Qualcomm (NASDAQ: QCOM) is one of the leading players in the semiconductor industry. The firm has outperformed the market and industry over the past 12 months, with a total return of 75%. Over the same period, the SPDR S&P Semiconductor ETF (NYSEARCA: XSD) is up just 15%. Let’s look at Qualcomm’s business segments, recent earnings, and news, and close with some metrics from analysts covering the firm.

Qualcomm: Chip Design and IP Licensing Segments

Qualcomm operates primarily in two reportable segments: Qualcomm CDMA Technologies (QTC) and Qualcomm Technology Licensing (QTL). QTC manufactures chips for use in mobile devices, vehicles, the Internet of Things, and other consumer and commercial technologies. The company’s core chip platform is Snapdragon. Snapdragon processors are commonly used in phones using the Android operating system. Qualcomm is a fabless chip designer, meaning it only creates the blueprints for its chips; it does not manufacture them itself. The firm's primary chip suppliers are Global Foundries (NASDAQ: GFS), Samsung Electronics (OTCMKTS: SSNLF), and Taiwan Semiconductor Manufacturing Company (NYSE: TSM).

QTL licenses parts of Qualcomm's intellectual property and patents that other firms use to make and sell wireless products. Qualcomm has approximately 164,000 active patents worldwide, and it continually invests in research and development (R&D) to earn more patents. In 2023, the company received 3,854 new patents. This came in second for the most number of patents in the United States, only behind Samsung.

The QTC segment accounts for the vast majority of total revenue, coming in at 84% compared to 14% for QLT. 67% of QTC revenue comes from handheld devices. QLT is the much higher margin segment. The earnings before taxes (EBT) margin was 26% for QTC, compared to 68% for QLT.

Qualcomm has another reportable segment, Qualcomm Strategic Investments. It makes private and public investments in early-stage companies. Lastly, QGOV is a nonreportable segment. It provides services and sells products to U.S. government agencies and their contractors.

Qualcomm’s Solid Fiscal Q2 2024 Earnings and Negative News Reports

Qualcomm reported solid earnings compared to analyst estimates for fiscal Q2 2024. Adjusted earnings-per-share (EPS) came in at $2.44, 12 cents above analyst expectations of $2.32. It also beat moderately on revenue at $9.39 billion, compared to the $9.35 billion estimate. Gross and net income margins grew substantially from the previous year, up 114 and 330 basis points, respectively. The firm also released higher-than-expected guidance for fiscal Q3 2024, at a midpoint adjusted EPS of $2.25, compared to expectations of $2.16. Automotive revenue in the QTC segment grew impressively. Sales rose 35% from the previous year.

Qualcomm’s shares have continued to rise in the face of multiple negative news stories since its last earnings release. Shares are up 13% since May 2, 2024. First, the US government revoked the licenses of Qualcomm and Intel (NASDAQ: INTC) to sell their chips to Huawei Technologies, a Chinese mobile phone and laptop maker. This is a policy to protect the nation's defense and economy. It aims to limit China's access to high-end semiconductors and its use of artificial intelligence. This didn't hurt Qualcomm's shares much on the day of the news. Huawei isn't among the firm's top ten customers, and its business with the company is already shrinking.

That's not all. Reports have revealed that some software doesn't work with the firm's latest Snapdragon chips. These chips are for new AI-powered Windows laptops. Software from Adobe and popular computer games like "League of Legends" and "Fortnite" were impacted. A particularly troubling aspect of this is that Windows PCs have traditionally used chips made by Intel. Hiccups in the rollout of their new technologies may cause PC makers to go back to suppliers they know better, like Intel. This could hinder the firm from achieving its goal of having its chips used in 50% of the PC market by 2029. Qualcomm's shares fell 5.7% on the day of the news.

Rising Analyst Price Targets Despite Negative News

Nine analysts have upgraded their price targets on Qualcomm since May 21st. The average of these price targets is $242, implying an upside of 26%. This doesn’t seem all that crazy, despite the negative news, considering that Qualcomm’s forward price-to-earnings ratio is at 19.6x. This is below average for the technology sector, ranking only in the 35th percentile.