01—Abstract
Summary
Summary of the 10-Q filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.
QUALCOMM's fiscal Q2 2024 10-Q (quarter ended March 24, 2024) shows a company that grew modestly on the top line while earnings improved sharply.
Total revenues were $9.39 billiona, up 1% year over year, driven by QCT equipment and services (up $98 million in the quarter on higher automotive and handset revenue, partly offset by weaker IoT). QTL licensing revenue rose 2% to $1.44 billion. Net income rose 37% to $2.33 billion, helped by a $346 million swing in investment and other income, mainly net gains on QSI non-marketable equity investments and higher interest income, and by lower R&D and restructuring-related costs.
Operating income was $2.34 billionb, up 12%. For the first six months, revenue was $19.3 billion (up 3%) and net income was $5.09 billion (up 29%). Cash generation and capital returns remained the focus.
Operating cash flow for the six months was $6.5 billionc, up from $4.6 billion, though it was depressed by about $1.8 billion of income taxes paid above provision, including a $1.0 billion postponed federal payment. Cash, equivalents and marketable securities rose to $13.9 billion, against $15.5 billion of debt. The company returned $1.8 billion in dividends and $1.5 billion in buybacks in the six months, and it raised the quarterly dividend to $0.85 from $0.80.
About $3.6 billiond remained under the repurchase authorization. Management continues to flag headwinds. IoT customers are still drawing down elevated inventory, Huawei is not expected to generate product revenue beyond the current calendar year, and U.S./China trade and national security tensions remain a material risk given China revenue concentration.
The licensing business also faces ongoing legal exposure, including the consolidated consumer and securities class actions and the Arm dispute, with trial dates in late 2024 and no accrual recorded. Negotiations with key OEMs, including Huawei, continue ahead of agreements expiring in early fiscal 2025.
02—Key points
Key Highlights
- Revenue of $9.4B in Q2 FY24, up 1% YoY; six-month revenue of $19.3B, up 3%, led by QCT handsets and automotive.
- Net income of $2.3B in Q2, up 37% YoY, aided by $346M higher investment and other income (largely QSI non-marketable equity gains) and lower R&D.
- QCT EBT margin improved to 29% in Q2 from 27%; QTL EBT margin rose to 71% from 68%.
- IoT revenue fell 11% in Q2 and 22% in the first half on inventory drawdowns and weaker edge networking demand.
- Six-month operating cash flow of $6.5B was held down by roughly $1.8B of taxes paid above provision.
- Shareholder returns: $1.8B in dividends and $1.5B in buybacks in the first half; quarterly dividend raised 6% to $0.85.
- Balance sheet: $13.9B cash and marketable securities against $15.5B of debt; $3.6B of buyback authorization remains.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Qualcomm Inc kept $0.25.
- Revenue$9.39B100.0%
- Cost of revenue−$4.11B43.7%
- Gross profit$5.28B56.3%
- Operating costs−$2.94B31.3%
- Operating income$2.34B24.9%
- Interest, other & tax−$14.0M0.1%
- Net income$2.33B24.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed May 1, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $9.39B$9.28B | +1.2% |
| Cost of Revenue | $4.11B$4.15B | −1.1% |
| Gross Profit | $5.28B$5.12B | +3.1% |
| R&D Expenses | $2.24B$2.21B | +1.2% |
| SG&A Expenses | $707.00M$614.00M | +15.1% |
| Operating Expenses | $7.05B$7.18B | −1.9% |
| Operating Income | $2.34B$2.09B | +12.0% |
| Interest Expense | $172.00M$179.00M | −3.9% |
| Net Income | $2.33B$1.70B | +36.5% |
| EPS (Basic) | $2.08$1.53 | +35.9% |
| EPS (Diluted) | $2.06$1.52 | +35.5% |
| Shares Outstanding (Basic) | 1.12B1.12B | +0.1% |
| Shares Outstanding (Diluted) | 1.13B1.12B | +0.6% |
05—Questions
Frequently Asked Questions
What drove the strong growth in net income even though revenue grew only modestly?
Net income rose 37% to $2.33B in Q2 mainly because investment and other income swung by $346M to $330M. That was driven by net gains on certain QSI non-marketable equity investments, higher interest and dividend income, and gains on deferred compensation plan assets. Operating income also rose 12% to $2.34B, reflecting lower R&D and the absence of prior-year restructuring charges. Investors should note that the investment gains are non-recurring in nature and less predictable than core operating results.
How exposed is Qualcomm to China and Huawei?
Customer concentration is high. Customer (x) accounted for 24% of Q2 revenue, customer (y) for 19%, and customer (z) for 14%. The filing says Qualcomm does not expect product revenue from Huawei beyond the current calendar year, because export licenses permit only 4G and other non-5G products and Huawei is shifting to its own 5G chips. Political actions, tariffs and restricted-entity listings could further limit sales to Chinese customers, and the filing identifies China concentration as a material risk.
Why was operating cash flow lower than net income would suggest?
Six-month operating cash flow of $6.5B was held back by income taxes paid in excess of the provision, a $1.76B adjustment. This included a $1.0B payment of previously postponed U.S. federal taxes from fiscal 2023, the effect of capitalizing R&D expenditures for tax purposes, and a $414M installment of the 2018 repatriation tax. About $360M of severance payments related to fiscal 2023 restructuring also weighed on cash flow. Management attributes the tax timing to one-off payments, but cash taxes are expected to remain elevated relative to book taxes under current law.
What are the main litigation risks disclosed?
The most significant matters are the consolidated U.S. securities class action (trial scheduled for October 28, 2024), the U.S. consumer class action on appeal at the Ninth Circuit, and Arm Ltd.'s suit over the Nuvia architecture license, where Arm seeks to halt use of Nuvia-derived processor technology (trial scheduled for December 16, 2024). Qualcomm has filed counterclaims and a separate suit against Arm. No accrual has been recorded because losses are considered reasonably possible but not probable, and the amount cannot be estimated. An unfavorable outcome could have a material adverse effect.
What is the outlook for licensing revenue and the OEM renewals?
QTL licensing revenue was up 2% in Q2, but down 1% for the first half, which reflected lower estimated per-unit revenue and the end of recognition of a Nokia upfront fee. Qualcomm has recently extended or renewed several key OEM license agreements and is negotiating with others whose agreements expire in early fiscal 2025, including Huawei. It is also negotiating with a China-headquartered OEM. The renewal outcomes, including any arbitration or litigation, will determine whether royalty revenue is recognized on a timely basis.
06—Continue