Fri, Jul 22, 2016 - Page 10 News List

Qualcomm shows progress in China, while Intel stokes fears over servers

CHIPMAKERS:Qualcomm benefited from an increase in licensing fees and market share gains in China, while Intel is banking on corporate purchases to lift servers

Bloomberg

Qualcomm Inc’s second-quarter results show the chipmaker is overcoming hurdles in China, while rival Intel Corp faces fresh headwinds in servers — the key to its profit.

San Diego-based Qualcomm, the biggest maker of semiconductors that run smartphones, reported earnings and gave forecasts that beat analysts’ estimates as it gets paid more licensing fees in China and gains market share there.

Intel posted growth in its data center business that fell well short of its own targets, creating concern momentum in that profitable unit is slowing.

The two companies, which dominate their respective markets, but have made few inroads onto each other’s turf, have struggled to grow as the PC market has collapsed and smartphone expansion slowed.

Qualcomm late on Wednesday said it is performing better than the slowing telecommunications sector, particularly in China, and is overcoming resistance by phone makers in that country to paying for its patents.

Intel, which had benefited from the explosion in mobile Internet through its server business, said that business grew 5 percent in the quarter, compared with a target of double-digit percentage gains for the year.

Intel executives faced multiple questions on a conference call with analysts about how the firm would get back on course in servers.

Corporate purchases of these computers will improve in the second half, a new design will help with average selling prices and the company has “signals” from customers that an increase in orders is on the way, the executives said.

For the data center group, that was the third quarter in a row in which revenue gains missed the company’s target. It is also the second consecutive quarter that growth in that unit has fallen below 10 percent, putting it well behind progress needed to reach its goal for the business this year.

“It’s not slowing down in the long term,” chief executive officer Brian Krzanich said on the conference call. “It’s going to be driven by the many more devices that are going to connect to the cloud.”

The company’s biggest customers — companies such as Google and Microsoft Corp — order chips in large batches to build new data centers, then pause purchases while they make sure their infrastructure is working at full capacity.

That results in “lumpy” demand, he said.

Intel shares fell as much as 3.9 percent in extended trading following its announcement. Qualcomm gained as much as 7 percent.

The worldwide market for smartphones is on course to grow just 3.1 percent this year following an expansion of 10.5 percent last year and a 28 percent surge in 2014, according to IDC Corp.

While Qualcomm is not seeing anything to contradict that kind of outlook, it is doing better within that environment, particularly in China, CEO Steve Mollenkopf said.

In the chipset business, which provides the firm with the majority of its revenue, Qualcomm did better than expected with Chinese phone makers who are grabbing a larger portion of their home market.

At the same time, its attempts to persuade more of them to pay royalties for using Qualcomm technology are gathering momentum and fewer are holding out on money they owe it, the company said.

“It was a really strong quarter — it was strong in both businesses, in particular the license business,” Mollenkopf said by telephone. “We got some money a little earlier than we would have thought.”

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