Qualcomm cuts $1bn from revenue outlook

Qualcomm was forced to downgrade its revenue outlook by $1bn for the year after missing out on a spot in Samsung's latest Galaxy smartphones and because of the strength of Apple's iPhone sales, the mobile chipmaker said on Wednesday.

Its shares fell by 2.7 per cent in after-hours trading following its second move to lower market expectations in as many quarters, even after settling an antitrust probe in China and beating forecasts in the most recent quarter.

As activist investor Jana Partners agitates for a break-up, Steve Mollenkopf, Qualcomm chief executive, told analysts in a call that there were "significant synergies in the ability to deliver products to market" between its chip business and its patent licensing arm.

"It is something that we actively evaluate and is obviously something that is on the minds of investors and something that we talk to them about, to get their perspective," he added.

Qualcomm revenues increased 8 per cent to $6.9bn in its fiscal second quarter but net income almost halved to $1.1bn over the previous year. Earnings were 45 per cent lower at $0.63.

"While we are ahead of our expectations in the first half, we are guiding our second half lower," Mr Mollenkopf said. This was because of"concentration at the premium tier" of smartphone sales, price competition in mid-range mobiles and the "impact of share loss" from its chips being omitted from Samsung's latest flagship Galaxy S6 and Note 4 devices.

Qualcomm now expects revenues of $25bn-$27bn for the full year, with earnings of between $4.60 and $5.00.

"We do not believe these product cycle issues represent a long-term change in QCT's competitive positioning," he said, referring to the chip business, but warned that the problem may continue into next year. As a result, Qualcomm is working with an "outside expert" to review its cost structure.

Exacerbating the problem is the strength of iPhone sales, Qualcomm indicated, without mentioning Apple directly.

"This year is probably characterised a bit by the fact the first calendar quarter for 2015 was probably a bit stronger for a US-based flagship company," Mr Mollenkopf said, in what analysts took as a reference to Apple which is due to report its results for the period next week.

The concentration of the high-end smartphone market to Samsung and Apple devices, neither of whose latest devices use Qualcomm products as their main processor, is hurting sales of other handset makers which do use its products.

"It would help us a lot if the industry structure was to be different," Mr Mollenkopf admitted. "We don't have a lot of control over that."

Like rival Intel, Qualcomm is looking beyond smartphones to the next generation of connected devices, from cars to the "internet of things". Sales into these kinds of products now contribute more than 10 per cent of this year's estimated revenues for Qualcomm's chips business, Mr Mollenkopf said.

In February, Qualcomm paid a record $975m fine to settle allegations by China's National Development and Reform Commission that its licensing business violated anti-monopoly laws. The settlement leaves Qualcomm "better positioned" to benefit from booming sales of 3G and 4G chips in China, it said.

However, Qualcomm now faces a competition investigation in South Korea. The company says it is co-operating with authorities there.

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