Qualcomm is a leading mobile technology company, specialising in semiconductor and telecommunications equipment. Qualcomm has been at the forefront of the telecoms industry for many years, providing pioneering technologies and solutions for today’s ever-changing and increasingly connected world.
In this article, we will look at Qualcomm’s current operating costs and the high inventories facing the industry.
History of Qualcomm
Qualcomm Incorporated, founded in 1985, is an American multinational semiconductor and telecommunications equipment company that designs and markets wireless telecommunications products and services. A pioneer in the “wireless revolution,” Qualcomm has since been involved in launching the first-ever commercial mobile phone service, the world’s first handheld multimedia Integrated Digital Enhanced Network (IDEN), the world’s first cellular base station to support satellite-based services, and many more advances. The company is dedicated to developing technologies that help people of all ages live smarter and more connected lives.
The company began as a post-doctoral research project at Stanford University by Dr. Irwin Jacobs who developed a system for wireless communications between remote points using spread spectrum technology. This invention was patented, was named Code Division Multiple Access (CDMA) technology, and eventually became the basis for Qualcomm’s cellular business operations. During its formative years the company grew rapidly into one of the world’s largest stock-exchange listed mobile communication companies and started offering various products such as phones, computers, digital audio players, radio devices and satellite receivers under consumer brands such as Audiovox.
Today Qualcomm is involved in more than 150 countries with products which include integrated circuits (ICs), chipsets, modems/transceivers/baseband processors as well as cellular base stations mostly based off of CDMA technology family offerings such as QChip fabricators used to build WiMax networks, WCDMA 3G networks, LTE 4G networks, GPS navigation solutions etc. In addition they also hold dozens of other patented technologies. Qualcomm has positioned itself perfectly within its industry across multiple markets such as automotive, mobile computing, telecommunications etc with complete control over most aspects of upper layer technology related to mobile communications via their advances sharing agreements known within their industry “QForces”. Its strategies have enabled it to effectively integrate processes from different industry fields thus forming synergic effects over its competitors.
Qualcomm’s current market position
Qualcomm is the world’s largest semiconductor company, making chips power everything from phones to TVs and more. Qualcomm has had a long history as a semiconductor industry leader, but their market position has recently dived. In the past few years, inventories of Qualcomm’s chips have been accumulating due to oversupply and slow demand – leading to increased pressure on prices and decreased profitability.
China’s push for local alternatives to Qualcomm’s chips has also weakened their position in the global market. Chinese restrictions on trade and competition between companies have stunted Qualcomms strong presence in China. This push has seen other companies such as Huawei Technologies quickly stealing away market share with downward pressure on profits for Qualcomm.
Qualcomm is striving to reduce their current inventory levels and focus on newer products that can set them apart from other players in the industry. These new products include integrated modems, cellular antenna, memory products and server-grade chips which give their competitor a run for their money despite continuing tensions with China.
However, some analysts think it might be difficult for Qualomn’s efforts to move inventory levels as increasing profits may not be enough as people shift more focus onto alternatives like 5G tech rather than 3G/4G technology Qualcomm specialises in. Despite this possibilityQualcomm is actively engaging in cost-cutting manoeuvres through mergers & acquisitions, investment into new technologies like artificial intelligence (AI), virtual reality (VR) and driverless car technologies – attempting to stay ahead of upcoming opportunities & challenges posed by 5G technology.
Qualcomm CFO Trims Operating Expenses as Industry Faces Down High Inventories
Qualcomm’s Chief Financial Officer, Akash Palkhiwala, is trimming operating expenses as the semiconductor industry faces down high inventories and declining demand. He seeks to reduce costs and find ways to keep Qualcomm competitive in the market despite these challenging times.
Here, we will discuss the strategies put in place by Qualcomm to reduce its costs.
Qualcomm’s response to high inventories
Qualcomm has taken decisive action and implemented various strategies to reduce overall costs in response to high inventories in its semiconductor industry. By trimming operating expenses and implementing a new cost-control system, the company has reduced inventory by 20 percent since 2018. Other strategies include refocusing on core operations and thinning margins for some distributors to move more product.
Despite a trend of slowing demand for devices with its chips, Qualcomm’s new efforts have begun to pay off. The combination of measures implemented over the past year has enabled the company to lower inventories even further, from nearly $2 billion in June 2019 to just a little over $1 billion this March 2020.
Qualcomm is expected to continue fighting for its survival in the face of changing market conditions. The firm has already declared plans for restructuring and cost reduction after flattening out revenue last quarter due to overstocking issues at manufacturers. However, Qualcomm’s success depends on whether they can navigate these uncertain times with Limited capital while simultaneously finding ways to maintain profitability and reliability. This will be vital if they achieve industry leadership status once again.
Operating expenses cut by Qualcomm
Qualcomm Inc.(QCOM) announced that it had cut its operating expenses through a series of cost savings and an austerity drive initiated earlier this year. Under the terms of the measures, the company’s Board of Directors had approved a quarterly budget trimming for the cost centre in the 2018 financial year-end.
The company’s Chief Financial Officer (CFO), Steven Mollenkopf, commented on this move: “At Qualcomm, we remain focused on maintaining our leadership as an innovation powerhouse while ensuring that our spending remains within our profits.” He also revealed that savings in supply chain, marketing spend and general administrative cuts were being implemented to meet the specific expense target outlined by the Qualcomm Executive Team.
Additionally, these cuts did not impact operations like engineering and research & development (R&D). Qualcomm projects that these efforts will result in a cost reduction of at least 3% compared to 2018, with benefits expected to be fully realised in 2020 financials. The company expects this will help it improve margin expansion and free up cash flow which can be deployed for future investments or acquisitions.
The technology industry has struggled with high inventories due to weakened demand from Chinese smartphone makers and increased competition from rivals such as Intel Corporation (INTC). Therefore by managing its expenses judiciously and optimising investments towards innovations, Qualcomm is confident that it can remain competitive while improving its bottom line results.
Industry Faces Down High Inventories
Qualcomm CFO George Davis last week announced that the company would be trimming operating expenses to balance out the high inventories in the industry. The announcement comes as Qualcomm’s industry faces down high inventories with little demand growth.
This article will explore this decision’s impact and the industry’s potential implications.
Reasons for high inventories
The cause of high inventories in the industry can be attributed to numerous factors including increased production capacity, slowing sales, an increase in competition and a lack of efficiency in the supply chain.
Increased Production Capacity: Production capabilities have increased significantly over the years leading to major inventory excesses. Companies may have expanded too rapidly and could not keep pace with changing customer demand. For example, Qualcomm introduced its 5G chip at the start of 2020 but there was a lukewarm response due to a worldwide economic slowdown caused by the coronavirus pandemic. This resulted in excess inventories accumulated as orders decreased or were delayed due to uncertainty.
Slowing Sales: Slower sales can lead to higher inventory production backlogs as businesses try to meet customer demands. Companies may also delay orders or refuse new orders when inventories are high, resulting in stockpiled products taking up space within warehouses and factories that couldn’t be sold or used uncertified.
Increase in Competition: With market saturation comes an increase in competition for customers between companies leading many firms to lower prices for their products or services resulting in reduced margins which has implications on revenues and profits obtained from those products/services requiring budgets being tightened reducing product purchases leading to accumulations of inventory.
Lack of Efficiency in Supply Chain: Increased complexity within supply chains have made it difficult for companies to adequately manage their inventories often resulting overproduction beyond what is necessary as well as delays caused by logistical issues within the chain itself causing further backlogs when production cannot keep up with demand resulting higher levels of inventories than usual.
Impact of high inventories on the industry
As an industry, those in the Information and Communications Technology (ICT) sector have seen record inventories build up in recent months. These inventory levels directly result from the current market downturn and represent a considerable financial burden for companies operating in this sector. Qualcomm, one of the key players in this industry, has been adversely affected by this rising inventory issue, with its second quarter results expected to suffer.
There are several facets to this inventory malaise that is impacting on Qualcomm’s performance. One of the major impacts relates to cash flow. When inventories pile up, suppliers find themselves sitting on money they would much rather use elsewhere in their business or returning to shareholders as dividends – or both! This adversely affects companies such as Qualcomm who rely on these suppliers’ ability to feed them components without significant delay.
Another major concern has been focused around customer service levels. As customers begin deferring orders, companies such as Qualcomm need to stockpile parts and components so they can deliver orders ahead of time where possible to maintain customer satisfaction. This stockpiling eats into budgets for research and development at a time when it is vitally needed for remaining competitive in a rapidly changing industry environment where technical advancements come thick and fast each passing quarter.
Finally, there have been issues concerning mismatched component needs relative to output levels from suppliers where component production has not kept pace with changes in projections from ICT manufacturers such as Qualcomm regarding end-user demand for certain ICT components or products. With suppliers unable to keep up with changes in demand for certain components or innovations due solely down to reduced production output there is inevitably a cost incurred somewhere further down the supply chain by international ICT OEMs like Qualcomm which then tries its best to pass these downstream costs along even if ultimately these liabilities are absorbed within their corporate balance sheets creating yet more financial constraints within an already pressurised fiscal climate.
