Qualcomm (QCOM) posted its first-quarter earnings results, revealing a quarterly revenue of $9.94 billion, $6.69 billion of which came from its handsets division, a 16% increase year-over-year. Despite the positive report and earnings beat, shares of the company are trending down Thursday morning.
Qualcomm Chief Financial Officer and Chief Operating Officer Akash Palkhiwala joins Yahoo Finance to discuss the chipmaker's performance, the current transition to AI-based tech, and China's economic environment.
Palkhiwala explains the transition to high-tech devices and how that will impact the business: "We're seeing this tremendous makeshift towards more expensive devices, towards more expensive chips, and that shows up in our revenue growth. Even in a relatively flat market over the last several years, we have tremendously grown our content for phone capabilities we have in any given device, and that shows up in our financial performance. We're excited about that. That's a trend that's held over the last few years. As we look forward, we don't see that changing."
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- Qualcomm pulling back slightly today despite reporting a return to growth in the handset market and also beating Wall Street estimates in its first quarter results. Joining us now to dive into the numbers and investor reaction is Akash Palkhivala, Qualcomm's chief financial officer and chief operating officer. And first of all, Akash, congrats because now you're wearing both of those hats as CFO and COO, which this is the first time you guys have reported earnings where you have both of those roles. So good to talk to you.
AKASH PALKHIWALA: Good to talk to you as well. And thank you for the wishes.
- Of course. So let's talk about smartphones first and the rebound in smartphones. Now, you're not looking for a huge rebound in demand for smartphones. You're looking at flat to up slightly this year. But what is driving that rebound? And what could go even more right that would make that rebound larger?
AKASH PALKHIWALA: Sure. So I think the smartphone story is less about just the unit growth, but more about the content growth. If you look at the consumer and how they use their smartphones, they are demanding wanting more and more use cases. And they're spending a lot more time with the phones than they used to even a couple of years ago.
So what that means is when people buy a new phone, they're buying a more expensive phone. And so we're seeing this tremendous mix shift towards more expensive devices, towards more expensive chips. And that shows up in our revenue growth. Even in a relatively flat market over the last several years, we have tremendously grown our content per phone, our capabilities that we have in any given device. And that shows up in our financial performance. And we're excited about that. That's a trend that's held over the last few years. And as we look forward, we don't see that changing.
And then maybe on top of that, one of the other key drivers going forward is going to be the fact that generative AI, which has so far been running just in the cloud, we see a strong trend towards running that on the device. And it's no different than computing. Computing runs at both places, in the cloud, on the device. And we see that generative AI will also go through the same transition. And that will create more opportunity for us in terms of competitive differentiation, maybe drive an upgrade cycle for phones as well, and then more content as well.
- Dig into that a little bit, if you could for me, Akash, because you talked about this a little bit on the call that we're already seeing some of those capabilities on device for some of these phones, translation, for example, that we're seeing happen on the phones. When would it get to the point, though, that it would drive an upgrade cycle, for example?
AKASH PALKHIWALA: So the first set of devices with initial capabilities on gen AI just got launched. So Samsung just launched their GS 24 device. Very excited about working with them on that device. And if you look at some of the key features they highlighting in the devices is all around generative AI and how you can use that to change the way we interact with the phone.
The user interface, we think, will completely evolve based on generative AI capability. And then how you do certain things on the phone, things we couldn't do in the past like language translation and do different things with photography as well, which are just incredible use cases for consumers. And so over the next 12 months, as new phones get launched, you're going to see a lot more use cases come through. And this is one of those things where you can add functionality even after the phone is in the consumer's hands. So I'm excited about what happens over the next year or so. And I think that's going to drive a lot more interest and upgrade cycle within phones.
- Let's talk PCs as well because you guys have some new chips coming out that are meant to go into PCs, and other devices for that matter. What does early demand look like for those chips? And then on top of that, how do you think demand for PCs is going to look this year?
AKASH PALKHIWALA: Yes. So we think of PC as a market that's going through a transition. They are going to go from the PCs that we've been using in the past to an AI PC era, which is a completely kind of an inflection point in the PC market. We're fortunate that we are right at that inflection point. We bring in the right set of capabilities not just in terms of the best in class performance on the CPU and the GPU, but also bringing in our neural processing engine, which is key to running AI use cases on the device, and then in the cloud as well.
So it is something that we are very well positioned with our portfolio, technology portfolio, that comes from phones. And it allows us to exploit this inflection point in PCs. We expect these pieces to start launching in middle of the year and devices with our chips ready for back to school and then going into the holiday season. So excited about it and anxious to get the products out and into the hands of consumers.
- And Akash, finally I want to ask you about China because you did see relatively strong demand in China. And I'm just wondering how investors should think about that and how they should square that with all the headlines that we are seeing about a weakening, or weak-ish at least, Chinese economic environment. But it sounds like people are still buying a lot of phones over there.
AKASH PALKHIWALA: Yeah I think it's not just the number of phones that are being bought. What we saw in the quarter was we launched a new chip, Snapdragon 8 Gen 3, and there's just tremendous demand for that chip across all OEMs, Chinese OEMs as well, but also Samsung and the other global OEMs.
And what happened is because of the capability of the chips, we saw the OEMs being extremely aggressive with their launch plans, bringing in gen AI use cases. And you're seeing the benefit of that show up in our numbers.
- Akash, thank you so much got to leave it there. Akash Palkhiwala, really appreciate your time. Qualcomm CFO and COO. Have a great day.
AKASH PALKHIWALA: Thank you very much. Thanks for having me on.
