Qualcomm Cuts Forecast, Citing China -- WSJ
01 August 2019 - 5:02PM
Dow Jones News
By Asa Fitch
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 1, 2019).
Qualcomm Inc. warned of multiple challenges out of China that
are hurting its outlook, including a ban on exports to telecom
company Huawei Technologies Co. and a sharp drop in smartphone
sales.
The chip maker cut its full-year forecast for global smartphone
sales by 100 million units to a range of 1.7 billion to 1.8
billion, in large part reflecting weaker demand in China. Some
handset makers are holding off on releasing new phones as they
prioritize a new generation of high-speed 5G devices coming next
year, Chief Executive Steve Mollenkopf said during a call with
analysts.
Qualcomm stopped all business with Huawei in May, when the U.S.
imposed a ban on shipments to the Chinese company, but it resumed
some shipments it determined didn't violate the restrictions
imposed by the Trump administration amid a broader political and
trade dispute. Huawei accounted for about 3% of Qualcomm's revenue
before the ban, according to a Bernstein Research estimate.
Mr. Mollenkopf said Huawei became a less-lucrative customer
after the ban because the Chinese telecom company switched focus to
its domestic market, selling more devices that don't feature
Qualcomm's chips.
Those factors contributed to Qualcomm issuing a subdued outlook
for the current quarter, projecting another revenue decrease and a
fall of as much as 40% year-over-year in its chip shipments.
Shares fell more than 4% in aftermarket trading.
The company reported a 13% slump in adjusted revenue to $4.89
billion for the quarter ended June 30. That figure missed the $5.09
billion expected by analysts surveyed by FactSet. Its adjusted
earnings per share of 80 cents exceeded a consensus forecast of 76
cents, because of expanding margins and lower research and
development spending, among other factors.
The latest earnings mark the end to a tumultuous quarter for
Qualcomm. It got a boost from an April settlement with Apple Inc.
in a protracted legal battle over its technology-licensing
practices. That triggered a $4.7 billion boost to Qualcomm's
quarterly sales before adjustments, lifting them to $9.6
billion.
In May, a San Jose, Calif., federal judge ruled in a case
brought by the Federal Trade Commission that Qualcomm violated
antitrust laws by leveraging its dominance as a supplier of
mobile-communications chips to extract higher patent royalties from
customers. Qualcomm is seeking a stay of an order requiring it to
renegotiate its licensing deals. The order could lower revenue for
its licensing division, which collects royalties from
Qualcomm-developed technologies when other companies use them.
Mr. Mollenkopf said existing licensees were continuing to pay
Qualcomm, although John Han, an executive in Qualcomm's licensing
division, said in a recent court filing that several customers were
already either threatening to stop paying royalties or would seek
to renegotiate their deals if the court doesn't grant a stay during
Qualcomm's pending appeal before the Ninth Circuit Court of
Appeals.
Qualcomm is banking on the rollout of new 5G networks to boost
its fortunes. The company has been an early leader in putting the
technology into some of the newest phones, including Samsung's
flagship S10 model. But while 5G networks are appearing in more
markets across the globe and more handset makers are releasing 5G
phones, the technology remains far from ubiquitous.
Stacy Rasgon, an analyst at Bernstein Research, said the
company's suggestion that the sales decline was merely a normal
pause in demand as a better technology hit the market wasn't
necessarily a sure thing.
"They try to spin it as it's a pause in 4G demand that they can
send to 5G," he said. "Maybe, but what gives them confidence that
it's that simple?"
Corrections & Amplifications Including a payment that was
part of a settlement with Apple, Qualcomm's quarterly revenue was
$9.6 billion. An earlier version of this article incorrectly said
it was $9.4 billion.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
August 01, 2019 02:47 ET (06:47 GMT)
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