Qualcomm cites alarm of sales slowdown from cooling smartphone demand

The US chip supplier Qualcomm Inc on 27 July forecast fourth-quarter revenue below Wall Street targets bracing for a difficult economy and a slowdown in smartphone demand which may hurt its mainstay handset chip business.

The San Diego-based company's shares plunged about 2.8% in extended trading, deepening 2022's drop of about 18% amid a broader selloff in growth stocks.

"We expect the elevated uncertainty in the global economy and the impact of COVID measures in China will cause customers to act with caution in managing their purchases in the second half," said Chief Financial Officer Akash Palkhiwala.

The firm cited Ukraine crisis and China lockdowns as reasons for worsened supply-chain snags and hurt demand, forcing many phone makers to cut orders for chips.

ALSO READ: Qualcomm launches new Snapdragon SoCs for smartwatches

Qualcomm now expects smartphone sales to fall 5% in 2022, compared with its prior outlook for flat growth. IDC had projected a 3.5% drop in smartphone shipments.

Over half of Qualcomm's total sales comes from the handset segment, which makes modem chips for Apple iPhones and chips that power some models of Samsung's Galaxy S series.

Driven by growth of 59% at its handset chip business, the chip designer beat expectations for adjusted revenue in the third quarter. The revenue from the automotive business reached a record in the third quarter and would surpass that in the next, Qualcomm's Chief Executive Cristiano Amon said.

According to Refinitiv data, Qualcomm forecast current-quarter revenue between $11 billion and $11.8 billion, compared with analysts' estimates of $11.87 billion. Compared with estimates of $3.23, it expects adjusted earnings per share of between $3 and $3.30.

The adjusted revenue for the quarter ended June 26 was $10.93 billion, compared with estimates of $10.88 billion. Revenue for Qualcomm's chip designing business was $9.38 billion, up 45% on the year while its licensing business produced $1.52 billion, up 2% on the year.

Also, Qualcomm extended its patent license agreement with Samsung Electronics through the end of 2030, ensuring secure revenue stability for its licensing business.

Apart from this, Qualcomm also agreed to expand the use of its Snapdragon platforms for future premium Samsung Galaxy products, including Samsung Galaxy phones.

"When we provide the Snapdragon 800 platform to a Galaxy smartphone, in terms of revenue and earnings, it replaces at least the revenue and earnings of selling modems to five iPhones," said Amon.

Meanwhile, the firm is is sharpening its focus on chips that power phones rather than modem chips used to connect to networks as major customer Apple works on its own modem chips.

With Reuters inputs.