Qualcomm offers strong forecasts in reference to smartphone recovery

(Bloomberg) – Qualcomm, the world's largest seller of smartphone processors, provided optimistic forecasts for sales and profits in the current period, indicating that demand for phones is increasing after a two-year decline.

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The company said in a statement on Wednesday that revenues in the three-month period ending in June will range between $8.8 billion and $9.6 billion. Excluding certain items, earnings will be $2.15 to $2.35 per share. Analysts expected sales of $9.08 billion and earnings of $2.16 per share.

Forecasts indicate that the smartphone market has begun to recover, tracking Qualcomm's forecast that demand will gradually recover in 2024. The San Diego-based company also reported better-than-expected results in the second quarter – helped by progress in China. It sells the technology to local phone manufacturers.

Shares rose about 3% in extended trading after the announcement. It had previously closed at $164.11 in New York trading, an increase of 13% this year.

CEO Cristiano Amon is trying to reduce reliance on phone chips by entering into personal computers, vehicles and other markets. But Qualcomm still relies heavily on demand for mobile phones, especially in China.

In the second quarter, which ended March 24, profit was $2.44 per share, excluding certain items. Revenue rose 1% to $9.39 billion. Analysts estimated profits at $2.32 and sales at $9.32 billion.

Smartphone segment revenue rose 1% in the latest quarter, a slowdown from the 16% increase in the previous three months. Qualcomm said China was a bright spot. Sales to phone manufacturers in that country, the largest market for these devices, rose by 40% in the first half of the fiscal year, “reflecting our strong competitive position and rebounding demand.”

In this market, Qualcomm's Amon said its local customers, including Xiaomi, Honor, OnePlus Technology, Oppo and Vivo, are driving demand. He added that they are not losing their share in the smartphone market to Huawei, an emerging technology company in China. Amon said Huawei's return to the market has helped drive interest in the Android operating system, which is often paired with Qualcomm chips.

“We haven't seen any signs of weakness in China's premium Android market,” he said.

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The US government has blacklisted Huawei, and Amon noted that Qualcomm only sells the company's less advanced 4G phone parts – in line with US trade restrictions. His company expects this business to come to nothing next year.

Apple, which reports earnings tomorrow, and Samsung Electronics, maker of Android phones, are major phone customers of Qualcomm. But Apple's iPhone relies on Qualcomm for its chipset, rather than the main processor.

Qualcomm's Internet of Things group, which makes electronics for Internet-connected devices, has suffered from a glut of inventory. Revenue in that unit fell 11% last quarter. Qualcomm's car sales rose by 35%.

An additional portion of Qualcomm's profits comes from licensing the core technology that underpins all modern mobile networks. Phone manufacturers pay these fees whether they use Qualcomm-branded chipsets or not.

(Updates with CEO's comments about the Chinese market in eighth paragraph.)

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