Qualcomm Rally Fizzles on Concern About Slow Smartphone Recovery

(Bloomberg) -- Qualcomm Inc., the world’s biggest seller of smartphone processors, saw a post-market rally sputter on Wednesday, fueled by concerns that the phone market is recovering more slowly than investors had hoped.

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Though Qualcomm projected stronger sales and earnings than analysts anticipated for the current quarter, it said that phone shipments are only gradually rebounding from a prolonged slump. Qualcomm Chief Executive Officer Cristiano Amon said the company expects units to be either “flattish” or up by a single-digit percentage this year.

Qualcomm’s earnings forecast initially sent its shares up more than 6% in extended trading, but the stock retreated following the remarks from Amon and other executives on a conference call with analysts. By 6 p.m. in New York, Qualcomm shares were down more than 1%.

Comments by executives also undermined confidence that the recovery will pick up pace. Chief Financial Officer Akash Palkhiwala said he expects growth in the December quarter to be little changed from a year earlier, when sales increased 5%. Analysts had been predicting a rise of 9%.

Arm Holdings Plc, another chip company that’s heavily reliant on phone sales, also gave a disappointing outlook during its earnings report Wednesday. The big picture message: Though higher-end phones are helping fuel sales for suppliers like Qualcomm and Arm, there hasn’t been a widespread surge in demand for phones in general.

Qualcomm’s revenue in the quarter ending in September will be $9.5 billion to $10.3 billion, the company said Wednesday. Analysts had estimated $9.7 billion on average. The latest results also topped projections, helping fuel the earlier rally.

Investors have been looking for signs that the smartphone industry is finally emerging from a slowdown. Qualcomm is the largest maker of processors and radio chips that handle the main functions in the devices. That makes it a bellwether for one of the largest markets in electronics.

Qualcomm shares had earlier closed at $180.95 in regular New York trading Wednesday, leaving them up 25% for the year.

In the third quarter, which ended June 23, profit was $2.33 a share, excluding some items. Revenue rose 11% to $9.39 billion. Analysts had estimated profit of $2.24 a share and sales of $9.21 billion.

Phone-related revenue rose 12% to $5.9 billion in the period. Automotive sales, meanwhile, surged 87% to $811 million in the quarter.

Fourth-quarter profit will be $2.45 to $2.65 a share, excluding certain items, Qualcomm said. That compares with a projection of $2.45 a share.

Under Amon, the San Diego-based company is pushing its products into personal computers and vehicles — an effort to reduce its reliance on phones. But the smartphone market still accounts for an outsized portion of its revenue.

Apple Inc., which reports earnings on Thursday, and Samsung Electronics Co., a maker of Android-based phones, are major phone customers. Apple’s iPhone relies on Qualcomm for connectivity chips, not the main processor, and the Cupertino, California-based company is attempting to develop its own radio components.

Another main driver of Qualcomm’s profit comes from licensing the fundamental technology that underpins all modern mobile networks. Phone manufacturers pay these fees to Qualcomm whether or not they use its chips.

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