By Stephen Nellis
(Reuters) – Qualcomm Inc’s shares fell 7.6% in hourly trading on Wednesday as the company said the restrictions on semiconductor providers that the industry had enforced were hampering its sales growth.
The results come as the shortage of chips motor manufacturers such as General Motors Co. on Wednesday are forced to reduce production at several plants. Although Qualcomm does not manufacture the chips that keep car factories, the company works with the same manufacturers of backed chip contracts. Qualcomm executives told Reuters that stocks would remain tight during the first half of 2021 without discussing the supply issue.
“If we can earn more, we can sell it,” CEO Steve Mollenkopf said in an interview with Reuters.
The drop in share prices for the disk designer in San Diego, California, even predicted fiscal sales and profits in the second quarter were ahead of Wall Street’s expectations, driven by a wave of phone buyers around the world upgrading their devices to 5G network connection.
Wall Street was expecting healthy profits for the company after the U.S. government blacklisted Huawei Technologies Co. Ltd., making it difficult for the Chinese brand to build mobile phones. Analysts had expected a large portion of its market share in the premium smartphone market to flow to Android-based competitors using Qualcomm’s chips, but the profit disappointed investors.
“Now with the change in the market, we have a kind of 16% of the market that was not yet available before us. So if we look further, we see it as a reasonable expansion of (addressable market) for us. , “said Chief Financial Officer Akash Palkhiwala on a call.
Stacy Rasgon, an analyst at Bernstein, described Qualcomm’s results as “respectful”, but said expectations were high. “It’s not an outburst,” he said.
Qualcomm’s strategy is changing as its chips become more profitable and a larger part of its business, but a concomitant decline in its lucrative license revenue has kept its gross margins flat.
For the first fiscal quarter ending December 27, Qualcomm said sales and adjusted earnings were $ 8.24 billion and $ 2.17 per share, compared to analysts’ analysis of $ 8.27 billion and $ 2 , 10 per share, according to Refinitiv data. According to FactSet data, chip and license revenues were $ 6.53 billion and $ 1.66 billion, respectively, which is estimated to be correct.
Qualcomm predicts sales with a midpoint of $ 7.6 billion and adjusted earnings at a midpoint of $ 1.65 per share, slightly above expectations, according to IBES data from Refinitiv.
Qualcomm is the world’s largest provider of chips that help connect cell phones to cellular data networks, providing chips to Apple Inc. and other cell phone manufacturers. Qualcomm announced on Wednesday that chip sales to Apple are slightly less profitable than chip sales to other phone makers, as Apple does not also purchase additional software from Qualcomm like Android device makers do.
But the company is also expanding businesses that supply chips to automakers such as General Motors, which last week reached an agreement with Qualcomm’s chips, and is challenging Intel Corp. with new processors for laptops and computers.
Two of the company’s newer business lines – radio frequency chips to help devices handle newer 5G signals and internet-of-things chips for devices such as wireless headphones – have now become a billion-dollar enterprise.
Cristiano Amon, president of the company that will take over as CEO in June, said the company is well protected among disk suppliers because it has parts from several contract manufacturers such as Taiwan Semiconductor Manufacturing Co. Ltd. and Samsung Electronics Co. Ltd. obtain. added that demand is greater than supply, as Huawei’s competitors, who largely did not use Qualcomm’s chips, moved in to take the Chinese share in the Chinese brand.
“We are seeing growth at a leading high level,” Amon said.
Qualcomm predicts a $ 6.25 billion revenue center for its chip business in the fiscal second quarter, according to estimates of $ 5.62 billion, according to data from FactSet. Qualcomm predicts a sales center for its licensing business, which has higher margins than its chip business and which generates a large portion of its profits, of $ 1.35 billion, lower than the estimate of $ 1.43 billion, according to FactSet.
Palkhiwala told Reuters that higher sales of chips – and chips with better margins – represented the company’s profit forecast above expectations.
Qualcomm said sales of handheld chips totaled $ 4.22 billion in the first quarter, up 79% from a year earlier on strength of 5G phone upgrades. Sales of radio frequency chips, a growth area for Qualcomm, rose 157% to $ 1.06 billion. Sales of car chips were $ 212 million, an increase of 44% from the previous year.
(Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; editing by Lisa Shumaker)