Shares of Qualcomm tumbled nearly 9% on Thursday after a gloomy forecast signaled more pain for the largest maker of smartphone chips from the ongoing slump in the consumer electronics market. The chipmaker’s current-quarter revenue forecast below estimates also sent investors scurrying.
The San Diego-based company makes about half its profits from making the processors that power smartphones, including Apple’s iPhone, and the modem chips that connect those phones to high-speed data networks. The rest of its profit comes from licensing the fundamental technology that runs modern mobile networks – fees that phone manufacturers pay whether they use Qualcomm chips.
Qualcomm, whose stock has risen 19% this year, has underperformed the broader chip industry (.SOX) on worries about slowing smartphone demand and the risk of oversupply in its core markets. Global smartphone shipments have dropped for four consecutive quarters, according to research firm IDC, and the decline is expected to continue this year and into 2023.
But the current-quarter sales forecast sent Qualcomm shares tumbling more than 7% in premarket trading, erasing about $13 billion from the company’s market value, based on the premarket share price of $117.7. The drop was set to erase about half of the stock’s annual gains and was the most significant loss in a day for any tech stock on the Nasdaq Composite.
The chipmaker forecasted third-quarter adjusted earnings of $1.80 to $2 per share on revenues of between $8.1 billion and $8.9 billion, which was well below the average analyst estimate of $2.20, according to Refinitiv data. It blamed the shortfall on a delay in purchases by a “leading modem-only customer” and China, where a post-Covid-19 recovery is yet to take hold.
It also cited a lag in its lower-margin licensing business, Qualcomm Technology Licensing (QTL), which sells access to technologies needed for cellular services. The company said QTL’s margin would shrink to between 23% and 25% this quarter from between 35% and 41% in the second quarter.
Analysts said the latest outlook should reinforce concerns about smartphone demand, especially in China, where consumers have pulled back on spending amid soaring inflation and continued uncertainty over a possible economic slowdown. “Unless smartphone demand picks up significantly in China and the US, we do not expect a quick turnaround for the chipmaker,” said Canaccord Genuity’s Michael Walkley.
Qualcomm’s new CEO, Cristiano Amon, took over on July 1, pushing the company to diversify its revenue sources. That has included boosting sales of low-powered chips for internet-of-things devices and automotive applications while investing in next-generation 5G infrastructure. The company has also slashed expenses, paid a record $893 million in dividends, and repurchased $400 million in shares this year.
Other chipmakers also fell after delivering mixed results. Applied Materials fell 1.9%, while Advanced Micro Devices gained 2.5%. Biotech Moderna jumped 1.8% after raising its full-year sales forecast for its Covid vaccine. The company’s Covid-19 vaccine is being sold in more than 30 countries and has been approved for use in children, the most severe age group for the disease.
