Qualcomm Incorporated nasdaq Qcom Shares Slide on Disappointing Q4 Sales Outlook

QUALCOMM Incorporated (NASDAQ: QCOM) Shares Slide on Disappointing Q4 Sales Outlook

Shares in QUALCOMM Incorporated (NASDAQ: QCOM) fell nearly 9% in the pre-market trading Thursday after the company issued a tepid sales forecast for the current quarter, signaling continued weakness in demand for mobile devices.

According to a statement released on Wednesday, Qualcomm expects sales to range between $8.1 billion and $8.9 billion in the fiscal fourth quarter. The midpoint of this projection falls well below the average analyst estimate of $8.79 billion, raising concerns about the smartphone industry’s worst downturn in years.

Qualcomm and other chipmaking peers have been hit hard by a steep drop in orders from handset manufacturers, leading to an oversupply of inventory. The situation has resulted in reduced spending on components for phones and other electronics, and Qualcomm executives warned that this trend will continue until the end of the year.

Qualcomm is taking decisive steps to reduce expenses while investing in new products capitalizing on artificial intelligence integration into smartphones. The company has already initiated workforce reductions. Last quarter, the company recorded $285 million in restructuring charges, primarily due to severance payments, and is preparing for further workforce reductions.

“We are taking a conservative view of the market and will be proactively taking additional cost actions to ensure Qualcomm is well-positioned to deliver maximum value for stockholders in an uncertain environment,” Chief Executive Officer Cristiano Amon said on the call.

Qualcomm stock (NASDAQ: QCOM) plummeted to $118.71 in extended trading. This downturn follows an 18% increase in the stock value throughout the year, which lags behind the broader surge of 47% in the Philadelphia Stock Exchange Semiconductor Index for 2023.

Qualcomm’s profitability outlook is also grim, with an expected profit range of $1.80 to $2 per share for the current period, compared to the $1.94 projection. A significant contributing factor to this situation is the failure of demand in China to reach projected levels. China accounts for over 60% of Qualcomm sales.

In its earnings presentation, Qualcomm (NASDAQ: QCOM) forecasts that overall handset shipments will decline by at least a high single-digit percentage rate this year compared to 2022, indicating a somewhat gloomy outlook.

“Since it remains difficult to predict the timing of a sustained recovery and customers remain cautious with purchases, we continue to operate under the assumption that inventory drawdown dynamics will be a factor through the end of the calendar year,” the chipmaker said in the presentation.

Amon is working to make his company less dependent on an unreliable smartphone market. Qualcomm has been actively focusing on increasing sales of chips for various sectors, including cars, networking, computing, and wearable devices. However, the company still derives over half its revenue from the handset industry.

The core product of Qualcomm is its processor, which powers numerous renowned smartphones globally. It also sells modem chips that enable Apple iPhone to connect to high-speed data networks. Qualcomm’s profit is further bolstered by licensing fees for fundamental mobile network technology, which phone manufacturers pay regardless of using Qualcomm-branded chips or not.

Amon confirmed that the Qualcomm modem will be featured in the upcoming version of the iPhone scheduled for release later this year. However, he refrained from commenting on whether the company will continue to supply this crucial component in future models amid reports that Apple is developing its own modem.

In the fiscal third quarter, which ended on June 25, Qualcomm (NASDAQ: QCOM) reported a decline in profit to $1.87 per share and a 23% drop in revenue to $8.45 billion. These figures fell short of analyst estimates of $1.81 profit and $8.51 billion in sales.

Phone-related sales were $5.26 billion, below the estimated $5.48 billion. Automotive revenue rose from the previous year but fell short of the $448 million estimate at $434 million. Sales from connected devices aligned with estimates at $1.5 billion.