Mobile chip giant Qualcomm shares slide amid planned job cuts as smartphones face worst slump in years
- Qualcomm’s tepid sales forecast pushed shares down 8 per cent amid weak smartphone demand, especially in China, which accounts for 60 per cent of company sales
- Last quarter, Qualcomm recorded US$285 million in restructuring charges, mostly from severance payments, and expects more workforce reductions
Sales will be US$8.1 billion to US$8.9 billion in the fiscal fourth quarter, Qualcomm said Wednesday in a statement. The midpoint of that range is well below the US$8.79 billion average analyst estimate.
The outlook renews concerns about a smartphone industry in the grips of its worst downturn in years. Qualcomm and its chip-making peers saw a steep drop in orders from handset manufacturers, which suddenly had more inventory than they needed. The reduction in spending on components for phones and other electronics will drag on until the end of the year, Qualcomm executives said on a conference call.
The company is taking steps to reduce its expenses, Qualcomm said, even as it invests in new products that will capitalise on the spread of artificial intelligence to smartphones. Already, it’s been reducing headcount. Last quarter, Qualcomm recorded US$285 million in restructuring charges, mostly from severance payments, and expects to conduct more workforce reductions.
“We are taking a conservative view of the market and will be proactively taking additional cost actions to ensure Qualcomm is well-positioned to deliver maximum value for stockholders in an uncertain environment,” chief executive officer Cristiano Amon said on the call.
The shares fell as low as US$118.71 in extended trading following the earnings announcement. Before the report, Qualcomm’s stock had increased about 18 per cent this year. That underperformed a broader rally for the chip industry, with the Philadelphia Stock Exchange Semiconductor Index gaining about 47 per cent in 2023.
Minus certain items, profit will be US$1.80 to US$2 a share in the current period, Qualcomm said. That compares with a US$1.94 projection.
A key problem: Demand in China, the biggest market for phones, hasn’t returned to projected levels. That region provides the company with more than 60 per cent of its sales.
Overall, handsets shipments will decrease by at least a high single-digit percentage rate this year compared with 2022, Qualcomm said in its earnings presentation, indicating that the outlook has dimmed slightly.
“Since it remains difficult to predict the timing of a sustained recovery and customers remain cautious with purchases, we continue to operate under the assumption that inventory drawdown dynamics will be a factor through the end of the calendar year,” the chip maker said in the presentation.
Amon is working to make his company less dependent on an unreliable smartphone market. The San Diego-based company has increased sales of chips for cars, networking, computing and wearable devices, but it still gets more than half of its revenue from the handset industry.
The company’s main product is a processor that runs many of the world’s best-known phones. It also sells the modem chips that connect Apple’s iPhone to high-speed data networks. An additional chunk of Qualcomm’s profit comes from licensing the fundamental technology that underpins all modern mobile networks – fees that phone manufacturers pay whether they use Qualcomm-branded chips or not.
Amon confirmed that Qualcomm’s modem will be in the new version of the iPhone coming later this year, but declined to comment on whether it will continue to provide that crucial component in future models. Bloomberg has reported that Apple is developing its own modem.
01:12
6G mobile transmission technology 10-20 times faster than 5G reached in Chinese lab
In the fiscal third quarter, which ended June 25, profit declined to US$1.87 a share. Revenue fell 23 per cent to US$8.45 billion. Analysts had estimated profit of US$1.81 and sales of US$8.51 billion.
Phone-related sales were US$5.26 billion, compared with an average estimate of US$5.48 billion. Automotive revenue rose from a year earlier to US$434 million, short of an estimate of US$448 million. Sales from connected devices were in line with estimates at US$1.5 billion.
