00:00 Speaker A
got a buy rating still on this stock Angelo. But there was a lot of disappointment here, particularly in the company’s bread and butter smartphone business, which is under pressure because of the inability to get memory chips into these phones. So, you know, this really seems to be a big challenge for the industry overall. How bad is it, do you think and how long is it going to last?
00:31 Speaker B
Yeah, Julie. So, uh, you know, thanks for having me. It’s it’s it’s pretty bad right now, right? I mean, you kind of look at how constrained we are. I mean, you kind of, you know, laid it out nicely, but, um, you think about where all that memory demand is going right now. Look no further than, you know, Alphabet’s results last night and and the the boost in CAPEX plans, right? Um, that’s really the issue at hand right now. It’s the fact that you’re getting all this, you know, memory, um, capacity really kind of devoted to, you know, the the data center AI infrastructure builds. Now, as a result, um, if you’re on the the PC or the smartphone side of things, you’re getting hit really hard. When you look at what’s happening with Qualcomm here on a sequential basis, you’re looking at handsets dropping north of 20%, you know, let’s call it about, you know, nearly, you know, 13 to 15% on on a year-over-year basis in terms of decline. The good thing is we’ve now seen this reset on the, um, on the expectations. And you kind of look ahead, um, you know, it’s it’s probably likely going to remain pretty weak here. We’d say over the next six to eight quarters at least as far as the memory bottlenecks are concerned before you really get any notable help. Um, and again, that’s going to that’s going to hurt Qualcomm, especially given that they do have a lot of business at the low end of the the channel where a lot of those pressures are being felt. On top of that, they are losing, you know, ongoing Apple business, which continues to wind down. So, um, they’re hitting it all over the place in their core business. The good thing is, they are diversifying and that really is the core story here, um, if you are a bull. You’re getting a very value cheap play here, um, with a long-term trajectory in terms of new emerging markets.
01:54 Speaker A
I guess the question is there, how long term? Like how long do you have to wait, Angela? Because if you look at those other sources of revenue, right, which have been growing quickly and the that has been the company’s whole strategy. For example, the automotive uh business, $1.1 billion in revenue in the quarter, so it broke above a billion for the first time, but phone revenue is almost 8 billion. So, you know, you put all those non-phone things together, how long is it going to take for it to ramp up?
02:37 Speaker B
Yeah, it’s a great question. Um, and what I would say here is, listen, um, the the bad thing about being a value investor or looking at value names in the tech space is sometimes it takes longer than you want to wait, right? Um, and as far as Qualcomm is concerned, we’ve told investors is you have to be patient with this. I will say this, last quarter, let’s call it about 25, 26% of their revenue um, within kind of their manufacturing, chip related manufacturing business came from, you know, non uh handset revenue. Given the plunge that we’re seeing here in handsets this quarter, let’s call it about 35% or so their revenue will come outside of handsets. And we do think within the next two to three years that number grows to at least 50 50%. So, um, on the top line, you you may not see much growth there. Um, not to mention there is potential upside to our expectations. For instance, they are getting in in areas like data centers where if they were to announce some, you know, big customer wins, um that could provide upside, right? to expectations. So, um, I’d say at this point in time, the valuation plus the fact that hey, listen, there is line of sight here over the next couple of years. And I know, listen, nobody wants to be talking about 6G because that’s towards the end of the decade, but that’s also, you know, another opportunity for the company long-term. So, there are opportunities out there, especially when you look at the valuation, you’ve got to be patient if you’re an investor.
