By Don Clark And Tess Stynes
Qualcomm Inc. showed surprising growth in its fiscal first
quarter, but lowered its revenue targets for the year amid
continued turmoil in China and stiffening competition for
smartphone chips.
The big chip maker's revenue rose about 7.2% in the quarter
ended in December, while net income grew 5.2% from a year
earlier.
Shares fell 8% to $65.33 in recent after-hours trading as the
company lowered its 2015 outlook for the year ending in September,
citing a shift among smartphone makers at the premium tier, which
has reduced sales prospects for its integrated Snapdragon
processors and has skewed its product mix toward more modem
chipsets. The company also cited expectations that the Snapdragon
810 processor won't be in the coming cycle of a large customer's
flagship device and heightened competition in China.
For 2015, the company reduced its per-share earnings, excluding
items, outlook by 30 cents and now expects a range between $4.75 to
$5.05. Its revenue view also was cut, by $800 million, to a range
between $26 billion and $28 billion.
The San Diego-based company dominates the market for wireless
baseband chips that connect using fourth-generation cellular
technology, sold separately or integrated with processors. The
company avoids discussing specific customers, but analysts that
disassembled Apple Inc.'s latest iPhones have found Qualcomm
baseband chips. Apple said Tuesday it sold a whopping 74.5 million
handsets in the period ended in December.
Qualcomm now gets roughly half its revenue from customers in
China, where it has grappled with a long-running antitrust
investigation. Separately, Qualcomm had said it believes some
Chinese customers are underreporting their revenues, cutting into
its licensing revenues there.
Qualcomm Chief Executive Steve Mollenkopf said Wednesday in
prepared remarks that the company was pleased to have resolved its
previously disclosed dispute with a licensee in China.
However, Qualcomm also noted in its news release that it
continues to believe that certain licensees in China aren't fully
complying with their contractual obligations to report their sales
of licensed products to the company.
Besides selling chips used in smartphones, Qualcomm charges
phone makers royalties for use of its patents, based on a
percentage of the wholesale price of their handsets. Aspects of the
company's patent-licensing practices are believed to be a key focus
of the China investigation.
Qualcomm also disclosed along with its fourth-quarter results in
November that the U.S. Federal Trade Commission and European Union
have also launched antitrust investigations.
The company has been grappling with other issues. Revenue growth
slowed to 6.5% in the fiscal year ended in September, compared to
30% in the prior year. In response, Qualcomm in December said it
was laying off about 600 people, or less than 2% of its
workforce.
Qualcomm has also been contending with reports that its new
flagship mobile processor, the Snapdragon 810, has overheating
problems. Bloomberg recently reported that Samsung Electronics Co.
had decided not use the new chip in a forthcoming smartphone.
Qualcomm also said earlier this month said that rivals had been
trying to recruit some of its top executives, prompting retention
measures that included a combined $95 million in special stock
grants to Mr. Mollenkopf and Paul Jacobs, its chairman and former
CEO.
For the period ended Dec. 28, Qualcomm reported a profit of
$1.97 billion, or $1.17 a share, compared with $1.88 billion, or
$1.09 a share, a year earlier. Revenues rose 7.2% to $7.1 billion.
Excluding items such as results from an investment unit, Qualcomm
said per-share earnings came to $1.34.
Analysts polled by Thomson Reuters expected per-share earnings
of $1.25 on revenue of $6.94 billion.
For the quarter ending in March, Qualcomm projected per-share
earnings, excluding items, of $1.28 to $1.40 on revenue of $6.5
billion to $7.1 billion, compared with analyst estimates of $1.28 a
share on $6.74 billion.
Write to Don Clark at don.clark@wsj.com and Tess Stynes at
tess.stynes@wsj.com
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