Qualcomm stock sinks as weak smartphone demand pushes inventory drawdown out to 'at least the next couple quarters'
By Wallace Witkowski
Chip maker originally forecast inventory drawdowns to be done by end of June, expects third-quarter earnings between $1.70 to $1.90 a share, when Street expected $2.17
Qualcomm Inc. shares fell in the extended session Wednesday after the chip maker said inventory issues will remain past June because of a downturn in handset demand and the company's outlook disappointed.
After declining 2.8% to close the regular session $112.83, Qualcomm (QCOM) shares started sliding after the release of the company's results at Wednesday's close, and sank to a deficit of more than 7% after hours by the time the executives' call with analysts ended. Shares ended the extended trading session down 6.6%.
On the conference call, Qualcomm Chief Executive Cristiano Amon told analysts that the "evolving macroeconomic backdrop has resulted in further demand deterioration, particularly in handsets, at a magnitude greater than we previously forecasted."
Earlier, Qualcomm had forecast adjusted earnings of $1.70 to $1.90 a share on revenue of $8.1 billion to $8.9 billion for the fiscal third quarter. Analysts had estimated earnings of $2.17 a share on revenue of $9.13 billion for the third quarter.
Last quarter, Qualcomm said inventory issues would persist into June, and Wall Street pretty much accepted it. Qualcomm's inventory problems go back to last year, when the company's share price fell in November to lows not seen in more than two years after executives said there was up to 10 weeks of inventory in the channel, and forecast a $2 billion shortfall coming off record sales
A drop in handset demand, however, has extended the time frame of inventory drawdowns considerably past the previously forecast end of June, the company said. As its largest business segment, Qualcomm handset sales fell 17% to $6.11 billion from a year ago.
"As a result, we're operating under the assumption that inventory drawdown dynamics remain a significant factor for at least the next couple quarters," Amon told analysts. "Additionally, while expectations are for a rebound in China demand in the second half of the calendar year, we have not seen evidence of meaningful recovery and are not incorporating improvements into our planning assumptions."
The company reported fiscal second-quarter net income of $1.7 billion, or $1.52 a share, compared with $2.93 billion, or $2.57 a share, in the year-ago period. The chip maker reported adjusted earnings, which exclude stock-based compensation expenses and other items, of $2.15 a share, compared with $3.21 a share in the year-ago period. Total revenue for the quarter fell to $9.28 billion from $11.16 billion in the year-ago period.
Analysts surveyed by FactSet had forecast $2.15 a share on revenue of $9.09 billion, based on Qualcomm's forecast of $2.05 to $2.25 a share on revenue of $8.7 billion to $9.5 billion.
In Qualcomm's other end-market segments, auto sales rose 20% to $447 million and Internet-of-Things sales fell 24% to $1.39 billion for the second quarter, the company said.
Late Monday, auto chip supplier NXP Semiconductor NV(NXPI) topped Wall Street expectations, and shares rallied Tuesday, while last week, another big supplier to the auto market, Texas Instruments Inc. (TXN) said that sales to the auto industry remained strong
Qualcomm shares already lag the broader chip sector and market, and were up only 3% year to date at Wednesday's close. In comparison, the PHLX Semiconductor Index has surged 17%, the S&P 500 index has gained 7%, and the tech-heavy Nasdaq Composite Index has grown 15%.
In other chip earnings, Advanced Micro Devices Inc(AMD) shares dropped 9.2% Wednesday after the chip maker's optimism for the second half of the year late Tuesday did not rub off on analysts.
Read: 'AI for us is broader than cloud,' AMD CEO tells analysts, but chip maker still needs PC recovery to improve margins
And last week, Intel Corp. (INTC) reported its largest quarterly loss ever, but saw its shares rise because PC and data-center sales, while on the decline, had come in better than expected Intel also lowered expectations on its forecast.
-Wallace Witkowski
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May 04, 2023 08:24 ET (12:24 GMT)
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