QCOM QUALCOMM Inc

By Asa Fitch 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 1, 2019).

Qualcomm Inc. warned of multiple challenges out of China that are hurting its outlook, including a ban on exports to telecom company Huawei Technologies Co. and a sharp drop in smartphone sales.

The chip maker cut its full-year forecast for global smartphone sales by 100 million units to a range of 1.7 billion to 1.8 billion, in large part reflecting weaker demand in China. Some handset makers are holding off on releasing new phones as they prioritize a new generation of high-speed 5G devices coming next year, Chief Executive Steve Mollenkopf said during a call with analysts.

Qualcomm stopped all business with Huawei in May, when the U.S. imposed a ban on shipments to the Chinese company, but it resumed some shipments it determined didn't violate the restrictions imposed by the Trump administration amid a broader political and trade dispute. Huawei accounted for about 3% of Qualcomm's revenue before the ban, according to a Bernstein Research estimate.

Mr. Mollenkopf said Huawei became a less-lucrative customer after the ban because the Chinese telecom company switched focus to its domestic market, selling more devices that don't feature Qualcomm's chips.

Those factors contributed to Qualcomm issuing a subdued outlook for the current quarter, projecting another revenue decrease and a fall of as much as 40% year-over-year in its chip shipments.

Shares fell more than 4% in aftermarket trading.

The company reported a 13% slump in adjusted revenue to $4.89 billion for the quarter ended June 30. That figure missed the $5.09 billion expected by analysts surveyed by FactSet. Its adjusted earnings per share of 80 cents exceeded a consensus forecast of 76 cents, because of expanding margins and lower research and development spending, among other factors.

The latest earnings mark the end to a tumultuous quarter for Qualcomm. It got a boost from an April settlement with Apple Inc. in a protracted legal battle over its technology-licensing practices. That triggered a $4.7 billion boost to Qualcomm's quarterly sales before adjustments, lifting them to $9.6 billion.

In May, a San Jose, Calif., federal judge ruled in a case brought by the Federal Trade Commission that Qualcomm violated antitrust laws by leveraging its dominance as a supplier of mobile-communications chips to extract higher patent royalties from customers. Qualcomm is seeking a stay of an order requiring it to renegotiate its licensing deals. The order could lower revenue for its licensing division, which collects royalties from Qualcomm-developed technologies when other companies use them.

Mr. Mollenkopf said existing licensees were continuing to pay Qualcomm, although John Han, an executive in Qualcomm's licensing division, said in a recent court filing that several customers were already either threatening to stop paying royalties or would seek to renegotiate their deals if the court doesn't grant a stay during Qualcomm's pending appeal before the Ninth Circuit Court of Appeals.

Qualcomm is banking on the rollout of new 5G networks to boost its fortunes. The company has been an early leader in putting the technology into some of the newest phones, including Samsung's flagship S10 model. But while 5G networks are appearing in more markets across the globe and more handset makers are releasing 5G phones, the technology remains far from ubiquitous.

Stacy Rasgon, an analyst at Bernstein Research, said the company's suggestion that the sales decline was merely a normal pause in demand as a better technology hit the market wasn't necessarily a sure thing.

"They try to spin it as it's a pause in 4G demand that they can send to 5G," he said. "Maybe, but what gives them confidence that it's that simple?"

Corrections & Amplifications Including a payment that was part of a settlement with Apple, Qualcomm's quarterly revenue was $9.6 billion. An earlier version of this article incorrectly said it was $9.4 billion.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

August 01, 2019 02:47 ET (06:47 GMT)

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