Shares of Qualcomm and Arm Holdings, two chipmakers heavily dependent on the smartphone market, rose on Thursday after posting earnings reports that signaled a tentative return in demand.
Both companies pointed to a recovery in demand for high-end devices in their earnings reports on Wednesday, though they gave no signal that the broader industry is on solid ground. Their shares were up about two percent in New York trading on Thursday.
A rebound in consumer spending on high-end phones, especially in China, helped both companies’ revenue and earnings beat analysts’ top estimates last quarter. Expansion into new territories also supported results. Qualcomm and Arm are moving deeper into computing, increasing spending on artificial intelligence (AI). And Qualcomm has made a successful foray into automotive chips.
The two companies — longtime partners who are increasingly becoming enemies — are considered leaders in the smartphone industry. Qualcomm is the largest seller of the processors that power the devices, and Arm has developed most of the underlying technology used in the industry.
Both companies have benefited from the move to higher-end phones. At Arm, handset revenue jumped 40 percent, even as total unit shipments rose just 4 percent. Qualcomm is also gaining a larger share of the Chinese market. Revenue from the sale of Android phones in this country has increased by 40 percent this year.
Next year, the company predicts total phone sales will grow by about five percent or less — a sign that it doesn’t expect a significant recovery. Many consumers don’t update their devices as often, a problem that plagues most of the industry.
According to Chief Executive Officer Rene Haas in an interview with Bloomberg Television, Arm’s use of higher-end components in smartphones is “hugely beneficial” for royalty income. The shift, he said, was driven by the need to expand computing in phones to run artificial intelligence software.
“I really think we’re in a market where we can’t get enough computing power,” he said.
On Wednesday, Qualcomm and Arm released their quarterly results within minutes and held overlapping conference calls. It was a landmark time for the two companies involved in the escalating legal battle.
Last month, Arm moved to revoke a license that allowed Qualcomm to use its intellectual property to develop chips. The move follows Arm’s 2022 breach of contract and trademark lawsuit against Qualcomm.
While Haas is confident of winning the lawsuit, which will begin in mid-December, Arm has based its financial projections on the assumption of losing. According to him, this is a deliberately “bearish” position.
Arm on Wednesday had forecast revenue of $920 million (roughly Rs 7,762 crore) to $970 million (roughly Rs 8,184 crore) for the December quarter. The midpoint of that range will fall short of the $950.9 million (roughly Rs. 8,022 crore) analysts were estimating.
Qualcomm expects sales of $10.5 billion (roughly Rs. 88,592 crore) to $11.3 billion (roughly Rs. 95,342 crore) during the period. Analysts had estimated US$10.5 billion (about Rs 88,592 crore on average, according to data compiled by Bloomberg). Earnings, excluding certain items, will be $3.05 (about 257 rupees) per share, beating Wall Street forecasts.
The automotive market has been a bright spot for Qualcomm, despite a downturn in the category that has hurt other chipmakers. In fiscal year 2024, revenue increased by 55 percent. The San Diego-based company said it is winning new business, helping it eclipse its competitors.
“I think you have to look at our automotive revenues as less sensitive to what’s happening in the market, much more related to the new models that are being launched,” CEO Cristiano Amon said on a conference call with analysts. “It reflects a change in share.”
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