Qualcomm forecast disappoints

PRICES CURBED::Customers have been placing more orders for parts that run in cheaper mobile devices, a trend that may hurt the firm’s revenue growth

Bloomberg

Fri, Nov 08, 2013 - Page 15

Qualcomm Inc, the largest maker of chips for smartphones, forecast fiscal first-quarter sales that may fall short of analysts’ estimates amid a shift to less-expensive handsets that has curbed chip prices.

Sales in the period ending next month will be US$6.3 billion to US$6.9 billion, the San Diego-based company said in a statement on Wednesday. That compared with an average analyst estimate of US$7.01 billion, according to data compiled by Bloomberg.

Profit before certain costs will be US$1.10 to US$1.20 a share, the firm said.

Customers have been placing more orders for parts that run in cheaper devices, Qualcomm chief operating officer Steve Mollenkopf said in an interview.

A greater portion of business from less-expensive components may hurt Qualcomm’s revenue growth, which has been surging since 2010 amid brisk smartphone demand, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.

“They’re seeing a bit of a slowdown in chipsets,” Rasgon said.

“This wasn’t a bad report, but it’s definitely not good,” he added.

Sales in the next fiscal year will be US$26 billion to US$27.5 billion, the company said, compared with an average analyst estimate of US$27.5 billion. At the midpoint of that range, revenue growth would be about 8 percent — a deceleration from annual gains of more than 25 percent for the past three fiscal years.

Qualcomm shares fell as much as 6 percent in extended trading following the announcement.

While demand for more expensive smartphones is still increasing, it is not keeping pace with that for lower-cost models, Mollenkopf said.

“In the near term, we’re seeing a little bit of a downshift in terms of tier,” he said.

“In the second half we continue to see strong units and a little bit stronger mix,” Mollenkopf added.

Net income in the fourth quarter, which ended on Sept. 29, rose 18 percent to US$1.5 billion, or US$0.86 a share, from US$1.27 billion, or US$0.73 a share, a year earlier. Revenue climbed 33 percent to US$6.48 billion.

Analysts on average had estimated earnings of US$0.94 a share on revenue of US$6.35 billion.

Qualcomm’s yearly sales have more than doubled since 2010. The company gets the majority of its revenue from processors and modem chips used in smartphones. The bulk of its profit comes from licensing patents that cover many of the fundamentals of modern telephone networks.

Qualcomm chief executive Paul Jacobs said that profit and revenue would continue to increase at percentages in the double digits for the next five years.

“We’re investing in a bunch of new opportunities and there’s a lot of stuff still coming,” Jacobs said in a telephone interview. “I don’t think we believe that it’s over by any stretch.”

Jacobs also said the chipmaker looked at some of the assets of struggling smartphone maker BlackBerry Ltd, a Qualcomm customer, before it unveiled a turnaround plan when a takeover deal with Fairfax Financial Holdings Ltd collapsed. BlackBerry instead said it would raise US$1 billion in convertible bonds.

“There were some assets that we were interested in and we were looking at, but obviously they got a new refinancing,” Jacobs said on Wednesday.

When asked whether Qualcomm would contribute to attempts to revive BlackBerry, he said: “They have their own strategy. We’re waiting to hear where they are headed.”