Qualcomm Inc shares dipped as much as 9% in after-hours trading on Wednesday as the company reported fiscal first-quarter sales that slightly missed Wall Street expectations and forecast lower-than-expected sales for its profitable patent licensing business.
The declines came as the firm forecast fiscal second-quarter sales and profits above Wall Street expectations, driven by a wave of phone buyers around the world upgrading their devices for 5G network connectivity.
Wall Street had expected healthy gains for the company after the U.S. government blacklisted Huawei Technologies Co Ltd, a move that made it difficult for the Chinese brand to build handsets. Analysts had expected much of its market share in the premium smartphone market to flow to Android-based rival makers who use Qualcomm’s chips, but the gains disappointed investors.
Stacy Rasgon, an analyst at Bernstein, called Qualcomm’s results “respectable” but said expectations had been high. “It’s not a blowout,” he said.
For the fiscal first quarter ended Dec. 27, Qualcomm said sales and adjusted profit were $8.24 billion and $2.17 per share, compared with analyst estimates of $8.27 billion and $2.10 per share, according to Refinitiv data. Chip and licensing revenue were $6.53 billion and $1.66 billion, respectively, compared with estimates of $6.51 billion and $1.72 billion, according to FactSet data.
The San Diego, California-based chip designer forecast sales with a midpoint of $7.6 billion and adjusted profit at a midpoint of $1.65 per share, compared with estimates of $7.10 billion and $1.57 per share, according to IBES data from Refinitiv.
Qualcomm is the world’s biggest supplier of chips that help mobile phones connect to cellular data networks, providing chips to Apple Inc and other handset makers. But the company is also building out businesses supplying chips to automakers such as General Motors Inc, which last week disclosed a deal to source chips from Qualcomm, and challenging Intel Corp with new processors for laptop and desktop 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 billion-dollar-per-quarter businesses.
Cristiano Amon, the company’s president who will take over as chief executive in June, said that the company expects chip supplies to remain tight until the second half of the year. He said demand was outstripping supply as rivals of Huawei, which largely did not use Qualcomm’s chips, moved in to take the Chinese brand’s market share.
“We’re seeing growth of share in a preeminent high tier,” Amon said.
Steve Mollenkopf, Qualcomm’s current chief executive, added: “If we could make more, we could sell it.”
Qualcomm forecast a midpoint of $6.25 billion in revenue for its chip business in the fiscal second quarter, beating estimates of $5.62 billion, according to data from FactSet. Qualcomm forecast a midpoint of sales for its licensing business, which has higher margins than its chip business and generates much of its profit, of $1.35 billion, lower than estimates of $1.43 billion, according to FactSet.
The higher sales of chips – and chips with better margins – accounted for the company’s above-expectations profit forecast despite falling short of estimates for its licensing business, Akash Palkhiwala, Qualcomm’s chief financial officer, told Reuters.
“There’s a mix shift that’s happening within our business,” he said.
Qualcomm said first-quarter sales for handset chips were $4.22 billion, jumping 79% from a year before on the strength of 5G phone upgrades. Sales of radio frequency chips, a growth area for Qualcomm, increased 157% to $1.06 billion. Automotive chips sales were $212 million, up 44% from the previous year.
Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Editing by Lisa Shumaker; Reuters