Qualcomm shares plunge after forecast fails, CEO says inventory issues will continue

Shares of Qualcomm Inc. declined in Thursday’s extended session after the chip maker predicted inventory sell-off would continue into the first half of the year, leaving the chip maker’s guidance slightly below Wall Street’s consensus.

Qualcomm QCOM,
-1.89%
shares that initially rose 3% after hours fell as the company announced its earnings report, ending the extended session down 3%. Shares closed the regular session down 1.9% to $135.85.

While speaking with analysts, Qualcomm executives said weaker-than-expected mobile phone demand and destocking were major headwinds, and forecast inventory liquidation to continue in the first half of 2023, impacting results.

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

The company reported first-quarter net income of $2.24 billion, or $1.98 per share, compared to $3.4 billion, or $2.98 per share, a year earlier. The chip maker reported adjusted earnings, which excludes stock compensation costs and other items, of $2.37 a share, compared to $3.23 a share last year. Total revenue for the quarter fell to $9.46 billion from $10.7 billion a year earlier.

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

According to the company, mobile phone sales fell 18% to $5.75 billion, car sales rose 58% to $456 million, and IoT sales rose 7% to $1.68 billion.

Akash Palhiwala, Qualcomm’s chief financial officer, told analysts that weak demand for mobile phones and inventory depletion from original equipment manufacturers have been a major headwind, while inventory problems appear to have spread to IoT products.

“We have also seen that IoT has some of the same characteristics, and we see that the combination of these factors affects the time period during which the drawdown lasts,” Palkhivala said.

“Again, the way we look at it is a short-term thing,” Palkhivala said. “The drawdown does not affect the strength of the business. As we recover, we will be able to benefit from it.”

“In terms of products and technology, we believe we are in the strongest position we have ever been in,” Qualcomm CEO Christiano Amon told analysts during a teleconference, adding that the company’s long-term plan remains unchanged.

Last quarter, Qualcomm’s share price tumbled to a low not seen in more than two years after executives said channel inventory would last 10 weeks and predicted a $2 billion shortfall due to record sales.

And the oversupply doesn’t seem to bode well for the mobile phone industry, as market research firm Gartner recently predicted that global mobile phone shipments would fall 4% to 1.34 billion units in 2023, after falling 11% in 2022.

To read: The world is buying fewer devices, and inventories of computers, phones, and tablets are rising.

Inventory problems have become a notable plague on the industry after two years of shortages caused by the COVID pandemic quickly turned into a surplus in 2022, as seen in earnings reports from Intel Corp. INTC,
+3.85%
and Advanced Micro Devices Inc. amd,
+4.34%.

Qualcomm shares fell 39.9% in 2022 while PHLX Semiconductor Index SOX,
+2.22%
fell 35.8%, the S&P 500 SPX index,
+1.47%
ended the year down 19.4%, while the high-tech Nasdaq Composite COMP index,
+3.25%
lost 33.1%.

However, markets rose in January, with Qualcomm shares up 21.2%, while the SOX rose 15.4%, the S&P 500 up 6.2% and the Nasdaq up 10.7%.

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