Qualcomm's stock falls on light guidance as it warns of further job cuts

Qualcomm’s stock falls on light guidance as it warns of further job cuts

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Shares of smartphone chipmaker Qualcomm Inc. were battered and bruised in extended trading today as the company warned that it’s likely to miss Wall Street’s earnings and revenue targets in the current quarter.

Earlier, the company reported third quarter earnings before certain costs such as stock compensation of $1.87 per share, coming in ahead of the analyst’s consensus estimate of $1.81 per share. Revenue for the period came to $8.44 billion, down 23% from a year earlier and just below Wall Street’s target of $8.5 billion. Qualcomm also reported net income of just $1.8 billion for the quarter, down a staggering 52% from a year earlier.

Qualcomm is badly exposed to a declining smartphone industry, because the vast majority of processors it makes are intended for premium and lower-end Android devices. Unfortunately for the chipmaker, most analysts forecast smartphone sales to decline this year amid the ongoing, global economic slowdown. Qualcomm itself says it expects handset unit sales to drop by a “high-single digit percentage” this year.

As a result, Qualcomm could only offer cautious guidance for the current quarter, saying it expects fourth quarter earnings of between $1.80 and $2 per share, with revenue likely to fall between $8.1 billion and $8.9 billion. That’s short of Wall Street’s targets of $1.91 per share in earnings and $8.7 billion in revenue. No wonder, then, Qualcomm’s stock fell more than 7% in the after-hours trading session, adding to a loss of 2% earlier in the day.

Qualcomm said its CDMA Technologies business segment, which covers chips for smartphones, cars and other smart devices, saw revenue plunge 24% from a year earlier to $7.17 billion in sales. Within that segment, handset chip sales generate the bulk of the revenue, but those declined 25% to just $5.26 billion, the company said.

Qualcomm’s chief financial officer Akash Palkhiwala said on a conference call it’s “difficult to predict the timing of a sustained recovery and customers remain cautious with purchases.”

One positive for Qualcomm was automotive chip sales, which rose 13% from a year earlier. However, that remains a small segment of its business, pulling in just $434 million in revenue.

Qualcomm’s larger Internet of Things business, which makes low-cost chips for sensors, industrial devices and Meta Platform’s Inc.’s Quest VR headsets, delivered $1.48 billion in sales, down 24% from a year earlier.

The Qualcomm Technology Licensing business, which generates royalties from customers wanting to access Qualcomm’s patented technologies for cellular service, added $1.23 billion in revenue, down 19% from a year earlier.

Looking for positives, Qualcomm’s chief executive Cristiano Amon (pictured) highlighted the company’s strategy around artificial intelligence. He told analysts on the call that Qualcomm’s ability to run AI models on smartphones rather than cloud servers can result in many new applications and use cases, and potentially drive growth in future. The company recently showcased a number of cutting-edge generative AI workloads running at the edge, on smartphone devices, at the IEEE/CVF Conference on Computer Vision and Pattern Recognition in June.

“In summary, we are uniquely positioned to help shape and capitalize on the upcoming on-device Gen AI opportunity,” Amon said.

It’s an enticing opportunity, but for now it’s one that Qualcomm is yet to capitalize on and it showed today as it announced it will be undertaking further cost-cutting measures. The chipmaker has already slashed its cost base by 5% this year, relative to its spending in 2022, notably cutting 415 jobs at its San Diego campus.

The additional cuts will largely consist of yet more layoffs, but the company didn’t put a number on how many positions might be affected.

“Until we see sustained signs of improving fundamentals, our operating framework does not assume an immediate recovery,” Palkhiwala said.

Photo: Qualcomm

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