Qualcomm beats estimates on China strength

Chip designer Qualcomm forecast first-quarter sales and profits above Wall Street targets on Wednesday as a smartphone sales slump finally starts to ease, especially in China, and a renewed contract with Apple helps boost its outlook.

The California-based company forecast current-quarter revenue of US$9.1 billion to US$9.9 billion, with a midpoint above analysts' expectations of US$9.2 billion according to LSEG data.

Qualcomm predicted current-quarter adjusted profits of US$2.25 to US$2.45 per share, beating expectations of US$2.23 according to LSEG.

On a conference call, Qualcomm chief executive Cristiano Amon told investors smartphone companies had finally worked through most of their existing inventory and were starting to put in fresh orders.

"We're happy that the inventory dynamics that we have seen within the Android business are largely behind us right now," Amon said.

For the just-ended fiscal fourth quarter, Qualcomm reported sales of US$8.67 billion and adjusted profits of US$2.02 per share, both above analysts' estimates of US$8.51 billion and US$1.91 per share, according to LSEG data.

Qualcomm is facing new competition from Huawei Technologies, which has resumed producing its own smartphone chips after relying on the US company for the past several years.

Amon said he does not expect Huawei's re-entry into the market to affect its relationship with Chinese smartphone companies, and chief financial officer Akash Palkhiwala estimated a 35 per cent quarter-over-quarter increase in sales to Chinese smartphone customers.

Analysts also expect major Qualcomm customer Samsung to resume using some of its own in-house chips after using all Qualcomm chips in its most recent devices.

Amon said the company expects to retain a "majority share" of the chips in Samsung's forthcoming S24 line of phones.

A broader turnaround in key consumer electronics markets could overcome those concerns. After large declines for several quarters, global smartphone shipments fell only 0.1 per cent in the quarter ended September, thanks to strong emerging market demand and a resilient premium phone market, according to analysts at research firm IDC.

"For Qualcomm, it is a recovery in Android demand mostly driven by significant growth in demand from Chinese OEMs," said Logan Purk, analyst at Edward Jones.

"This recovery would eventually happen but appears to have materialized sooner than expected, driving solid results and improved guidance for the next quarter."

Qualcomm said in September it signed a fresh supply agreement with iPhone maker Apple that runs to 2026.

Last week it disclosed plans for a renewed push into the laptop market with backing from Microsoft.

Fourth-quarter sales in Qualcomm's chip unit were US$7.4 billion, beating analysts' estimate of US$7.26 billion according to FactSet data.

In Qualcomm's intellectual property licensing business, sales of US$1.26 billion were in line with estimates of US$1.25 billion according to FactSet data.

In its chip business, Qualcomm said fourth-quarter revenue from smartphone handsets was US$5.46 billion, beating analysts' expectations of US$5.34 billion according to FactSet data.

Automotive chip sales were US$535 million in the fourth quarter, above estimates of US$482 million according to FactSet.

Overall, Qualcomm said its automotive chip business was up 24 per cent for fiscal 2023 at US$1.9 billion.