Qualcomm Predicts Earnings Below Wall Street As Smartphone Market Dips

Qualcomm Inc (QCOM.O) forecast second-quarter profit and revenue below Wall Street estimates on Thursday as the chipmaker struggles with the combined toll of a supply glut and dampened demand for smartphones, a situation that is expected to carry on into the first half of 2023.

Inflation and macroeconomic uncertainty have weighed on consumer electronics sales, and while Qualcomm has been somewhat cushioned by its focus on premium smartphones, analysts said even that market has crashed.

The stock, which initially jumped 2.7% in after-hours trading, plunged 3%.

“The handset industry continues to experience reduced demand, and we are now expecting elevated channel inventory levels to persist at least through the first half of calendar 2023,” Cristiano Amon, Qualcomm CEO told investors.

To get by, he said the company would further slash spending and streamline operations.

On Wednesday, Samsung Electronics unveiled its latest Galaxy S23 series smartphone which now operates on 100% of Qualcomm processors globally, but the launch comes at a difficult time in the market.

“Discussions with mobile service providers revealed a continued and deepening weakness in smartphone demand globally which doesn’t bode well for Qualcomm,” said Maribel Lopez, tech analyst at Lopez Research.

Apple, the world’s biggest listed company, said iPhone sales dropped in the December quarter for the first time since 2020.

Qualcomm has also branched out, moving into new fast-growing areas such as automotive. Revenue for that business in the fiscal first quarter grew 58% on year to $456 million, although the company expects that to be subsequently flat in the current quarter.

The chipmaker estimated current-quarter revenue in the range of $8.7 billion to $9.5 billion, compared with analysts’ forecasts of $9.55 billion, Refinitiv data showed. Its fiscal first-quarter revenue fell 12% year-on-year to $9.46 billion, missing Wall Street estimates of $9.60 billion.

“I don’t think we have hit rock bottom (for the smartphone market) yet. We still have a rough year ahead,” said IDC analyst Nabila Popal. “Real recovery is not likely until 2024.”

First quarter revenue from Qualcomm’s handset business, which forms the biggest chunk of total sales, dropped 18% on year to $5.75 billion, in comparison to 40% growth in the prior quarter.

It predicts adjusted earnings per share to be between $2.05 and $2.25, compared to analysts’ predictions of $2.26 per share.

In the first quarter, Qualcomm posted adjusted earnings per share of $ 2.37, which contrasts with the analyst consensus of $2.34 per share, Refinitiv data showed.

Qualcomm also said during the earnings call that it doesn’t think its current licenses to export 4G, Wi-Fi, and other chips to Chinese telecom titan Huawei (HWT.UL) to be affected by reports that the U.S. Commerce Department has stopped awarding export licenses to Huawei.

“Those licenses were issued because Congress reached the determination that they don’t affect national security issues. Those will continue for some number of years,” Alex Rogers, president of Qualcomm Technology Licensing and Global Affairs said on the call with investors.