Qualcomm says wafer fabrication, assembly, test, packaging and memory are all costing more, and that it is putting the increase into its prices
Six categories of cost, named in one sentence, in a section usually reserved for guidance arithmetic.
The paragraph sits at the top of Qualcomm's Business Outlook and says the semiconductor industry is experiencing a broad based increase in input costs across wafer fabrication, assembly, test, advanced packaging, memory and other materials. The company then says it is taking concrete actions to reflect those higher costs in its product pricing, and expects the benefit to its gross margins to arrive gradually as the pricing changes come into effect. Cristiano Amon, the chief executive, is quoted in the release describing "a challenging memory and supply environment".
Revenue for the quarter ended 28 June was $9,947m, against $10,365m a year earlier. The fall is 4 percent. Underneath it the segments moved in opposite directions, and the spread is wide.
Handsets down a fifth, automotive up three fifths
Handset chip revenue was $5,086m against $6,328m, a fall of 20 percent. Automotive was $1,588m against $984m, up 61 percent. The internet of things line was $1,830m against $1,681m, up 9 percent. Together the chip segment took $8,504m against $8,993m, and its earnings before taxes came to 26 percent of segment revenue, against 30 percent.
Two figures in the statements of operations do not fall at the same rate, and the gap is the whole story of the quarter's earnings. Operating income was $1,626m against $2,762m, down 41 percent. Income before income taxes was $2,462m against $2,952m, down 17 percent. Between the two lines sits investment and other income of $1,014m, against $358m a year earlier.
Research and development took $2,607m, up from $2,226m. Selling, general and administrative costs were $976m against $771m. Inventories stood at $8,379m, against $6,526m at the September year end, an increase of $1,853m across nine months.
The nine month tax line, unexplained
Across the nine months to 28 June the company reports an income tax benefit of $4,136m, against an expense of $1,034m in the same period last year. Net income for those nine months is $12,377m on income before income taxes of $8,241m. Deferred tax assets on the balance sheet were $5,679m against $743m at the year end. The cash flow statement for the same nine months records $5,550m of income tax payments in excess of the income tax provision, against $1,535m.
The release gives no explanation of the change, and none is offered here. The quarter itself carries a tax expense of $460m, so whatever produced the nine month benefit did not happen in these three months.
Guidance for the September quarter is revenue of $9.7bn to $10.5bn. GAAP diluted earnings per share are guided to $1.22 to $1.42, and the company removes $0.72 of share based compensation and $0.11 of other items to reach a non-GAAP range of $2.05 to $2.25. During the quarter Qualcomm returned $2.3bn to stockholders, being $973m of dividends and $1.4bn spent repurchasing 8 million shares.
