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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  • name99 - Thursday, July 23, 2015 - link

    Let's recall some of your earlier predictions. In 2011 you were telling us that tablets were a fad. You were likewise criticizing the "icrap 3GS". Then in 2013 you were telling us how the smartWatch was a stupid idea.

    Might I suggest that you are basically EXTREMELY conservative by temperament, and that that's not a useful trait in someone trying to predict the tech future, because you don't have the inclination or the temperament to look beyond what's immediately visible?
    You see an early iPad, an early iPhone, an early smartWatch (you were criticizing the Galaxy Gear I think in 2013, but I'm sure you have even more vitriol for the apple Watch today) and all you see is a a tablet is lousy at doing laptop jobs; a phone has a screen that's too small and a horrible typing experience; now a watch can't do the things a phone can do. You see ONLY the negatives.
    Other people (and it turns out, these are the people with substantially better tech prediction track records) see the possibilities. Not just that the tech will get better --- the CPUs will get faster, the batteries will last longer --- but that these devices will be used in whole new ways that just don't map onto how you used the previous device.

    I'm laying this all out because I think this is exactly the same problem that has crippled QC (and to some extent MS). They look at the world as it is today, and consider only the jobs that are being done today, and how those jobs are best served. And so yes, IF your vision of a smartphone is that ALL IT IS is basically a 2007 sort of phone with a little bit of Java, a media player, a crappy web browser, then sure staying at 32-bits for years is fine. But if you look at a smartphone and ask "what could I do with a kick-ass pocket computer?" then you put yourself on a very different trajectory.

    MS had much the same blindness (certainly under Ballmer, maybe still under Nadella). They could kinda see that smartphones/pocket computers were important, but only at an intellectual level. They didn't really get the excitement, the thrill, the feeling that "*I* want one, because these are all the things I want to do with it". And so they don't ship any sort of leading edge phone --- all they ship is me-too phones that are just going through the motions. Their one successful mobile product, Surface Pro, is basically a way to keep going with the PC dream of 20 years ago, without having to imagine anything new.

    Relevance to Apple Watch and the way it is viewed by different segments is left as an exercise to the reader. But before deciding who to listen to, ask yourself which of these different viewpoints has had the more accurate track record over the past ten years or so.
    Reply
  • K_Space - Friday, July 24, 2015 - link

    You are not referring to Brett? He started for Anandtech in 2014, no? Reply
  • Michael Bay - Friday, July 24, 2015 - link

    Your "kick-ass pocket computer" is just that - a phone with tacked on bullshit of varying degrees of usefullness. It still has a crappy web browser, a bit of java and so-so media player. Better yet, it`s completely ubiquitous by now, with only freaks getting excited over a piece of plastic.

    iPad and tablet at large is over, smartphone is over, and smartwatch won`t ever begin.
    Reply
  • tipoo - Thursday, July 23, 2015 - link

    I hope this is lesson learned and Qualcomm stops making small, low IPC, high clocked cores. Clearly not the way to go, least of all on mobile. Reply
  • name99 - Thursday, July 23, 2015 - link

    "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."

    You can call it "one issue" but QC seems to have suffered from industrial strength complacency in 2013. The problem is not that Apple released the A7 (a CPU which doesn't even compete with QC for any sales),, it's that QC seems to have been utterly blind to the idea that CPUs were improving, and to imagine that they controlled the high-end ARM market.
    You have to be crazy delusional not to be aware that 64-bit is coming, that other companies can design CPUs; but QC apparently had NO plan B. They surely knew about the existence of the ARMv8 ISA, maybe they even knew of the existence of the A57, but in spite of that, no planning?
    WTF???

    Even nVidia, the gang that can't shoot straight in the ARM CPU space, have managed to put together a credible ARM-64 CPU faster than QC. The single most important job of a CEO is strategy planning .

    To be fair, maybe this is Paul Jacobs fault (and the reason he was forced out as CEO in 2013)? So Steve Mollenkopf is the Satya Nadella, trying to clean up after his mess. Of course, like Nadella, we've yet to see if he has a reasonable vision for QC's future once he's cleaned up.
    Reply
  • jerrylzy - Friday, July 24, 2015 - link

    Actually they designed a very fast 32bit chip called "Taipan," but it was soon abandoned after Apple released Cyclone. Reply

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