Qualcomm Inc., the leading global supplier of smartphone processors, experienced a post-market stock rally that fizzled out on Wednesday due to investor anxiety over the slow pace of the phone market’s recovery. Despite Qualcomm’s projection of stronger-than-expected sales and earnings for the upcoming quarter, the company noted that phone shipments are recovering at a slower rate than hoped. Qualcomm’s CEO, Cristiano Amon, indicated that the company anticipates either flat or low single-digit percentage growth in unit shipments for the year.
Initially, Qualcomm’s earnings forecast drove its shares up by more than 6% in after-hours trading. However, the stock subsequently fell as Amon and other executives expressed concerns during a conference call with analysts. On Thursday morning, Qualcomm’s shares were down 1.7% in premarket trading after closing at $180.95 the previous day in New York.
Further eroding investor confidence, Qualcomm’s Chief Financial Officer Akash Palkhiwala predicted minimal growth for the December quarter, expecting results to mirror the previous year’s 5% increase in sales, while analysts had anticipated a 9% rise.
The disappointment was echoed by Arm Holdings Plc, another chip supplier dependent on phone sales, which also issued a tepid outlook in its earnings report. The broader message suggests that while high-end phones are benefiting suppliers like Qualcomm and Arm, there has been no significant uptick in overall phone demand.
For the quarter ending in September, Qualcomm projected revenue between $9.5 billion and $10.3 billion, slightly below the analysts’ average estimate of $9.7 billion. Although the company’s latest results surpassed projections, contributing to the initial stock rally, the gains were short-lived.
Investors have been seeking indications of a rebound in the smartphone industry. As the largest manufacturer of processors and radio chips for smartphones, Qualcomm’s performance is often viewed as a barometer for the electronics sector.
Qualcomm’s shares, which had closed at $180.95 on Wednesday, are up 25% for the year. In the third quarter, which ended on June 23, the company reported a profit of $2.33 per share, excluding certain items, and an 11% increase in revenue to $9.39 billion. This exceeded analysts’ expectations of $2.24 per share and $9.21 billion in sales.
Phone-related revenue rose 12% to $5.9 billion, while automotive sales saw a substantial 87% increase, reaching $811 million. For the fourth quarter, Qualcomm expects a profit of $2.45 to $2.65 per share, excluding certain items, aligning with analysts’ projections.
Under CEO Amon’s leadership, Qualcomm is diversifying its product applications into personal computers and vehicles to reduce its dependence on the smartphone sector. Nonetheless, smartphones still represent a significant portion of its revenue.
Key customers for Qualcomm include Apple Inc. and Samsung Electronics Co., with Apple relying on Qualcomm for connectivity chips rather than the primary processor. Apple is working on developing its own radio components, while Qualcomm also generates substantial revenue from licensing technology essential to modern mobile networks.
