Qualcomm shares drop as shortfall lowers its forecast

RAMPING UP::The chip shortfall was caused by heavy demand, and the firm must spend more to adapt designs to have its chips made by new suppliers

Bloomberg

Fri, Apr 20, 2012 - Page 10

Qualcomm Inc, the largest maker of mobile-phone semiconductors, declined in German trading after its third-quarter forecasts fell short of some analysts’ estimates on increased spending to bolster chip output.

Sales for the period ending in June will be between US$4.45 billion and US$4.85 billion, the San Diego-based company said in a statement on Wednesday. Analysts on average estimated US$4.81 billion, according to data compiled by Bloomberg. Net income will be between US$0.67 and US$0.73 a share, Qualcomm said, compared with the average prediction of US$0.77.

Qualcomm’s operating expenses surged 41 percent to US$3.43 billion in the second quarter, outpacing sales gains, as the company spent more on production to meet demand for new types of advanced chips. Qualcomm cannot get enough supply from its existing manufacturer and is seeking additional output, Qualcomm chief executive officer Paul Jacobs said in an interview.

Qualcomm shares fell 2.6 percent to the equivalent of US$65.35 at 9:40am in Frankfurt.

Qualcomm slid as much as 7.4 percent to US$62 in US trading following the report late on Wednesday.

They had fallen less than 1 percent to US$66.99 at the close in New York.

Net income in the second quarter, which ended March 25, was US$2.23 billion, or US$1.28 a share, compared with US$999 million, or US$0.59, a year earlier. Sales rose 28 percent to US$4.94 billion.

Analysts on average had -predicted earnings of US$1.10 a share and sales of US$4.84 billion.

Qualcomm, like other chipmakers, relies on so-called foundries in Taiwan such as Taiwan Semiconductor Manufacturing Co (台積電) to build its chips.

The company is spending to get its latest chips made by new suppliers, Jacobs said. Extending production to new manufacturers requires Qualcomm to invest in adapting its designs to their production, increasing operating expenses, he said.

The shortfall reflects heavy demand and has not been caused by manufacturing glitches, Jacobs said.

Output should be able to meet demand by the calendar fourth quarter, he said.

“It’s painful not to be able to supply all of the chips your customers ask for,” Jacobs said.

Qualcomm sells baseband chips, which connect cellphones to cellular networks, to wireless device makers, including Samsung Electronics Co, Apple Inc and HTC Corp (宏達電).

Those companies account for more than 30 percent of Qualcomm’s sales, according to a Bloomberg supply-chain analysis.

Even with the supply constraints, Qualcomm maintained its forecast that revenue will be US$18.7 billion to US$19.7 billion for the fiscal year ending in September.

“The rest of this year would have been a lot stronger if not for our inability to get the product to some of our customers,” Qualcomm chief financial officer Bill Keitel said in an interview. “You’ve got to make your customers happy every day. It worries me when we don’t.”

The company is also expanding into the market for application processors, the chips that run programs in smartphones and tablet computers, and will be supplying its Snapdragon processors to computer makers using the new version of Microsoft Corp’s Windows software.