- Qualcomm (QCOM) shares dropped 4.82% to $167.35 despite forecasting Q2 sales and profits above expectations, due to flat revenue projections from its patent licensing business following the expiration of a Huawei agreement.
- The company reported a strong Q1 with sales of $11.67 billion and adjusted profits of $3.41 per share, driven by a 13% increase in handset revenue to $7.57 billion, alongside growth in automotive and IoT sectors.
- Qualcomm has secured new deals, including with Samsung for global chip supply in flagship phones and is expanding into PCs and IoT, yet investor concerns focused on the lack of growth in licensing revenue and ongoing negotiations with Huawei.
Qualcomm (QCOM) shares experienced a significant dip, falling $8.47 or nearly 5% to $167.35, despite the company forecasting sales and profits that surpassed analyst expectations for the current fiscal second quarter. The company projected a sales midpoint of $10.75 billion and adjusted profits of $2.80 per share, both above the consensus estimates of $10.34 billion in sales and $2.69 in adjusted profits per share. However, the stock price declined after the market closed due to concerns over flat revenue from its patent licensing business, particularly after the expiration of an agreement with Huawei Technologies.
Qualcomm, known as the world’s largest supplier of modem chips for smartphones, has been diversifying into other markets like PCs, cars, and the Internet of Things (IoT), but the smartphone sector remains its core strength. The company’s first-quarter results showed a significant uptick in demand, with sales reaching $11.67 billion and adjusted profits at $3.41 per share, both well above expectations. Handset revenue particularly stood out, increasing by 13% to $7.57 billion, although this growth was outpaced by the overall 20% chip revenue increase.
The company’s strategic moves include securing a major deal with Samsung Electronics for supplying chips for their flagship mobile phones globally and collaborating with Microsoft (MSFT) for PC and laptop markets. Despite these positive developments, the lack of growth in the patent licensing segment, especially following the lapse of the Huawei deal, has introduced some uncertainty. Analysts had been optimistic about Qualcomm’s potential in expanding its total addressable market, especially with its strong position in the premium smartphone segment.
Additional insights from the company reveal that while they have lost direct chip sales to Huawei, Qualcomm still benefits from licensing agreements with the Chinese firm, although these were not included in the current revenue forecast. Qualcomm also reported growth in other areas: automotive chip revenue increased to $961 million from $598 million a year earlier, and IoT revenues rose to $1.55 billion from $1.1 billion, showcasing its broadening influence beyond just smartphones.
Nevertheless, the market’s reaction underscores investor sensitivities to Qualcomm’s reliance on patent licensing for consistent revenue growth, especially in a landscape where geopolitical tensions can impact business relations with key players like Huawei. Qualcomm’s proactive steps towards diversification into emerging technology sectors like AI, IoT, and automotive, while maintaining its dominance in smartphones, suggest a forward-thinking approach, but the immediate market response reflects the challenges of managing expectations in a rapidly evolving tech environment.
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