Qualcomm profit forecast beats estimates amid AI push, stock slips

© Reuters. FILE PHOTO: A Qualcomm sign is shown outside one of the company’s many buildings in San Diego, California, U.S., September 17, 2020. REUTERS/Mike Blake/File Photo

By Stephen Nellis and Max A. Cherney

(Reuters) – Qualcomm (NASDAQ:QCOM) on Wednesday forecast fiscal second-quarter profit slightly above Wall Street estimates and sales in line with market expectations, as a new line of AI-enabled chips helps power it out of last year’s smartphone slump.

The sales outlook reflects a ramp-up in purchases of new Qualcomm chips with features designed to help run chatbots, image generators and other artificial-intelligence features directly on a device instead of in cloud computing data centers.

Qualcomm shares initially rose sharply in after-hours trade but then reversed course to trade down 2%.

Qualcomm predicted sales and adjusted profit with a midpoint of $9.30 billion and $2.30 per share for the current fiscal second quarter ending in March. The outlook compares with analyst estimates of $9.30 billion and $2.25 per share, according to data from LSEG.

In addition to the results, the company said on Wednesday it has reached a chip supply deal with Samsung to supply chips globally for its top-end Galaxy S24 model.

In its patent business, Qualcomm said Apple (NASDAQ:AAPL) extended a licensing deal through March 2027. Qualcomm said in September it had signed a deal to supply Apple with chips through 2026 but noted that part of a patent deal made with the iPhone maker in the wake of a major antitrust battle was set to expire next year.

For Qualcomm, “5% revenue growth and 24% earnings growth is very constructive in a skeptical earnings season environment,” said Thomas J. Hayes of Great Hill Capital.

Qualcomm is the biggest supplier of chips to a smartphone market that had its worst sales year in a decade in 2023. As the smartphone industry slowly recovers, Qualcomm is facing competition on multiple fronts, with Huawei and Samsung Electronics (KS:005930) both selling phones powered by in-house chips and Taiwan’s MediaTek challenging Qualcomm’s stronghold in mid- and premium-tier Android phones.

San Diego, California-based Qualcomm is also expanding into other markets such as personal computers, with partners such as Dell Technologies (NYSE:DELL) and Lenovo Group (OTC:LNVGY) expected to debut laptops with chips that Qualcomm claims are faster than Apple’s in-house processors.

For the fiscal first quarter ended on Dec. 24, Qualcomm reported sales and adjusted profit of $9.94 billion and $2.75 per share, above estimates of $9.52 billion and $2.37 per share, according to LSEG data.

In Qualcomm’s chip segment, the company forecast fiscal second-quarter sales with a midpoint of $7.9 billion, above analyst estimates of $7.86 billion. Qualcomm predicted second- quarter sales with a midpoint of $1.3 billion in its patent-licensing business, in line with estimates of $1.3 billion.

For the just-ended fiscal first quarter, Qualcomm said chip and licensing revenues were $8.42 billion and $1.46 billion, respectively, above/below analyst estimates of $7.99 billion and $1.41 billion, according to LSEG data.

Within its chip business, Qualcomm said that mobile handsets generated $6.69 billion in sales in the first quarter, above estimates of $6.37 billion, according to data from Visible Alpha. Automotive and Internet-of-Things chip revenues in the first quarter were $598 million and $1.14 billion, respectively, compared with analyst estimates of $518.3 million and $1.22 billion.