The earnings season is in full swing. Almost all semiconductor supply chain companies, including ASML, TSMC, UMC, AMD, STMicro, NXP, Samsung, MediaTek, TI etc. reported solid revenue and profit margins for CY 2021 on the back of seemingly insatiable demand across smartphone, PC, data center, automotive, industrial, IoT and consumer electronics segments. Intel also saw impressive growth in its PC, IoT, MobileEye and networking businesses throught 2021. Qualcomm is the latest to join the party.

The semiconductor growth story is unlikely to stop anytime soon as the industry builds new fab capacity to meet the "new normal" demand. Massive investments are underway to resolve the capacity constraint crisis across the globe. Both IDMs and pure-play foundries have raised their 2022 CapEx by a big margin to bring new capacity online in the next 2-3 years.

With that backdrop, back to Qualcomm's story.

Qualcomm, a key player in cellular baseband chips, is highly dependent on network technology transitions. Qualcomm's 4G/5G baseband chips offer high-speed data connectivity at low power and play a pivotal role in enabling various applications.

The introduction of 5G has triggered a new wave of growth for Qualcomm.

Qualcomm took advantage of strong demand like many of its peers, delivering double-digit revenue growth for the sixth straight quarter in 4QCY21. Revenue grew 45.6% to $35.7 b in CY2021. Qualcomm is on track to cross the $45 b mark in CY2022.

• QCT grew 51.1% to $29.3 b and will grow 35.6% to almost $40 b in CY22.
• 5G iPhones, Huawei exit, improved foundry capacity, premium and high tier, robust product portfolio and broad Android relationships helped.
• Qualcomm has had some challenges in meeting Android chipset demand due to supply constraints, but increased sourcing from TSMC beginning to show results.
• Android chipset business will be a material contributor in 2022 and beyond. New Android flagship launches from Samsung, Xiaomi etc., will help Qualcomm beat the seasonality in 1QCY22 despite reduced contribution from Apple.
• Qualcomm made $13 b prepayments to its suppliers in FY 2022, which will reflect in increased revenue and share gains through the year. Qualcomm's core handset baseband and apps processor business will benefit from this massively versus MediaTek.
• Apple dependency had been a lingering question, but Qualcomm addressed that with increased growth in RF front-end, automotive and IoT segments. Apple brought almost $7.7 b revenue ($2.5-$3 b licensing revenue and the rest chipset revenue) in CY 2021, accounting for 22% of Qualcomm's total revenue.
• Qualcomm posted solid double-digit growth across its handset, RFFE, auto and IoT segments in 2021. Handsets is still the mainstay of QCT and drove $6.3 b incremental revenue in CY21. On the other hand, RFFE, auto, and IoT added $3.7 incremental revenue to QCT.
• In addition to revenue, Qualcomm's semiconductor profits rose. QCT's EBT margins jumped from 21.5% in CY2020 to 30.6% in CY2021. QCT's EBT margins touched the 35% mark in 4QCY21.
• RF front-end (RFFE), a business Qualcomm built through organic and inorganic efforts, grew 40% to $4 b in CY21. All top handset OEMs, including Apple, Samsung and Xiaomi, take QCOM's RFFE. Every 5G handset launched is a massive plus for RFFE. Qualcomm claims it gets 1.5x more revenue in 5G vs 4G, driven by increased RFFE attach rate.
• QCOM can grow its RFFE business to $5+ b in CY22, driven by increased 5G handset shipments.
• Qualcomm's IoT business grew 63% to $5.5 b in CY21. It will grow to $9+ b in FY24. IoT business claims to have 14k customers (top-10 42%). Windows PC, XR, infra SoCs, Industrial IoT and fixed wireless access are all opportunities.
• Auto revenue grew 44% to $1 b in CY21. Revenue primarily comes from telematics (modem & connectivity) and infotainment chips. ADAS mass production will kick off in 2024. Besides ADAS, RFFE is an opportunity in autos in the future for Qualcomm. The company claims to have $600 m automotive-specific RFFE revenue (up to $30 RFFE content per car). In addition, Qualcomm has a $13 b automotive design-win pipeline.
• Licensing business continues to be steady (grew 24% to $6.3 b in CY21). QTL business is dependent on smartphone units and will see growth in 2022.
• QCT revenue will have a next inflection point in 2H22, driven by new iPhones and Android launches.

Qualcomm, known for its Snapdragon smartphone chips, worked hard to shed that image over the last seven years. But, under new CEO Cristiano Amon, the company accelerated its effort to build new franchises beyond smartphones. Qualcomm calls it diversification. The results show that Qualcomm is delivering on that. Qualcomm also moved beyond its dependency on QTL (licensing division) to fund QCT R&D. QCT now produces more profit than QTL.

Overall, Qualcomm delivered a terrific quarter and finished the CY 2021 on a solid note. Qualcomm will continue to benefit from 5G cycle strength across handsets and non-handsets in 2022. We expect Qualcomm to post 30% revenue growth to $46.2 b in CY2022. Qualcomm is tracking ahead of its analyst day targets ($46+ b revenue by FY24).

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