Why it matters: Qualcomm is one of the largest designers and fabless providers of System on Chip and other semiconductor products for smartphones. If the mobile market shrinks, the US corporation will inevitably be affected.

Qualcomm's results for the third quarter of fiscal year 2023 are rather clear. The San Diego-based corporation experienced a decline in sales and a steep reduction in earnings. Furthermore, the company is facing an inventory issue and does not foresee a quick recovery unless the global "macro environment" changes.

Qualcomm's third quarter ended on June 25, with revenues dropping 23 percent year-over-year to $8.45 billion, slightly below Wall Street predictions of $8.51 billion. Adjusted per-share earnings were $1.87 billion, a decrease from $2.96 billion year-over-year, but still higher than analysts' expectations of $1.81 billion.

The mobile chip business accounted for $5.255 billion of Qualcomm's revenue, representing a 25 percent drop compared to the same period in 2022. The Internet of Things business experienced a 24 percent decline, reaching $1.48 billion, while the automotive unit saw a 13 percent increase to $434 million.

During a conference call with investors, CEO Cristiano Amon said that Qualcomm is now adopting a "conservative view" of the current state of the market. The company had to allocate $285 million for restructuring measures taken during the second quarter, mainly due to lay-off payments, and is contemplating additional "proactive" actions to further cut costs.

Looking ahead, Amon said smartphone CPU inventory will be down to a single "high digit" percentage. Actual results will reflect the "macro environment" of the market and a slower-than-expected recovery in China. Qualcomm hopes that the next holiday season will provide substantial growth.

Qualcomm CFO Akash Palkhiwala remarked how the inventory issue is particularly felt in the IoT business. Devices aren't selling well due to weaker demand driven by the aforementioned macroeconomic conditions. A return to a "sustained recovery" is difficult to predict, Palkhiwala said, as customers remain cautious with their purchases.

Qualcomm will continue to operate under the assumption that an immediate recovery won't come by the end of 2023, Palkhiwala added. For the fourth quarter of fiscal year 2023, Qualcomm expects revenues to be between $8.1 billion and $8.9 billion, while analysts' predictions are at $8.74 billion.