At one point, it seemed like Qualcomm would become the ARM equivalent to Intel in the x86 space. Their Snapdragon processors, equipped with industry leading cellular technology, powered a huge number of devices. Practically every flagship phone of 2013 and 2014 (sans Apple of course) carried a Qualcomm processor inside. But even Intel makes some big missteps, and the Netburst era was certainly one, allowing AMD to provide a much better product. Unlike those days though, there are more than just two players in the ARM SoC space, and Qualcomm has been under some relentless competition (always the best kind) from Samsung at the high end with the Exynos 7420, and on the low end with companies like Mediatek and Rockchip going after the lower margin business.

It’s not fair to blame all of Qualcomm’s woes on one issue, but Qualcomm’s issues began when Apple made the surprise move to 64-bit. On the 32-bit side, Qualcomm had been using custom designed ARM cores, with the last evolution of that being the Krait 450 core in the Snapdragon 805. Krait performed well, but with the move to 64-bit, suddenly the industry felt that the need to check the 64-bit box on the spec sheet in order to compete. Since Qualcomm was not ready with their 64-bit custom core, they had to turn to the standard ARM designs with the A53 and A57 powering their 64-bit lineup. As a result, this affected their market differentiation and performance at the high end.

Qualcomm will finally be moving to FinFET with the Snapdragon 820, and with it will be the custom Kyro 64-bit core. This should be available in the latter part of 2015, and available in devices in early 2016.

But that is the future, and today Qualcomm released their Q3 FY 2015 results. Revenue for the company was $5.8 billion, down 14% from the $6.8 billion a year ago. Operating income was down a staggering 40% to $1.2 billion, and net income was down 47% to $1.2 billion. Earnings per share fell 44% to $0.73, with Non-GAAP EPS of $0.99 which actually beat expectations slightly.

Qualcomm Q3 2015 Financial Results (GAAP)
  Q3'2015 Q2'2015 Q3'2014 Sequential Change Year-Over-Year Change
Revenue (in Billions USD) $5.8 $6.9 $6.8 -15% -14%
Operating Income (in Billions USD) $1.2 $1.3 $2.1 -8% -40%
Net Income (in Billions USD) $1.2 $1.2 $2.2 +12% -47%
Earnings per Share (in USD) $0.73 $0.63 $1.31 +16% -44%

For a company which at one point seemed certain to become the dominant player in the ARM SoC space, these numbers hit pretty hard. Incorporated companies have a fiduciary duty to their shareholders, and Steve Mollenkoft, CEO of Qualcomm, today announced a major restructuring of the company which will see the company shed up to 15% of its workforce. It intends to save $1.1 billion annually through a series of targeted layoffs which will impact their temporary workforce, engineering, and reducing the number of offices. It is also reducing the annual share-based compensation by around $300 million. These cuts are expected to be complete by the end of fiscal year 2016, for a savings of $1.4 billion annually.

Qualcomm Q3 2015 Financial Results (Non-GAAP)
  Q3'2015 Q2'2015 Q3'2014 Sequential Change Year-Over-Year Change
Revenue (in Billions USD) $5.8 $6.9 $6.8 -15% -14%
Operating Income (in Billions USD) $1.7 $2.7 $2.4 -37% -30%
Net Income (in Billions USD) $1.6 $2.3 $2.5 -31% -35%
Earnings per Share (in USD) $0.99 $1.40 $1.44 -29% -31%

They will also be reviewing their corporate structure, capital return opportunities, and other alternatives with the goal of creating stockholder value. Qualcomm’s shares have fallen in price around 20% in the last year. They also have reaffirmed their commitment to return significant capital to shareholders, with a minimum of 75% of free cash flow being returned through dividends and share repurchases, in addition to the $10 billion stock repurchase program which was already underway. The board has also seen a shakeup, with two new members being added and they intend to appoint one additional independent director to the board. The company executives will also have additional return-based metrics for compensation.

Ultimately there is a lot of pressure on Qualcomm from some of its larger investors to split the company's highly profitable licensing business and their riskier chip development business, and this is something Qualcomm will be evaluating. In good times the chip business contributes significantly to Qualcomm's fortunes, but by its nature it's not as regular or profitable as Qualcomm's licensing efforts, and given the competitive landscape Qualcomm is in, investors are pushing a split as a means of allowing them to only invest in the licensing business and not be exposed to the chip business as well. Qualcomm for their part has stated that they are investigating this option, though whether it actually comes to pass remains to be seen.

All seems pretty rough for Qualcomm, but in the end they were still profitable, although not as profitable as they would like to be. MSM chip shipments were actually flat year-over-year with 225 million SoCs shipped. The initial 64-bit era has not been overly kind to Qualcomm though, and with their custom core being around six months away still, they have some work to do in the interim to avoid a repeat with the next SoC refresh.

Source: Qualcomm Investor Relations

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  • ppi - Thursday, July 23, 2015 - link

    Yeah, diversifiaction on shareholder level is the theory ... but say if you close down chipmaking business, because it did not perform well enough for two quarters, you cannot just reopen it instantly, it's gone.

    Also, for IP licensing, you need to continuously produce something to license, and not just sit back. And that stuff has very good synergy with chipmaking.

    (at the same time, it needs to be said, that conglomerates that have completely divergent business)
    Reply
  • jjj - Wednesday, July 22, 2015 - link

    The outlook for MSM at 170-190 million units was shocking and makes one wonder.
    They shipped 225 million in Q2 (calendar) and for Q3 they project just 170-190 (so midpoint 180). Last year Q2 was 225 and Q3 236 million units. So this year Q3 is 66 million units bellow last year Q3, while Q2 were equal. At the same time the smartphone market grew. They lost the Galaxy S6 and very likely the soon to launch Note 5 but in the end that's not such a huge volume per quarter . At the same time Apple grew very nicely on year and Apple's share gain is also Qualcomm's share gain.
    Qualcomm claims that it's the S6, inventory glut and poor sales for SD810 but all that seems far too little for such a huge drop.
    I don't want to start rumors and this is not a fact or something that others might agree with, it's just the only reasonable conclusion i am able to arrive to. Given the numbers i am convinced that they lost the modem in the next iphone. Would be very unexpected and maybe it's not the case but it sure looks like it., the drop is just huge - again don't take it as a fact, it's just my suspicion and you are free to arrive to your own conclusion.
    Sadly that kind of outlook also makes it likely that SD620 won't ship in high volumes in Q3. Kinda hoped we see it soon in devices.
    Reply
  • jjj - Wednesday, July 22, 2015 - link

    "So this year Q3 is 66 million units bellow last year Q3"

    56 million not 66* - no edit but figure the type is too big not to fix it.
    Reply
  • Gunbuster - Wednesday, July 22, 2015 - link

    Didn't help that HTC made a crappy SD810 phone and Microsoft forgot to build one altogether... Reply
  • Impulses - Thursday, July 23, 2015 - link

    Like HTC's numbers would really mean much... At the high end, losing the SGS6 probably meant more than any other design wins/losses put together. You gotta figure Samsung wasn't gonna choose Qualcomm indefinitely tho, even if Qualcomm didn't fall behind. Reply
  • lmcd - Thursday, July 23, 2015 - link

    Forgot? Why would they put in the effort? The 810 wasn't that great of a chip. I'd rather an 805 than an 810. Reply
  • Michael Bay - Thursday, July 23, 2015 - link

    Considering that MS is using <i>only</i> Qualcomm SoCs in their phones, it`s more like they saw the heating issues and just didn`t bother.
    I wonder if their new phones will suddenly feature Atom.
    Reply
  • jjj - Thursday, July 23, 2015 - link

    They have a handful of devices in retail with SD810/808. LG Flex 2, HTC, Xiaomi, ZTE , LeTV , Sony and the G4 with SD808. Those are about to double with the ZTE Axon that just launched now in Q3, the Oneplus 2, ZUK Z1 (new Lenovo brand), a phone by Coolpad and Qihoo 360 with SD808 a likely Lenovo X3 with SD808 plus looks like Moto and Microsoft have some devices with SD810/808.
    So there is no way 810 inventory can be all that much and they are doubling the number of devices with 810/808 in retail during Q3. Something else has to be off in a big way when it comes to units.
    Reply
  • jerrylzy - Friday, July 24, 2015 - link

    It's unlikely that Apple chose not to use Qualcomm's modem for iPhone 6S. Reply
  • karthik.hegde - Thursday, July 23, 2015 - link

    Major difficulty for Qcom is their huge dependancy on Apple and Samsung. If the rumour about Apple using Intel modem in their next Iphone and Samsung developing its own solutions, then Qualcomm is in problem. They'll have to survive with royalty only.

    On the processor side, MediaTek, using the off the shelf ARM CPUs, GPUs and other IPs is pushing hard.

    Will be an interesting battle in ARM field, too bad this is not the case in x86.
    Reply

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