Qualcomm revenue slips as phone chip sales miss estimates

Qualcomm’s revenue declined in its latest quarter, The Wall Street Journal reported, because lower sales of chips for mobile phones more than offset growth in its automotive business. The company released the results after the US market closed on Nov 4, which was early on Nov 5 in Korea.

The phone business missed forecasts. Qualcomm’s smartphone chip sales were below what analysts had estimated, Reuters reported. The company’s guidance on profit also disappointed. Bloomberg described the outlook as weak and linked it to rising supply costs. Qualcomm shares fell after the release, according to Reuters.

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Phones shrank faster than cars grew

Qualcomm earns money from several kinds of chips. Handset chips are the processors and modems that run smartphones and connect them to mobile networks. Automotive chips go into cars. In the latest quarter, the two moved in opposite directions, The Wall Street Journal reported, and the phone side carried more weight. The gains in cars were not large enough to keep total revenue from falling.

The weakness had been in view before the release. In a preview, Barron’s said the report would arrive at a time of falling smartphone sales. It also pointed to Qualcomm’s growing effort to sell chips for data centers, a market separate from phones and cars. The results, as reported by The Wall Street Journal and Reuters, show that the phone business remained the main driver of the quarter’s revenue trend.

Bloomberg’s account adds a cost question to the demand question. A weak profit outlook can reflect lower sales, higher costs or both. Bloomberg tied Qualcomm’s outlook to supply costs, meaning what the company pays for the parts and manufacturing behind its chips. Qualcomm is a chip designer, so those costs sit outside its own factories.

A rally against the index before the report

The drop after the release followed a strong day for the stock. Qualcomm closed the Nov 4 regular session at US$173.19, a gain of 5.33% from Nov 3.

The wider chip sector went the other way that day. The PHLX Semiconductor Index, or SOX, a gauge of 30 US-listed chip stocks, fell 3.13% to 10,268.65 on Nov 4. Qualcomm rose more than 5% on a session when the index lost more than 3%. No reason for that gap has been given.

That means the post-results decline began from a higher starting point than the stock held a day earlier. The size of the move in extended trading has not been reported, and the regular-session close on Nov 5 will be the first full reading of how the shares absorbed the results.

An early read on handset chip demand

For investors in Asia-Pacific chip stocks, Qualcomm’s report is one of the first looks at phone chip demand from a major US designer this earnings season. Smartphones are one of the largest end markets for chips, and Qualcomm is a large supplier to them.

The report gives two separate signals. One is volume: handset chip sales fell and missed estimates, according to The Wall Street Journal and Reuters. The other is cost: Bloomberg linked the soft profit outlook to higher supply costs. Investors following the chip sector can weigh those two signals separately, since they point to different pressures on the business.

US results land overnight for markets in Seoul, Taipei and Tokyo, which trade on the news in their next session. Pacific Tape’s guide to how the four closes line up explains how news passes between New York and Asia.

Qualcomm’s push into data centers, which Barron’s highlighted before the report, did not change the picture for the quarter as reported by The Wall Street Journal: the company’s revenue still moved with its phone business.

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Information only, not investment advice.