) and Visa Inc (V) are all included in Valuentum’s simulated Best Ideas Newsletter portfolio. Oracle Corporation (ORCL) and Qualcomm Inc (QCOM) are both included in Valuentum’s simulated Dividend Growth Newsletter portfolio. Meta Platforms, Oracle Corporation, and Taiwan Semiconductor Manufacturing Company Limited (TSM) are all included in Valuentum’s simulated ESG Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.