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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  • coburn_c - Thursday, July 23, 2015 - link

    Told them there was no reason to go 64-bit yet. Told them it would suck. All these faggots here said I was stupid, but I could have saved them. Reply
  • exmachiner - Thursday, July 23, 2015 - link

    Qualcomm didn't decide to move to 64-bit. Their hand was forced. It is clear now that they had estimated the 64-bit transition wouldn't happen until 2016-17 (when smartphones would actually ship with 4GB RAM). Reply
  • Samus - Thursday, July 23, 2015 - link

    That was an epic marketing evaluation screw-up. History has a habit of repeating itself: AMD introduced 64-bit architecture to the desktop nearly decade before 4GB of RAM was standard.

    The difference is 64-bit x86 was introduced by an underdog, so it wasn't taken as seriously as when, say, Apple, introduces the technology. Intel was able to counter AMD with a 64-bit x86 ISA within two years. Qualcomm is, for the most part, doing the same thing. But as the post and others have mentioned, the ARM industry is interestingly different than x86 because there are so many players.
    Reply
  • Klinky1984 - Saturday, July 25, 2015 - link

    Intel already had IA-64 available well before AMD introduced AMD64(x86-64), but no one wanted Itanium processors except for certain niches due to compatibility problems. People(Microsoft) did take AMD64 very seriously, and essentially forced Intel into implementing their own version(EM64T/Intel 64).

    Right now Qualcomm is more like Intel, with it's heat issues(Pentium D) and failure to transition to 64-bit computing(IA-64). Intel was big enough to weather the storm. Qualcomm probably not so much.
    Reply
  • Kvaern2 - Thursday, July 23, 2015 - link

    What I gather from your post is that out of the all Arm V8 improvements the only word you understood is 64 bit?

    I'm surprised they didn't listen to you.
    Reply
  • coburn_c - Saturday, July 25, 2015 - link

    If I understand correctly, had they stayed on armv7 there chips would be faster, cooler, and with better battery life. I know they would lose out on ALLL THOSE 64-bit (and... other improvements?) only applications but... Reply
  • sseemaku - Thursday, July 23, 2015 - link

    These investors never have patience. Seems like you cannot invest in anything long term when your is a public company.

    That said, I didn't think it would take so long for qualcom to bring out ARM V8 based SOC. Seems like they had a different roadmap!
    Reply
  • name99 - Thursday, July 23, 2015 - link

    Why are you blaming the INVESTORS here? It was QUALCOMM that did not invest in an ARMv8 core years ago.
    The investors are responding more or less rationally to the fact that the entire management complex, from board to CEO, seem not to have a realistic plan for the future.
    Reply
  • Shadowmaster625 - Thursday, July 23, 2015 - link

    I'm glad they were punished for an early attempt at providing useless and pointless 64 bit support. There is no reason to rush with it, especially when it costs you half your profits. It will still be another 3+ years before devices even begin to need 64 bit. Hell, it is rare to even find a phone that has 4GB of RAM. There was no reason to try and push it out before its time. If they had built the best possible 32 bit SoC they could have, they would have made a lot more money. Instead, they clobbered themselves with the stupid stick. Reply
  • K_Space - Thursday, July 23, 2015 - link

    I think they're being punished for their reactive move rather than the inclusion of 64 bit support per se. I still recall when the A7 launched how well it was received. The v8 instruction set featured heavily if I remember correctly. Apple had a record Q4 2013 (admittedly not entirely due to the A7, but 2 new iPhones, iOS 7, new iPad mini with Retina Display, iPad Air, etc).
    My point being, from a non-technical investor POV A7 succeed because it ticked the 64 bit feature box FIRST (OK that's a bit simplistic, it was an excellent chip and a first for Apple); 810 was late to the party (and had a hot head). I'd image it'd have been a different story if 808/810 launched before the A7 (or equivalent).
    Reply

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