Qualcomm CFO Trims Operating Expenses as Industry Faces Down High Inventories

Qualcomm is working to reduce operating costs and double down on new areas, including its automotive business. The WSJ’s CFO Journal spoke with his chief financial officer, Akash Palkhiwala, about the company’s spending plans, the financial implications of rising interest rates, and its outlook for 2023. His answer has been edited for length and clarity.

WSJ: What is the outlook for 2023?

Mr Palkiwala: There are many uncertainties globally. The macroeconomic environment, the situation in the United States, China and Europe, the situation of COVID-19 in China, the time it takes to resolve, etc. Also, generally in the semiconductor industry, some customers have significant inventories.

The combination of these factors creates uncertainty in the short term. We focus on controlling what we can control.

WSJ: Have you made changes to your forecasting and planning processes in the face of uncertainty?

Mr Palkiwala: We’re doing even more in our plans for next year [macroeconomic scenario-planning] We are trying to quantify the impact on us, especially on the negative side, than we have done in the past. What this really means for us is more scenarios to navigate.

WSJ: How long will it take to reduce those inventories you mentioned?

Mr Palkiwala: We think it will take a few quarters to get to a better place. It is very common in our industry to experience inventory building and breeding. [original equipment manufacturers] We ended up stocking up a little bit more, and the supply constraint has definitely been resolved.

WSJ: What are your thoughts on spending in 2023?

Mr Palkiwala: One of the first things we’re doing is reducing spending on more mature areas of the business and freeing up those resources and dollars. [automotive and Internet of Things], because that’s where much of our growth is driven. In addition to that, we are making some headcount reductions in certain functions. Third, we are preparing a contingency plan. So if you need to take extra action, be ready for it.

WSJ: So are you slowing hiring and making selective cuts?

Mr Palkiwala: It’s a combination of these two. We have targets across the business that are clearly increasing spending, but there are other areas where we are significantly reducing spending.

WSJ: With approximately $3.4 billion of new debt issued in 2022, how concerned are you about rising interest rates?

Mr Palkiwala: The problem was replacing many mature and aging bonds. We actually had our rates fixed years ago.And it obviously helped us a lot because we were able to protect ourselves [against] Recent interest rate hikes. The coupon in the document shows a higher rate, but since you locked the rate, you get the benefit of his locking rate. The next maturity is in 2024 and he in 2025. We’ll see how the interest rate environment changes now and then.

WSJ: When would you consider refinancing prior to the next maturity?

Mr Palkiwala: Plan within months of bond maturity. We look at the market environment and try to optimize it when we issue it. But the balance sheet is also strong. So if you don’t make it in time and have to do it a little late, that’s fine.

WSJ: If so, would you prefer a term loan or commercial paper?

Mr Palkiwala: Yes, it’s a combination of these commodities and also a cash balance on the balance sheet.

WSJ: Will rising interest rates have a positive impact on your business?

Mr Palkiwala: If you have a sizeable cash balance, you will see benefits on the cash balance side as well if the rate goes up. In our debt, most debt has a fixed interest rate. So we don’t see much of an increase in costs on the liability side. Even if we were to issue new issuance at a higher rate, it would increase the income on our cash balances and could be well positioned.

WSJ: With interest rates rising, how do you think about working capital?

Mr Palkiwala: This is an important business tool if you can maximize your cash balance and the income you earn from it. We’ve had inventory builds across the industry and across our own inventory, so that’s what got us part of the cash flow.2023 is going to be an opportunity for us.

Write to Nina Trentmann at [email protected]