01—Abstract
Summary
Summary of the 10-K filed November 2, 2022. Cited figures are marked; the original filing is the authoritative source.
QUALCOMM's fiscal 2022 (ended September 25, 2022) was a strong year on the top and bottom lines but showed clear signs of a coming slowdown.
Revenue rose 32% to $44.2 billiona and net income rose 43% to $12.9 billion, with diluted EPS of $11.37. Growth was driven by QCT (semiconductor) revenue, up 39% to $37.7 billion, on higher average selling prices, a richer mix of premium 5G products, and strong IoT and automotive growth. Gross margin held flat at 58%, and operating income reached $15.9 billion.
QTL licensing revenue was broadly stable at $6.4 billionb, and QSI investment results swung to a $279 million EBT loss from a $916 million gain a year earlier. Management's outlook is more cautious. It expects continued macroeconomic weakness, elevated customer inventory that will weigh on chip purchases for the next couple of quarters, and a sharp drop in handset volumes for calendar 2022.
Free cash flow also weakened: operating cash flow fell to $9.1 billionc from $10.5 billion, reflecting $2.3 billion in advance payments to chip suppliers and higher working capital. Cash, equivalents and marketable securities fell to $6.4 billion from $12.4 billion, largely due to the $4.7 billion Veoneer acquisition, $3.2 billion in dividends and $3.1 billion in buybacks. Total debt is about $15 billion.
The filing's most important risks are concentration and vertical integration. Apple and Samsung each accounted for at least 10% of revenue, and China generated $28.1 billiond, about 64% of revenue. Apple is developing its own modem, and Chinese OEMs are pursuing domestic chip self-sufficiency.
The licensing business also faces ongoing antitrust and royalty challenges worldwide. A positive one-time item was the June 2022 EU General Court annulment of the EC's €997 million fine, which added a $1.1 billion other-income benefit in fiscal 2022. Excluding that item, the operating picture is less flattering than the headline growth suggests.
02—Key points
Key Highlights
- Revenue grew 32% to $44.2B and net income grew 43% to $12.9B; diluted EPS was $11.37 versus $7.87 a year earlier.
- QCT semiconductor revenue rose 39% to $37.7B, driven by higher average selling prices, a shift toward premium 5G products, and growth in IoT (+$1.9B) and automotive (+$397M).
- Net income benefited from a $1.1B one-time other-income gain from the annulment of the 2018 EC fine, while QSI investment losses of $279M in EBT reversed prior-year gains.
- Operating cash flow declined to $9.1B from $10.5B, held back by $2.3B in prepayments to chip suppliers under multi-year capacity commitments and higher working capital.
- Cash and marketable securities fell to $6.4B from $12.4B after the $4.7B Veoneer acquisition, $3.2B in dividends and $3.1B in share repurchases; total debt is about $15.4B principal.
- Customer concentration is high: Apple and Samsung each exceeded 10% of revenue, and China accounts for about 64% of total revenue ($28.1B).
- Management expects handset volumes to fall by low double digits in calendar 2022 and expects customer inventory drawdowns to weigh on near-term revenue.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Qualcomm Inc kept $0.29.
- Revenue$44.20B100.0%
- Cost of revenue−$18.64B42.2%
- Gross profit$25.57B57.8%
- Operating costs−$9.71B22.0%
- Operating income$15.86B35.9%
- Interest, other & tax−$2.92B6.6%
- Net income$12.94B29.3%
04—Financials
Financial Highlights
Figures from 10-KFY2022filed November 2, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $44.20B$33.57B | +31.7% |
| Cost of Revenue | $18.64B$14.26B | +30.7% |
| Gross Profit | $25.57B$19.30B | +32.4% |
| R&D Expenses | $8.19B$7.18B | +14.2% |
| SG&A Expenses | $2.57B$2.34B | +9.9% |
| Operating Expenses | $28.34B$23.78B | +19.2% |
| Operating Income | $15.86B$9.79B | +62.0% |
| Interest Expense | $490.00M$559.00M | −12.3% |
| Net Income | $12.94B$9.04B | +43.0% |
| EPS (Basic) | $11.52$7.99 | +44.2% |
| EPS (Diluted) | $11.37$7.87 | +44.5% |
| Shares Outstanding (Basic) | 1.12B1.13B | −0.7% |
| Shares Outstanding (Diluted) | 1.14B1.15B | −1.0% |
05—Questions
Frequently Asked Questions
Is the strong fiscal 2022 growth sustainable, given the outlook?
Probably not at this pace. Management expects weak macroeconomic conditions, elevated customer inventory and lower handset volumes to weigh on the next several quarters. Growth in fiscal 2022 was largely driven by higher pricing and mix, not just volume, and the filing explicitly says the 5G ramp and diversification into automotive and IoT are needed to sustain long-term growth.
How much of the net income increase is from one-time items?
The $1.1B EC fine reversal in other income is a significant one-time benefit, and it also reduced interest expense by $62M. Net investment results swung sharply, from a $1.0B gain in fiscal 2021 to a $372M expense in fiscal 2022. Core operating income still grew to $15.9B from $9.8B, so the underlying operating improvement is real but smaller than the headline net income increase implies.
What are the biggest risks to the business?
The main risks are customer concentration (Apple and Samsung each exceeded 10% of revenue), vertical integration as Apple develops its own modem and Chinese OEMs pursue domestic chips, and China exposure, which accounts for about 64% of revenue amid U.S.-China trade tensions. The licensing business also faces continuing antitrust and royalty challenges, and securities class-action and ARM litigation remain pending.
Is the dividend and buyback program safe?
The dividend was raised to $0.75 per quarter, and the company returned $6.3B to shareholders in fiscal 2022 through dividends and buybacks, with $8.1B remaining under the repurchase authorization. However, free cash flow fell to about $6.8B ($9.1B operating cash flow less $2.3B capex), and the company has $1.7B in remaining repatriation tax payments plus potential cash tax increases from R&D capitalization beginning in fiscal 2023. Management says it may reduce capital returns if legal or regulatory outcomes or debt obligations require it.
Why did cash and marketable securities drop so much?
The decline of about $6.0B came mainly from $4.9B in acquisitions and investments (primarily Veoneer), $3.2B in dividends, $3.1B in share repurchases and $2.3B in capital expenditures. These outflows exceeded operating cash flow of $9.1B. The company also issued $1.5B in new notes to refinance $1.5B of maturing debt, so the net debt position was roughly unchanged.
06—Continue