Source: Jin10 Data

$Qualcomm (QCOM.US)$ The smart phone business has shown signs of recovery, but concerns about $Apple (AAPL.US)$ and the legal disputes with $Arm Holdings (ARM.US)$ may impact its performance.

Qualcomm's smartphone chip business has rebounded, and the company hopes to maintain this momentum in the fourth quarter earnings report to be released after Wednesday's market close. The company is also driving two diversified businesses that could contribute to future revenue growth. However, the company is currently facing some challenges.

Analysts expect Qualcomm's revenue for the fourth quarter of this fiscal year to increase by 14% year-on-year, reaching $9.9 billion, with adjusted earnings per share expected to be $2.56, an increase of 27% year-on-year. In the past 10 quarters, Qualcomm has beaten sales and earnings per share expectations 8 times. Analysts expect first-quarter performance guidance to be $10.6 billion in revenue and earnings per share of $2.86.

Qualcomm's core market is smartphone chips, accounting for 65% of its total revenue in the past year. Analysts project smartphone business revenue to reach $6.1 billion this quarter, a 12% year-on-year increase, similar to the previous quarter. Over the past three quarters, this cyclical business has shown signs of recovery, and Wall Street expects this momentum to continue.

While Qualcomm has historically been closely linked to mobile technology, its diversified businesses now account for 20% of total revenue.

Its Internet of Things (IoT) division provides chips for various products, including smart home and virtual reality devices. It is worth noting the newly launched PC chip Snapdragon X series. This summer, AI computers based on the Snapdragon X series will be launched.$Microsoft (MSFT.US)$and$Dell Technologies (DELL.US)$ , Samsung, and other companies launched. Although this new product category is highly anticipated, KeyBanc analyst John Vinh warned, 'Demand for qualcomm PCs has been lukewarm.'

Wall Street projects IoT department revenue to reach $1.5 billion, a 9% year-on-year increase, ending seven consecutive quarters of decline. Investors are eager to understand the contribution of the PC business.

Qualcomm's another diversified business is automotive chips, covering entertainment systems, driving assistance, and connectivity functions. Although automotive chips are the smallest segment in its chip business, the revenue of this business grew by 87% year-on-year last quarter, with analysts forecasting a 51% year-on-year growth this quarter, reaching $0.81 billion.

However, the company still faces two major threats. One comes from Apple, which currently purchases 5G chips from Qualcomm but hopes to terminate this often friction-filled partnership.

Apple has been working on developing its own 5G chips since 2019, and may have succeeded. Qualcomm has indicated that revenue from Apple will gradually decrease starting from the 2025 iPhone. Analyst Stacey Rasgon from Bernstein estimates that Apple accounted for 22% of Qualcomm's revenue in the first three quarters of the 2024 fiscal year; by the end of the 2026 fiscal year, this portion of revenue may decrease by 80%.

Another major threat is the upcoming legal dispute between Qualcomm and Arm Holdings. Arm accuses Qualcomm of illegally using some of its intellectual property. The trial is scheduled for December 16th. Meanwhile, Arm threatens to revoke Qualcomm's overall authorization to use Arm's designs.

If Qualcomm loses Arm's authorization, it will deal a significant blow to the company's momentum and will also have a major impact on Arm's revenue. Both parties have reasons to reach a settlement, but currently they are engaged in strategic confrontation.

Analysts will have many questions to raise during the earnings conference call.

Editor / jayden