Thursday, June 13, 2024

Qualcomm stock drops more than 5% after poor outlook, months-long chip glut

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Qualcomm Inc. shares fell in the extended session Wednesday following the chip maker’s poor outlook, and estimates of about two months or more of inventory it needs to clear in its core business.

Qualcomm QCOM, -4.12% shares dropped as much as 7% after hours, following a 4.1% decline to close at $112.50 in the regular session. In late July, the San Diego-based chip maker cut its forecast because of weakness in the smartphone market that had yet to creep into the premium handset market.

On the call with analysts, Chief Executive Cristiano Amon said the accelerated weak demand was related to “macro economic headwinds and the prolonged COVID in China,” and “the rapid deterioration in demand and easing of supply constraints” across the chip industry.” would take out about 80 cents a share in first-quarter earnings.

“It’s the major factor,” Amon told analysts on the call. “It’s mostly a handset consumer story.” Earnings for the first quarter, as a results, would take a hit of 80 cents a share, the company said.

Another big factor is that companies are just spending less. Amon said “companies across the board had much higher inventory policies, supply chain got resolved, and you got that macro economic uncertainty, you have a drawdown trying to bring inventory to a different level than it was during the situation of demand constraint.”

Qualcomm forecast first-quarter earnings of $3 to $3.30 a share on revenue of $9.2 billion to $10 billion, while the Street estimated $3.43 a share on revenue of $12.02 billion.

Read: Meta spending slams Facebook stock, but here are the chip stocks that are benefiting

Chief Financial Officer Akash Palkhiwala told analysts there is about eight to 10 weeks of elevated in the channel. In the meantime, Qualcomm was instituting a hiring freeze, and looking into cost-saving measures, execs told analysts.

While handset-chip sales surged 40% to a record $6.57 billion from a year ago, topping the Street’s expectation of $6.55 billion, the company’s forecast indicates a big glut in inventory in Qualcomm’s CDMA Technologies unit, the one that includes handset and RF chips as well as chips for autos and Internet of Things.

Qualcomm expects QCT sales of $7.7 billion to $8.3 billion, and sales from Qualcomm’s technology licensing, or QTL, segment of $1.45 billion to $1.65 billion. Analysts had forecast forecast $10.42 billion in QCT sales and QTL revenue of $1.71 billion.

Qualcomm reported fourth-quarter QCT revenue of $9.9 billion, a 28% gain from a year ago. Analysts had estimated $9.84 billion, based on the company’s forecast of $9.5 billion to $10.1 billion.

Fourth-quarter auto-chip sales zoomed up 58% to a record $427 million, and Internet of Things, or IoT, sales rose 24% to a record $1.92 billion. The Street was expecting auto sales of $362.4 million, and IoT sales of $1.82 billion.

Revenue from the QTL segment fell 8% to $1.44 billion compared with Wall Street estimates of $1.58 billion, based on a company forecast of $1.45 billion to $1.65 billion.

Read about: Intel’s quarterly results, AMD’s quarterly results

The company reported fiscal fourth-quarter net income of $2.87 billion, or $2.54 a share, compared with $2.8 billion, or $2.45 a share, in the year-ago period. The chip maker reported adjusted earnings, which exclude stock-based compensation expenses and other items, of $3.13 a share, compared with $2.55 a share in the year-ago period. Total revenue for the third quarter rose to $11.4 billion from $9.34 billion in the year-ago period.

Analysts had estimated earnings of $3.13 a share on revenue of $11.32 billion, based on Qualcomm’s forecast of $3 to $3.30 a share on revenue of $11 billion to $11.8 billion.

Year to date, Qualcomm shares are down 38%, compared with a 41% decline for the PHLX Semiconductor Index  SOX, -3.09%,  a 21% decline by the S&P 500 index  SPX, -2.50%  and a 33% drop by the tech-heavy Nasdaq Composite Index  COMP, -3.36%.

Shares of Advanced Micro Devices Inc. AMD, -1.73% outperformed the broader market Wednesday after the chip maker said it would clear excess inventory by the end of the year, and forecast that data-center and embedded product sales would continue to rise.

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