Qualcomm shares reverse after forecasts missed, CEO says inventory issues will persist

Shares of Qualcomm Inc. fell lower in Thursday’s extended session after the chipmaker forecast inventory liquidations would continue in the first half of the year, dipping the chip company’s outlook to just below consensus of Wall Street.

Qualcomm QCOM,
shares, which had initially gained 3% after hours, slid as the company’s earnings call began, going as far as a 3% decline. The stock closed the regular session down 1.9% at $135.85.

On the analyst call, Qualcomm executives said weaker-than-expected demand for phones and falling inventories were the main headwinds, and they expect inventory liquidation to persist into the first half of 2023, impacting on the results.

Qualcomm expects adjusted earnings of $2.05 to $2.25 per share on revenue of $8.7 billion to $9.5 billion for the fiscal second quarter. Analysts had estimated earnings of $2.29 per share on revenue of $9.56 billion for the second quarter.

The company reported fiscal first-quarter net income of $2.24 billion, or $1.98 per share, compared with $3.4 billion, or $2.98 per share, in the same one-year period. does. The chipmaker reported adjusted earnings, which exclude compensation expenses based on shares and other items, of $2.37 per share, compared with $3.23 per share for the same period a year ago. Total revenue for the quarter fell to $9.46 billion from $10.7 billion in the same period a year ago.

Analysts polled by FactSet had forecast $2.36 per share on revenue of $9.6 billion, based on Qualcomm’s forecast of $2.25 to $2.45 per share on revenue between $9.2 billion and $10 billion.

Cell phone sales were down 18% to $5.75 billion, auto sales were up 58% to $456 million and Internet of Things sales were up 7% to $1.68 billion the company said.

Akash Palkhiwala, chief financial officer at Qualcomm, told analysts that weak demand for phones and inventory drawdowns by original equipment manufacturers were acting as a large combined headwind, while inventory woes appear to have spread to IoT products. .

“We’ve also seen that IoT has the same, some of the characteristics, and we’re seeing a combination of those factors that impact the length of time that the withdrawal lasts for,” Palkhiwala said.

“Again, as we look at it, this is a short-term thing,” Palkhiwala said. “The drawdown has no impact on the strength of the business. As the recovery takes place, we’ll be able to take advantage of that.”

“From a product and technology perspective, we believe we are in the strongest position in our history,” Qualcomm chief executive Cristiano Amon told analysts, adding that the company’s long-term plan remains unchanged.

Last quarter, Qualcomm’s stock price fell to a low in more than two years after executives said there was up to 10 weeks of inventory in the channel and predicted a $2 billion shortfall stemming from record sales.

And the glut doesn’t appear to bode well for the cell phone industry as research firm Gartner recently forecast that worldwide cell phone shipments will decline 4% to 1.34 billion units in 2023, after an 11% decline in 2022.

Laws: The world is buying fewer and fewer devices and stocks of PCs, phones and tablets are increasing

Inventory woes have become a visible scourge for the industry after a two-year shortage caused by the COVID pandemic quickly turned into a glut in 2022, as seen in Intel Corp. INTC earnings reports,
and Advanced Micro Devices Inc. AMD,

Qualcomm shares fell 39.9% in 2022, while the PHLX Semiconductor Index SOX,
fell 35.8%, the S&P 500 SPX index,
finished the year down 19.4% and the tech-heavy Nasdaq Composite Index COMP
lost 33.1%.

In January, however, the markets rallied and Qualcomm shares rose 21.2%, while the SOX index gained 15.4%, the S&P 500 gained 6.2% and the Nasdaq rose by 10.7%.

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