Qualcomm Outlook Fails to Meet Lofty Investor Expectations

The Qualcomm headquarters in San Diego, California.

(Bloomberg) -- Qualcomm Inc., the largest maker of smartphone processors, became the latest chipmaker to deliver an upbeat forecast and still leave investors underwhelmed.

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Though the company’s sales and profit forecasts handily topped Wall Street estimates on Wednesday, its stock slipped as much as 3% in the following day’s trading.Qualcomm CEO Cristiano Amon is working to decrease the company’s reliance on the smartphone market.Photographer: Annabelle Chih/Bloomberg

It’s become a familiar story. Advanced Micro Devices Inc. also failed to impress investors with a strong revenue outlook this week. The company — Nvidia Corp.’s closest competitor in the market for artificial intelligence computing components — was coming off an AI-fueled rally that set expectations at stratospheric levels. Micron Technology Inc. fit the same pattern with its latest report in September.

Though Qualcomm has been less of an AI darling on Wall Street, it did enjoy a stock resurgence in recent weeks. That may have set the bar too high, Jay Goldberg, an analyst at Seaport Global Securities, said on Bloomberg Television.

“People were expecting some bigger upside,” he said.

The company’s profit also suffered from a US tax change last quarter. Qualcomm took a $5.7 billion writedown in period, which contributed to a $3.12 billion net loss. Other tech companies have recently reported hefty one-time charges from tax adjustments, including Meta Platforms Inc.

Still, the change will pay off in the long run, Qualcomm said. The company will use the alternative minimum tax, with a stable rate of 13% to 14%. The rate would have gone up without the shift, Qualcomm said.

Sales will be roughly $12.2 billion in the fiscal first quarter, which runs through December, the company said. Profit will be about $3.40 a share, minus certain items. Analysts had estimated revenue of $11.6 billion and earnings of $3.26 a share.

The outlook suggests that demand remains strong in the high-end Android phone market, which generates much of Qualcomm’s revenue. At the same time, Chief Executive Officer Cristiano Amon is working to transform the company into a more diversified seller of chips for cars, personal computers and data centers. And that effort is showing signs of paying off.

Profit was $3 a share when excluding some items in the fourth quarter, which ended Sept. 28. Analysts had estimated $2.88 a share. Revenue rose 10% to $11.3 billion, topping the $10.8 billion projection.

Story Continues

WATCH: Jay Goldberg of Seaport Research Partners says the company is facing competitive threats from its own customers.Source: Bloomberg

Phone-related revenue climbed to $7 billion in the period. That beat an average analyst estimates of $6.65 billion. Connected devices provided $1.81 billion of sales, with the automotive market contributing $1.05 billion.

Arm Holdings Plc got a warmer reception when it released quarterly results on Wednesday. That company, another key supplier of technology to the smartphone industry, has been making inroads into AI data centers. Its shares were up slightly after quarterly revenue and profit forecasts topped Wall Street estimates.

Qualcomm is making its own AI push. At the end of October, it announced a new line of artificial intelligence chips slated to challenge Nvidia’s market dominance in data centers. The first shipment is expected next year, and the initial customer will be Humain, the AI startup backed by the government of Saudi Arabia.

The San Diego-based chipmaker is facing increasing competition in the smartphone market, especially as Apple Inc. transitions away from using Qualcomm’s modem components. That company is switching to an in-house design for modems, which connect phones to cellular networks.

Qualcomm may see some relief on the geopolitical front, though. A recent trade detente struck between US President Donald Trump and Chinese President Xi Jinping included agreements to terminate antitrust investigations into the company by the Asian nation.

(Updates shares starting in second paragraph.)

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