Tags: Qualcomm | Forecasts | Orders | Earnings

Qualcomm Cuts 2015 Forecasts on Weaker Orders, Competition

Wednesday, 28 January 2015 05:56 PM

Qualcomm Inc., the biggest maker of mobile-phone chips, reduced its forecast for revenue and profit this year, reflecting lost semiconductor orders at a major customer and more competition in China.

Sales for fiscal 2015 will be $26 billion to $28 billion, the San Diego-based company said Wednesday in a statement. Profit before certain costs for the year will be $4.75 to $5.05 a share. The company previously projected as much as $28.8 billion in revenue and $5.35 in per-share profit. The shares slid as much as 9 percent in extended trading.

A large customer has decided not to use Qualcomm’s Snapdragon chip in a flagship phone design, Chief Executive Officer Steve Mollenkopf said in an interview. Earlier this month, Bloomberg News reported that Samsung Electronics Co., the world’s biggest smartphone maker, had decided to use its own processor in its new Galaxy S smartphone. Mollenkopf declined to comment on whether the customer was Samsung.

“What seemed like an insurmountable market position is now being challenged,” said Suji De Silva, an analyst at Topeka Capital Markets. “That’s just technology. It’s a competition.”

Qualcomm shares slid as low as $64.60 in late trading. Earlier, they had fallen 1.1 percent to $70.99 at the close of trading in New York.

“We expect not to be in a design launching in the second half of the year,” Mollenkopf said.

LTE Chips

After three years of having the market for the newest Long-Term Evolution modem chips almost to itself, Qualcomm is now starting to face competition as rivals introduce their own LTE products. The company’s market share in LTE chips dropped to less than 80 percent in the third quarter for the first time, from 95 percent a year earlier, according to researcher Strategy Analytics.

Qualcomm remains the dominant supplier of chips that connect phones to the fastest cellular networks, enabling it to benefit from surging consumer demand for accessing the Internet on the go. The company’s semiconductor business provides the company with about 70 percent of its sales.

Mollenkopf said the company gave its competition an opportunity by using a generic chip design from ARM Holdings Plc in its latest processor -- something rivals can also use. The company will revert to designing its own processor core in new products to debut later this year, he said.

Chip Redesigns

In China, where Qualcomm is facing more competition in mid-priced phones, the market will migrate to more expensive handsets that will need the company’s higher-end modem chips, he said.

While the loss of orders from Samsung will hurt, that might be balanced out by new customers like China’s Xiaomi Corp., said Alex Gauna, an analyst at JMP Securities, who has a buy rating on Qualcomm stock.

“Samsung isn’t what it used to be,” he said.

The company reduced its 2015 estimates while reporting fiscal first-quarter earnings. For the period ended Dec. 28, net income rose to $1.97 billion, or $1.17 a share, from $1.88 billion, or $1.09, a year earlier, Qualcomm said in the statement. Sales rose 7.2 percent to $7.1 billion. Excluding certain costs, profit was $1.34 a share. Analysts on average had projected profit of $1.25 a share on sales of $6.94 billion.

Profit before certain costs in the fiscal second quarter, which ends in March, will be $1.28 to $1.40 a share, the company said Wednesday. Sales will be $6.5 billion to $7.1 billion. On average, analysts projected profit of $1.28 a share and revenue of $6.72 billion, according to data compiled by Bloomberg.

Patent Royalties

While the majority of its revenue comes from selling chips, Qualcomm gets about 60 percent of profit by collecting fees from smartphone makers for licensing its technology, which is a fundamental part of Internet-connected phones.

That business has been at risk as some manufacturers in China delayed or reduced royalties amid a government antitrust investigation of the chipmaker’s practices in that country, the world’s largest market for mobile phones.

China’s National Development and Reform Commission has been looking at the relationship between Qualcomm’s chip sales and licensing business. The company said in November that the antitrust inquiry would hurt patent-royalty revenue this year as some phone makers delay signing agreements and other existing licensees pay less than they should.

Licensee Agreement

Qualcomm gave an update on the royalty question in China. The company was able to resolve a dispute with “a major licensee” there, Qualcomm President Derek Aberle said. The customer, which Qualcomm didn’t name, extended the scope of its agreement with the chipmaker and will pay for previously underpaid fees, he said.

Qualcomm is still in discussions with Chinese authorities and is making progress toward a resolution to the inquiry, Aberle said. It’s still unable to predict when that will come, he said.

The U.S. Federal Trade Commission also is looking at the company’s licensing division regarding fair and reasonable commitments, while the European Commission is examining rebates or financial incentives related to Qualcomm’s baseband chip business.

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Qualcomm Inc., the biggest maker of mobile-phone chips, reduced its forecast for revenue and profit this year, reflecting lost semiconductor orders at a major customer and more competition in China. Sales for fiscal 2015 will be $26 billion to $28 billion, the San...
Qualcomm, Forecasts, Orders, Earnings
Wednesday, 28 January 2015 05:56 PM
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