Qualcomm (QCOM) just shared an upbeat three-year growth outlook for its chip business, along with a more conservative outlook for its patent-licensing business.
Qualcomm's stock, which jumped two weeks ago following the company's September quarter earnings report, fell 2.8% in Tuesday trading to $87.96 after the company hosted its annual analyst day event in New York. Here's a recap of notable disclosures that were made at the event.
1. Qualcomm Is Aiming for Double-Digit Chip Sales Growth Through Fiscal 2022
Qualcomm estimates the serviceable addressable market (SAM) for its chip division (QCT) will grow at a 10% compound annual rate from fiscal 2019 (it ended in September) through fiscal 2022. And the company has set a goal of having QCT grow faster than its SAM during this time, not counting the revenue boost it will start to receive next year on account of supplying modems (and likely other chips as well) for Apple's (AAPL) 5G-capable iPhones.
In addition, Qualcomm is aiming for QCT's operating margin, which was 15% in fiscal 2022, to grow to a 20%-plus level.
Qualcomm's 3-year revenue and margin growth outlook. Source: Qualcomm.
2. Growth Expectations for the Licensing Business Are More Measured
Possibly weighing on Qualcomm's shares today: Outside of future revenue from Huawei, which currently isn't paying Qualcomm royalties, the company is only modeling for its licensing division (QTL), which still accounts for a majority of its operating profit, to keep its revenue steady from fiscal 2020 through fiscal 2022. Thus far, Qualcomm has guided for QTL's revenue to be in a range of $1.3 billion to $1.5 billion during the first quarter of fiscal 2020, and (with seasonality weighing) a range of $1 billion to $1.2 billion during the second quarter.
Admittedly, with Huawei estimated by research firm IDC to have an 18.6% smartphone unit share in Q3, a favorable resolution to Qualcomm's dispute with the company would have a meaningful impact on QTL's revenue. And with QTL typically receiving royalties based on a phone's selling price (subject to a cap), new CFO Akash Palkhiwala did say that QTL would get a revenue boost if 5G adoption boosted smartphone average selling prices (for now, Qualcomm isn't assuming any such boost).
Qualcomm does expect QTL to see some margin expansion, however. Not counting any benefit from a Huawei resolution, the company is aiming for QTL's operating margin to be around 70% in fiscal 2022, up from 64% in fiscal 2019.
3. 5G Phone Sales Are Expected to Take Off Over the Next Two Years
Two weeks ago (in tandem with the release of its September quarter earnings report), Qualcomm forecast 175 million to 225 million 5G phones would be sold next year, as numerous phone OEMs roll out mass-market, high-end, 5G models. The company now adds that it expects more than 450 million 5G phone sales in 2021, and more than 750 million in 2022.
For comparison, IDC pegs total 2018 smartphone shipments at 1.4 billion. Qualcomm reiterated at its analyst meeting that it expects its chip revenue opportunity for 5G phones to be 50% higher than for comparable 4G phones.
How Qualcomm sees 5G phone sales growing. Source: Qualcomm.
4. Qualcomm Is Counting on its RF Chip Business to Be a Key Growth Driver
Thanks in part to the significant RF chip needs of 5G phones -- particularly those that need to support high-frequency, millimeter-wave (mmWave) spectrum bands -- Qualcomm sees its SAM for RF front-end (RFFE) chips growing by $5 billion over the next three years to $18 billion. If that outlook proves accurate, it's a positive not only for Qualcomm, but also for mobile RF players such as Skyworks (SWKS) , Qorvo (QRVO) and Broadcom (AVGO) .
In addition, Qualcomm, which has established an early lead in the mmWave RF space and has long argued its ability to provide end-to-end, modem-to-antenna chip platforms for phones becomes a bigger competitive strength with 5G's arrival, says it's looking to claim more than 20% of its RFFE SAM by 2022.
The company reported two weeks ago that it now has 230-plus 5G design wins, up from 150-plus three months earlier, and that "virtually all" of these wins feature some of its RFFE offerings.
Qualcomm's RFFE opportunity. Source: Qualcomm.
5. Automotive and IoT Chip Sales Are Also Expected to Provide a Lift
Qualcomm sees its automotive chip revenue, much of which is tied to modem and processor design wins for infotainment systems, growing from less than $600 million in fiscal 2019 to about $1.5 billion in fiscal 2024. The company notes that 75% of its expected fiscal 2024 revenue is already guaranteed by an automotive design win pipeline that has more than doubled since the start of 2018 to $6.5 billion.
Separately, Qualcomm reports having more than 11,000 customers in the market for "IoT" products -- Qualcomm defines this space as covering everything from networking gear to wearables to smart home devices to AR/VR headsets. It sees the cellular (modem) part of this addressable market growing at an 18% compound annual rate (CAGR) over the next three years to $4 billion, and the non-cellular part growing at a 7% CAGR to $9 billion.
6. Dividend Hikes and Stock Buybacks Will Continue
Though not offering any specifics, Qualcomm did say it expects its quarterly dividend, which currently stands at $0.62 per share and is good for a 2.9% annual yield, to keep growing over time.
Likewise, the company promised to keep buying back stock, with repurchases meant to offset the dilutive impact of stock awards complemented by "opportunistic" repurchases. Following massive fiscal 2018 repurchases that followed the termination of Qualcomm's deal to buy NXP Semiconductors (NXPI) , $706 million was spent on buybacks during Qualcomm's September quarter, and $1.79 billion over the whole of fiscal 2019.