Qualcomm Plunges as China Rebound Fails to Materialize

Shares of Qualcomm (NASDAQ:QCOM) fell on Thursday after the chipmaker reported financial results for the second quarter, which showed a notable year-over-year (YoY) sales decline fueled by a continued plunge in demand for handset chips.

The chipmaker reported adjusted earnings per share (EPS) of $2.15 for the second quarter, in line with analysts’ estimates. Revenue came in at $9.28 billion, down 17% YoY, though above the consensus projection of $9.1 billion.

Qualcomm generated a net income of $1.70 billion, or $1.52 per share, down 42% from $2.93 billion, or $2.57 per share, in the same quarter last year. The company also reported $900 million in stock buybacks in the last quarter, and $800 million in dividend payments during the period.

Investors Still Wait for a Rebound in China

Cristiano Amon, CEO of Qualcomm, said in a statement that disappointing sales in the latest quarter came due to a tough environment, adding the company had not yet seen evidence that smartphone sales are rebounding in China.

In addition, challenges in the smartphone market are expected to persist in 2023 after shipments fell more than 14% YoY in Q1, according to IDC.

“The evolving macroeconomic backdrop has resulted in further demand deterioration, particularly in handsets, at a magnitude greater than we previously forecasted,” Amon told analysts during the call.

Qualcomm’s QCT segment, which produces car chips, smartphone processors, and other key parts used in sophisticated electronic devices, saw its revenue plummet 17% to $7.94 billion in Q2.

The bulk of the segment’s revenue comes from handset chips - the processing units used in most Android-powered devices. Qualcomm generated $6.11 billion from handset sales, down 17% from the year-ago quarter.

As for the current quarter, Qualcomm said it expects its total revenue to be in the range of $8.1 billion to $8.9 billion, missing the consensus estimates of $9.14 billion. The company expects EPS to be $1.80 in Q3, well below the Wall Street expectations of $2.16 per share.

Regarding chip revenue, Qualcomm forecasted it will be in the range of $6.9 billion to $7.5 billion in the third quarter. This marks a bigger-than-normal drop in the chipmaker’s chip revenue outlook compared to the prior quarter, mainly due "to the timing of purchases by a modem-only handset customer,” the company stated.

Qualcomm did not disclose the name of the customer, though Summit Insights Group analyst Kinngai Chan believes it was Apple (NASDAQ:AAPL), which manufactures its own application processor. The tech giant is the largest buyer of Qualcomm’s standalone modern chips.

Apart from slowing smartphone demand, Qualcomm is also grappling with tougher competition from Taiwan-based chip manufacturer MediaTek, particularly when it comes to high-end smartphone chips.

"MediaTek is pushing hard into the high-end market," said Runar Bjorhovde, an analyst at research firm Canalys. "It is very open to working with anyone that can help it grow a bit more into the high-end where I guess Samsung (KS:005930) is the big one for Qualcomm to defend."

No Bottom in Sight for Chipmakers

Earlier this week, Qualcomm peer Advanced Micro Devices (NASDAQ:AMD) reported Q1 EPS and revenue that topped analysts’ expectations. However, the company’s stock still dropped after the chipmaker issued downbeat guidance for the current quarter.

The Santa Clara, California-based company reported adjusted EPS of 60 cents, beating the Wall Street projections of 56 cents per share. AMD bagged $5.35 billion in revenue in the fiscal first quarter, down 9% YoY, and just above the estimated $5.3 billion.

Net loss rose to $139 million, or 9 cents per share, compared to a net income of $786 million, or 56 cents per share, in the same quarter last year. The earnings figures do not include certain losses AMD sustained from investments and acquisition-related expenses.

AMD’s client segment, which reports sales from the company’s PC chips, posted the biggest decline in the quarter. The category reported $739 million for the quarter, marking a whopping 65% drop from $2.1 billion in the year-ago period.

The worse-than-expected results come amid a significant slowdown in the PC industry. The recent decline in shipments affected all major chipmakers, including AMD’s biggest rival Intel (NASDAQ:INTC), which reported an overall sales drop of 36% last week.

“We believe the first quarter was the bottom for our client processor business,” said AMD CEO Lisa Su.

AMD’s segment that produces less powerful chips for networking reported a substantial sales increase to $1.56 billion in the quarter, from $595 million a year ago. The YoY increase was in part driven by the company’s recent acquisition of Xilinx (NASDAQ:XLNX).

For the second quarter, AMD forecasted around $5.3 billion in sales, trailing consensus estimates of $5.48 billion. Su stated that the company continues to see “growth in the second half of the year as the PC and server markets strengthen.”

Similarly, Synaptics (NASDAQ:SYNA) shares tumbled on Thursday after the company lowered its full-year outlook as the difficult macro environment continues to cloud visibility.

Summary

Qualcomm shares fell on Thursday after the company said it is still experiencing weak demand for its smartphone chips. The offered outlook signals that weakness in the smartphone market will persist until September, at least.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.