Qualcomm Slides After Forecast Signals Phone Slump Will Drag On

Revenue will be $8.1 billion to $8.9 billion in the fiscal third quarter, Qualcomm said Wednesday in a statement, falling well short of the $9.25 billion average analyst estimate.

The outlook shows the challenge Qualcomm faces in navigating an industrywide downturn. (REUTERS)

Qualcomm Inc., the largest maker of smartphone processors, tumbled in late trading after a disappointing forecast signaled that demand for mobile devices remains sluggish — especially in China.

Revenue will be $8.1 billion to $8.9 billion in the fiscal third quarter, Qualcomm said Wednesday in a statement, falling well short of the $9.25 billion average analyst estimate. That sent the shares down as much as 7.5% to $104.35.

The outlook shows the challenge Qualcomm faces in navigating an industrywide downturn. Weak demand for phones has led to a buildup in handset chips — the company's main source of revenue. Chief Executive Officer Cristiano Amon has promised investors that once phone makers have worked through their inventory, the orders will bounce back. But that's taking longer than feared.

The company now expects the total market for phones to shrink by a percentage range in the high single digits in 2023. Inventory reductions by customers will likely continue for two more quarters, Qualcomm projected. Demand in China hasn't returned to the levels that Qualcomm and others had expected, Amon said.

“Common sense and the overall expectation was that the China market was going to bounce back,” he said on a conference call with analysts. “We've not seen those signs yet.”

The company's main product is the processor that runs many of the world's best-known phones. It also sells the modem chips that connect Apple Inc. 's iPhone to high-speed data networks. An additional chunk of Qualcomm's profit comes from licensing the fundamental technology that underpins all modern mobile networks — fees that phone makers pay whether they use Qualcomm-branded chips or not.

The company's “modem-only” customer, which is how Qualcomm refers to Apple, is ordering fewer parts after stocking up earlier in the year, Chief Financial Officer Akash Palkhiwala said on the conference call. But he said that observation wasn't a comment about demand for the iPhone. Investors will get a better sense of how that device is doing when Apple reports its own earnings Thursday.

In the longer run, San Diego-based Qualcomm is looking to decrease its reliance on smartphones by selling more chips for cars, networking, computing and wearable devices. The company is considering acquisitions that would accelerate that diversification, Amon said.

Qualcomm gets a large portion of its sales from Chinese manufacturers that serve domestic customers — the world's biggest buyers of chips. Pandemic lockdowns in that country restrained consumer spending, and Qualcomm said there's been no quick rebound yet.

Before the earnings report, Qualcomm's stock had increased 2.6% this year through the close, trailing broader gains by semiconductor-related shares.

The company also projected third-quarter profit before certain items of $1.20 to $1.70 a share. That compares with an average projection of $2.20.

In the fiscal second quarter, which ended March 26, revenue fell 17% to $9.3 billion, Qualcomm said. It posted a profit, minus certain items, of $2.15 a share, matching estimates.

Handset-related sales fell 17% to $6.1 billion, compared with an average estimate of $5.3 billion. Automotive revenue jumped 20% from a year earlier to $447 million, topping projections. And sales from connected devices were in line with estimates at $1.39 billion.