Qualcomm forecast falls short on weakening handset sales; Samsung agreement extended

Qualcomm Inc. shares fell in the extended session Wednesday after the chip maker lowered its forecast because of weakening handset sales, the company’s largest business segment, but focused on the long term with an extended deal with Samsung Electronics Co.

“What we’re seeing on the market side is because of the macroeconomic conditions and the COVID measures in China,” Qualcomm QCOM,
+2.30%
Chief Financial Officer Akash Palkhiwala told MarketWatch in an interview.

“We are seeing weakness in the handset market, so we’re bringing down the forecast for the total handset market, and that’s going to have an impact of approximately 20 cents [a share] on our guidance for the September quarter,” Palkhiwala said.

The company forecast fourth-quarter earnings of $3 to $3.30 a share on revenue of $11 billion to $11.8 billion, while the Street estimated $3.30 a share on revenue of $12 billion. Qualcomm expects QCT sales of $9.5 billion to $10.1 billion, and sales from Qualcomm’s technology licensing, or QTL, segment of $1.45 billion to $1.65 billion. Analysts had forecast $10.23 billion in QCT sales and QTL revenue of $1.59 billion.

“The macroeconomic impact is something that we are working through on the consumer side, but we have strength across the board on everything else,” Palkhiwala told MarketWatch, noting that enterprise and industrial customers have helped make up the difference.

“Premium-tier volume is holding,” Palkhiwala told analysts on the call, regarding handsets. “What we are seeing is the customers buying high/mid/low tier being careful with inventory as they manage and kind of work through the market environment.”

Regarding the global chip shortage that is beginning to turn into a glut in certain areas, Palkhiwala said he expects demand and supply to “be aligned” in the second half of the year.

The company also announced a continuation of a licensing deal with Samsung 005930,
+0.81%
to provide Snapdragon chips for Galaxy phones until 2030, including what is forecast to be 6G, the company said.

“I cannot think of anything better to validate our strategy to be focused on share … in premium and high tier, than this agreement,” Cristiano Amon, Qualcomm’s chief executive, told analysts on the call.

“Now, the second part of this multi-year agreement is the opportunity for growth tied up with diversification,” Amon said on the call. “So it expands beyond Galaxy smartphones to include Galaxy books, Windows PCs, Galaxy tablets, future extended-reality devices and other devices.”

Qualcomm shares declined 3.7% after hours, following a 2.3% gain to close at $153.42 in the regular session.

The company reported fiscal third-quarter net income of $3.73 billion, or $3.29 a share, compared with $2.03 billion, or $1.77 a share, in the year-ago period. The chip maker reported adjusted earnings, which exclude stock-based compensation expenses and other items, of $2.96 a share, compared with $1.92 a share in the year-ago period. Total revenue for the third quarter rose to $10.94 billion from $8.06 billion in the year-ago period.

Analysts had estimated earnings of $2.89 a share, based on Qualcomm’s forecast of $2.75 to $2.95 a share, and revenue of $10.86 billion, based on Qualcomm’s revenue forecast of $10.5 billion to $11.3 billion.

Handset-chip sales surged 59% to $6.15 billion from a year ago, while the Street expected $5.99 billion. Handset sales are a part of Qualcomm’s CDMA technologies, or QCT, segment.

Qualcomm reported QCT revenue of $9.38 billion, a 45% gain from a year ago. Analysts had estimated $9.35 billion, based on the company’s forecast of $9.1 billion to $9.6 billion. QCT includes handset and RF chips as well as chips for cars and IoT.

RF front-end sales rose 9% to $1.05 billion compared with an expected $1.11 billion. Auto-chip sales surged 38% to a record $350 million, and Internet of Things, or IoT, sales rose 31% to a record $1.83 billion. Meanwhile, the Street was expecting auto sales of $353.7 million, and IoT sales of $1.89 billion.

Revenue from the QTL segment rose 2% to $1.52 billion compared with Wall Street estimates of $1.5 billion, based on a company forecast of $1.4 billion to $1.6 billion.

Over the past 12 months, Qualcomm shares are up 9%, compared with a 9.5% decline for the PHLX Semiconductor Index SOX,
+4.75%,
an 8.5 % decline by the S&P 500 index SPX,
+2.62%,
and an 18% drop by the tech-heavy Nasdaq Composite Index COMP,
+4.06%.

Late Tuesday, Texas Instruments Inc. TXN,
+6.65%
kicked off the earnings season for US chip makers with a beat and an outlook range that was mostly above the Street consensus.

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