Shares of Qualcomm and Arm Holdings, two prominent chip manufacturers with a significant reliance on the smartphone sector, experienced an uptick on Thursday following the release of their earnings reports, which hinted at a cautious rebound in market demand.
In their earnings statements issued on Wednesday, both companies noted an uptick in demand for premium smartphone models, although they refrained from indicating that the overall industry had firmly regained stability. On Thursday, stocks for both firms rose by approximately two percent during trading in New York.
The revival of consumer interest in high-end smartphones, particularly in China, contributed to better-than-expected revenue and profit figures for both companies last quarter. Additionally, their forays into emerging markets have bolstered their financial performance. Qualcomm and Arm are expanding their presence in computing, benefiting from increased spending on Artificial Intelligence (AI), while Qualcomm has also made significant advancements in the automotive chip sector.
Historically, Qualcomm and Arm have collaborated closely, but their relationship has evolved into competition. They are regarded as indicators of the smartphone market’s health. Qualcomm stands as the leading supplier of processors for mobile devices, while Arm has been instrumental in developing much of the fundamental technology utilized across the industry.
Both entities have seen gains due to a shift towards more premium smartphones. Arm reported a staggering 40 percent increase in phone revenue, despite only a four percent rise in overall unit shipments. Qualcomm, too, has witnessed growth, capturing a larger portion of the Chinese market, with sales of Android devices in the region rising by 40 percent this year.
Looking ahead, Qualcomm projects that overall smartphone unit sales will grow by approximately five percent or possibly less in the coming year, suggesting a lack of expectations for a robust recovery. Many consumers are choosing not to upgrade their devices as frequently, a challenge that continues to affect the broader industry.
Arm’s Chief Executive Officer, Rene Haas, stated in a Bloomberg Television interview that the increasing use of higher-end components in smartphones has been a significant advantage for the company’s royalty income. This trend is largely driven by the demand for enhanced computing capabilities in phones to accommodate AI applications.
“I believe we are in a market where we are experiencing a shortage of compute capacity,” Haas remarked.
Qualcomm and Arm announced their quarterly results almost simultaneously on Wednesday and hosted overlapping conference calls, a noteworthy coincidence amid their ongoing legal disputes.
Last month, Arm took steps to revoke a license that permitted Qualcomm to use its intellectual property for chip design. This development followed Arm’s lawsuit against Qualcomm for contract violations and trademark infringement filed in 2022.
Although Haas is optimistic about the trial set to commence in mid-December, Arm is planning its financial expectations with a cautious outlook, adopting a deliberately conservative approach.
On Wednesday, Arm forecasted revenue between $920 million (approximately ₹7,762 crores) and $970 million (roughly ₹8,184 crores) for the upcoming December quarter. The midpoint of this range is likely to fall short of the $950.9 million (around ₹8,022 crores) projected by analysts.
Qualcomm, on the other hand, anticipates sales in the range of $10.5 billion (around ₹88,592 crores) to $11.3 billion (approximately ₹95,342 crores) during the same period. Analysts had estimated an average sales figure of $10.5 billion (around ₹88,592 crores), and the company expects profits, excluding certain items, to reach up to $3.05 (approximately ₹257) per share, surpassing Wall Street expectations.
The automotive segment has emerged as a strong point for Qualcomm, despite challenges facing other chip manufacturers in this category. The company reported a 55 percent increase in revenue for fiscal 2024, attributing this growth to new business wins that have enabled it to outperform competitors.
“Our revenue in automotive should be viewed as less affected by market volatility and more connected to new model launches,” CEO Cristiano Amon stated during a conference call with analysts. “It reflects shifts in market share.”
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