Club holding Qualcomm (QCOM) beat expectations in its fiscal third quarter report, but a weaker than anticipated outlook sent shares 3% lower in after-hours trading Wednesday. Revenue increased 37% year-over-year to $10.93 billion, edging expectations of $10.86 billion, according to FactSet. Adjusted earnings of $2.96 per share, up 54% from the year-ago period, exceeded the high end of management’s Q3 guidance range, and it was nicely above estimates of $2.86. Bottom line Qualcomm put together another great quarter as it continues to outexecute its guidance. Of course, the earnings beat will be overshadowed by the lower-than-expected outlook for its current quarter, but we can make the case that everyone should have known the estimates were too high coming into the print because of all the well documented commentary about a softening handset market. Trading at about 11x forward earnings per share estimates, we think QCOM is priced like future earnings are about to fall off a cliff, and that simply does not look to be the case due to the company’s positioning in premium and high-end smartphones, share gains within Samsung, and most importantly, its diversification strategy with huge growth from in its auto and internet of things segments. Shares were trading about $4 lower after-hours, a reversal of all of Wednesday’s regular session gains plus a little extra. But the stock has also been one of the better performing semiconductor stocks this year, down roughly 16% heading into the release. It’s up about 20% in July. We continue to believe the stock deserves a higher price to earnings multiple, but we are keeping our 2 rating on the stock and lowering our price target to $185. That represents 20% upside to Wednesday’s close of $153.42 per share. Segment results Q3 Qualcomm reports results in two primary segments, Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL). QCT is the semiconductor business most think of when considering Qualcomm’s operations and generated the bulk of the company’s total sales, while QTL grants licenses to use portions of Qualcomm’s intellectual property portfolio. QCT revenue of $9.38 billion, up 45% year over year, was about in line with expectations of $9.35 billion. QCT’s earnings before tax margin was 32% in the quarter, representing an increase of 4 percentage points year over year and in-line with the guidance midpoint. Below is a quarterly revenue breakdown by category. Handsets : $6.15 billion, up 59% year over year, versus $5.99 billion expected. Sales were driven by the strength of its Snapdragon product portfolio in premium and high tiers. Radio frequency front-end : $1.05 billion, an increase of 9%, versus $1.11 billion expected. Automotive : Record revenues of $350 million, a gain of 38%, versus $354 million expected. Notably, Qualcomm’s automotive backlog — deals they’ve won that should materialize into revenue in the future — now sits at more than $19 billion, up $3 billion from last quarter. The company plans to show off its Snapdragon digital chassis at an Automotive Investor Day on Sept. 22. Internet of Things (IoT): Record revenues of $1.83 billion, up 31%, versus $1.89 billion expected. For QTL , revenues of $1.52 billion, up 2% year over year, edged out the $1.5 billion consensus. The results were driven by a decrease in handset volume in mid and low tiers offset by a favorable mix. QTL’s earnings before tax margin was 71%, in line with the guidance midpoint. Guidance Looking ahead, management guided for fiscal fourth-quarter (current quarter) revenues to be in between $11 billion and $11.8 billion, which at the midpoint of $11.4 billion is below expectations of $12 billion. Breaking that down a step further, QCT revenues are expected to be between $9.5 billion and $10.1 billion, below expectations of $10.2 billion, with earnings before tax margins of 32% to 34%. QTL revenues are expected to come in between $1.45 billion and $1.65 billion, slightly below estimates of $1.59 billion, with earnings before tax margins of 69% to 73%. On the bottom line, adjusted earnings are forecast to come in between $3 and $3.30 per share in fiscal Q4. This midpoint of $3.15, which includes an estimated 20-cent per share haircut due to macro headwinds and a reduction in the global handset forecast, is below estimates of $3.30 but still implies a robust 24% growth rate year over year. We are not surprised by the lowered than anticipated forecast due to the well documented challenges facing the global handset market. Qualcomm now expects calendar 2022 global handsets to decrease by a mid single digit percentage points year over year, including 650 million to 700 million 5G handsets. It is important to know that Qualcomm expects premium tier handset volumes to remain resilient. This cuts in Qualcomm’s favor compared to other chip markets with large handset businesses. Other Items Qualcomm repurchased about $500 million worth of stock in the quarter. The company announced Wednesday evening an agreement with Samsung to extend their patent license agreement for 3G, 4G, 5G, and upcoming 6G mobile technology through the end of 2030 at the same royalty terms. No changes were made to management’s QTL forecast that was made at last year’s Investor Day. Management’s financial target through fiscal year 2024 is for QTL revenues to remain at current scale and margin profile. Qualcomm and Samsung also agreed to expand their collaboration with Snapdragon platforms for future premium Samsung Galaxy products, including smartphones, PCs, tablets, extended reality and more. Importantly, this agreement should drive Qualcomm’s share in the Galaxy from about 75% today to an even higher level. Management declined to update its current relationship with Apple (AAPL) during the conference call. An analyst asked about it amid rumors that Apple will use Qualcomm’s 5G modems in new 2023 iPhones. Apple, also a Club holding, is set to report earnings after the bell Thursday. (Jim Cramer’s Charitable Trust is long QCOM and AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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