Qualcomm (NASDAQ:QCOM) recently announced a fourth-quarter sales forecast that fell below market expectations, attributing the disappointing figures to the persistent weakness in consumer spending on smartphones. The San Diego-based tech giant also revealed its likelihood of implementing job cuts in response to the challenging market conditions, driven by sluggish global economic growth.
One significant factor impacting Qualcomm‘s (NASDAQ:QCOM) projections is its anticipated halt in sales to the Chinese telecom giant Huawei. Due to the lack of a 5G chip license for Huawei, the company expects no further revenue from the Chinese giant. Furthermore, the slower-than-expected economic recovery in China dampened overall orders to Qualcomm, with smartphone shipments in the country declining by 5% during the June quarter, as reported by Canalys data.
To make matters more challenging, Qualcomm’s (NASDAQ:QCOM) forecast takes into account the impact of macroeconomic headwinds and weaker global handset units. Additionally, phone manufacturers have been relying on existing inventory rather than placing fresh chip orders, further affecting the company’s revenue outlook.
Chief Financial Officer Akash Palkhiwala clarified in a conference call with investors that Qualcomm’s outlook for the rest of the year assumes no significant revenue contribution from Huawei. While the company holds a 4G license for shipping into Huawei, the absence of a 5G license means no substantial revenue from future dealings with the telecom giant.
For the fourth quarter, Qualcomm estimates revenue between $8.1 billion to $8.9 billion, slightly lower than the $8.70 billion expected by analysts polled by Refinitiv. The company forecasts a fourth-quarter adjusted earnings range with a midpoint of $1.90, aligning with analysts’ consensus estimate of $1.91 per share, as reported by Refinitiv data.
Amid the challenging market conditions, Qualcomm is bracing for potential restructuring charges due to the proposed job cuts. While specifics are yet to be finalized, the company expects significant workforce reductions, leading to additional restructuring expenses.
As a result of the disappointing forecast, Qualcomm’s shares experienced a decline of approximately 7% during extended trading. The broader tech and chip stocks also faced a sell-off, with the Philadelphia SE Semiconductor Index (SOX) slipping 3.5%. This downturn in the market was further exacerbated by concerns surrounding Apple, with analysts expecting the company to report its largest fiscal third-quarter revenue drop since 2016, attributed to slowing iPhone sales in the U.S. and other regions.
However, it’s not all gloom for the chip industry, as some firms experienced different outcomes. For instance, Qorvo (NASDAQ:QRVO), which also supplies wireless chips to smartphone makers, saw a rise of 4% in extended trading, driven by its forecast surpassing analysts’ expectations. Additionally, Qorvo’s CEO, Bob Bruggeworth, reported winning more business with its largest customer, Apple (NASDAQ:AAPL). Furthermore, NXP reported better-than-expected results recently, partially attributed to strong Apple orders.
Looking ahead, Qualcomm anticipates the use of existing inventory by phone makers to continue being a factor throughout the rest of the calendar year. However, there is hope for the company’s automotive sector, which experienced a bright spot in its revenue growth, expanding by 13%. This positive development comes as Qualcomm endeavors to diversify its product offerings beyond smartphone chips, particularly with the increasing use of computer chips in vehicles.
Overall, Qualcomm faces significant headwinds in the market as it grapples with weak smartphone demand and the absence of substantial revenue from Huawei. As the company navigates these challenges, its ability to adapt and diversify will play a crucial role in determining its future success in the ever-evolving tech industry.
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Author Faith Yakubu 
