By Stephen Nellis
(Reuters) – Qualcomm Inc shares fell 7.6% on Wednesday’s trading session as the company said restrictions on the supply of semiconductors that clouded the industry were hampering sales growth.
The results come at a time when the shortage of chips forces automakers like General Motors Co on Wednesday to cut production at several factories. Although Qualcomm does not manufacture the chips that are disrupting automotive factories, the company works with some of the same third-party chip manufacturers that are backed up. Qualcomm executives told Reuters that supplies would remain scarce during the first half of 2021, without elaborating on the supply issue.
“If we could do more, we could sell them,” Chief Executive Steve Mollenkopf told Reuters in an interview.
The drop in stock prices for the chip designer based in San Diego, California, came even as sales and tax profits for the second quarter exceeded Wall Street expectations, driven by a wave of phone buyers across the world. updating their devices for 5G network connectivity.
Wall Street expected healthy gains for the company after the United States government blacklisted Huawei Technologies Co Ltd, a move that made it difficult to build Chinese-branded devices. Analysts had expected much of their share of the premium smartphone market to be aimed at rival Android-based manufacturers using Qualcomm chips, but the gains disappointed investors.
“Now, with the change in the market, we have a kind of 16% of the market that was not available to us before it was available. So, looking further, we see this as a very material expansion of (addressable market) for us” said Chief Financial Officer Akash Palkhiwala on a phone call.
Bernstein analyst Stacy Rasgon called Qualcomm’s results “respectable” but said expectations were high. “It’s not a pop,” he said.
Qualcomm’s strategy is changing as its chips become more profitable and a larger part of its business, but a simultaneous decline in its profitable license revenues has kept its gross margins stable.
For the first fiscal quarter ended December 27, Qualcomm said sales and adjusted earnings were $ 8.24 billion and $ 2.17 per share, compared with analysts’ estimates of $ 8, 27 billion and $ 2.10 per share, according to data from Refinitiv. Chip and license revenue was $ 6.53 billion and $ 1.66 billion, respectively, exceeding estimates, according to data from FactSet.
Qualcomm predicted sales with a midpoint of $ 7.6 billion and adjusted earnings at a midpoint of $ 1.65 per share, slightly above expectations, according to IBES data from Refinitiv.
Qualcomm is the world’s largest supplier of chips that help cell phones connect to cellular data networks, supplying chips to Apple Inc and other device manufacturers. Qualcomm reported on Wednesday that chip sales to Apple are slightly less profitable than chip sales to other phone manufacturers, because Apple also doesn’t buy additional software from Qualcomm in the way that Android device makers do. do.
But the company is also building businesses by supplying chips to automakers such as General Motors, which last week released a deal to acquire Qualcomm chips, and challenging Intel Corp with new processors for laptops and desktops.
Two of the company’s newest lines of business – radio frequency chips to help devices handle the latest 5G signals and IoT chips for devices like wireless headsets – have now become billions of dollars a quarter.
Cristiano Amon, the president of the company that will take over as chief executive in June, said the company is “well protected” among chip suppliers because it acquires parts from several contract manufacturers, such as Taiwan Semiconductor Manufacturing Co Ltd and Samsung Electronics Co Ltd. But he added that demand was outstripping supply, as Huawei’s rivals, which largely did not use Qualcomm’s chips, occupied the market position for the Chinese brand.
“We are seeing a growth in participation at a prominent top level,” said Amon.
Qualcomm predicts a midpoint of $ 6.25 billion in revenue for its chip business in the second fiscal quarter, exceeding estimates of $ 5.62 billion, according to data from FactSet. Qualcomm predicts an average selling point for its licensing business, which has higher margins than its chip business and generates much of its profit, of $ 1.35 billion, below estimates of $ 1.43 billion , according to FactSet.
Higher chip sales – and chips with better margins – were responsible for forecasting the company’s profit above expectations, despite falling short of estimates for its licensing business, Palkhiwala told Reuters.
Qualcomm said device chip sales in the first quarter were $ 4.22 billion, an increase of 79% over the previous year with the strength of 5G phone updates. Sales of radio frequency chips, a growth area for Qualcomm, increased 157% to $ 1.06 billion. Automotive chip sales were $ 212 million, an increase of 44% over the previous year.
(Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Editing by Lisa Shumaker)