Friday , 15 February 2019
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Qualcomm is drowning in China, where it generates half its revenue

Bengaluru (By Devika Krishna Kumar for Reuters) — Qualcomm Inc forecast first-quarter profit way below analysts’ expectations as the chipmaker struggles against fierce competition from Chinese and Taiwanese rivals, and faces delays in closing new licensing agreements in China.

The company’s shares fell nearly 6 percent in extended trading on Wednesday.

Qualcomm’s agreements with two major Chinese customers are taking longer than anticipated, Chief Executive Steve Mollenkopf said on a conference call.

President Derek Aberle said some Chinese customers were “improperly withholding” royalties on Qualcomm’s patents by changing the way they report sales.

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The company, which got half of its fiscal 2014 revenue from Chinese customers, said it expected the issue to be resolved once the new agreements were completed.

Qualcomm is in the middle of a strategic review after hedge fund Jana Partners urged it to separate its chip unit from its highly profitable patent-licensing business.

The company has also announced job cuts and other cost-cutting steps in the face of stiff competition, which is likely to intensify as chipmakers consolidate to meet demand for cheaper semiconductors and to diversify their portfolios.

Qualcomm said on Wednesday that demand for the new version of its flagship Snapdragon mobile chips was stronger than it had expected in the fourth quarter.

The company was hurt earlier this year by Samsung Electronics Co Ltd’s decision to use an internally developed processor, instead of the Snapdragon chips, in its Galaxy S6 smartphones.

Samsung had not ruled out using Qualcomm’s chips in the future and media reported last month that the South Korean company’s Galaxy S7 phones for the U.S. and China markets were expected to use Snapdragon 820 chips.

Samsung is seen rolling out the Galaxy S7 early next year.

Qualcomm forecast a profit of 80-90 cents per share for the current quarter, well below the average analyst estimate of $1.08, according to Thomson Reuters.

The net income attributable to the company fell 44 percent to $1.06 billion, or 67 cents per share, in the quarter ended Sept. 27.

Excluding items, Qualcomm earned 91 cents per share, beating analysts’ estimates of 86 cents, partly due to lower costs.

Revenue declined 18.5 percent to $5.46 billion, but topped Street expectation of $5.21 billion.

Qualcomm shares were trading at $56.74 after the bell.

(Editing by Kirti Pandey)

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