Shares of Qualcomm Inc. (NASDAQ:QCOM), the world’s largest supplier of smartphone processors, dropped as much as 7.7% amid concerns that the recovery of the smartphone market is lagging behind investor expectations.
Despite projecting stronger sales and earnings for the current quarter than analysts had forecasted, Qualcomm indicated that phone shipments are only slowly rebounding from a prolonged downturn. CEO Cristiano Amon stated that the company anticipates unit sales to be either “flattish” or increase by a single-digit percentage this year.
Qualcomm’s earnings forecast initially boosted its shares in extended trading on Wednesday, but the stock fell back following comments from Amon and other executives during an analyst conference call. The shares dropped to as low as $167.06 in New York on Thursday, marking the largest intraday decline in two weeks.
Further comments by executives dampened confidence in a swift recovery. CFO Akash Palkhiwala projected that growth in the December quarter will be relatively unchanged from the previous year when sales increased by 5%. Analysts had expected a 9% rise.
Arm Holdings Plc (LSE:ARM), another chip company dependent on phone sales, also issued a disappointing outlook in its earnings report on Wednesday. The broader message: While higher-end phones are boosting sales for suppliers like Qualcomm and Arm, there hasn’t been a significant increase in overall phone demand.
For the quarter ending in September, Qualcomm forecasted revenue of $9.5 billion to $10.3 billion, compared to analysts’ average estimate of $9.7 billion. The company’s latest results surpassed projections, initially driving the stock rally.
Investors are seeking signs that the smartphone industry is recovering from a slowdown. As the leading manufacturer of processors and radio chips for smartphones, Qualcomm is a key indicator for the electronics market.
Qualcomm shares had risen 25% this year before the earnings report, reflecting optimism about a market recovery.
In the third quarter, which ended June 23, Qualcomm reported a profit of $2.33 per share, excluding certain items, and revenue of $9.39 billion, an 11% increase. Analysts had estimated a profit of $2.24 per share and sales of $9.21 billion.
Revenue from phone-related products increased 12% to $5.9 billion, while automotive sales surged 87% to $811 million.
For the fourth quarter, Qualcomm expects profit to be between $2.45 and $2.65 per share, excluding certain items, compared to a projection of $2.45 per share.
Under CEO Amon, Qualcomm is expanding its products into personal computers and vehicles to reduce reliance on the smartphone market. However, smartphones still constitute a significant portion of its revenue.
Apple Inc. (NASDAQ:AAPL), which reports earnings on Thursday, and Samsung Electronics Co., a major producer of Android phones, are key customers. Apple uses Qualcomm for connectivity chips but is working on developing its radio components. Another significant revenue stream for Qualcomm comes from licensing the essential technology for modern mobile networks, with manufacturers paying fees regardless of whether they use Qualcomm’s chips.
Featured Image: Megapixl
Author Faith Yakubu 
