Qualcomm's licensing unit forecast overshadows earnings beat, sending shares lower
Investing.com - Qualcomm posted better-than-anticipated fiscal first-quarter results thanks to an artificial intelligence-fueled rebound in smartphone demand, although the results were overshadowed by the chipmaker's announcement that its lucrative patent licensing unit will not see sales growth this year.
U.S.-listed shares in Qualcomm (NASDAQ:QCOM) subsequently fell in premarket dealmaking on Wednesday, while the stock also dropped in Frankfurt trading. The shares have rallied by more than 14% so far this year, as investors have been hoping for a surge in Qualcomm's financial performance on the back of solid AI demand.
San Diego, California-based Qualcomm reported adjusted earnings per share of $3.41 and revenue of $11.67 billion for the quarter ended on December 29. The figures surpassed projections of $2.97 and $10.03 billion, respectively, according to an Investing.com forecast based on a poll of analysts.
The beat was supported by growing demand for chips used in handsets, suggesting a nascent recovery in the smartphone market. These devices are a key driver of Qualcomm's operations, with the company supplying a range of big-name corporate customers, including China's Vivo and Xiaomi (OTC:XIACF) as well as iPhone-manufacturer Apple (NASDAQ:AAPL).
Revenue from smartphones jumped 13% in $7.57 billion in the first quarter. Meanwhile, revenues from its automative division and Internet of Things, or IoT, unit -- which houses its PC chips -- both climbed versus the year-ago period and topped Wall Street projections.
For its second quarter, the group is forecasting adjusted per-share income of $2.70 to $2.90 on revenue of $10.3 billion to $11.2 billion, compared with estimates for $2.71 and $10.36 billion. Last month, Qualcomm, the world's largest supplier of chips that connect smartphones to wireless networks, unveiled a deal to provide processors to help power smartphones made by South Korea's Samsung (KS:005930). The firm is working with software giant Microsoft (NASDAQ:MSFT) and other computer makers to supply chips to an array of laptops and PCs.
Meanwhile, Qualcomm licensing chief Alex Rogers (NYSE:ROG) said discussions with Huawei are "still in play". An agreement to sell chips to the Chinese telecoms titan -- a major deal that analysts say contributed between $0.10 to $0.15 per share to Qualcomm's profits -- expired last year.
Following the expiration, Qualcomm forecast that its patent licensing business, in which 5G-connect product makers pay the company a fee for its technology, will see no growth in revenue this year. However, the forecast does not include the potential from a renewal with Huawei, Rogers noted in a call with analysts.
"[The] December beat and strong March upside [were] largely better than expected but the lack of clear June guidance and Huawei [...] delay is apparently enough to spook investors," analysts at Barclays (LON:BARC) said in a note to clients.
(Yasin Ebrahim contributed reporting.)
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