Qualcomm falls short after Samsung orders loss

Qualcomm Inc., whose chips power most of the world’s smartphones, forecast fiscal third-quarter sales and profit that may miss estimates as customers turn to rivals for key components or make their own parts.

Net income in the current period will be 67 cents to 82 cents a share on revenue of $5.4 billion to $6.2 billion, the San Diego-based company said Wednesday in a statement. On average, analysts had estimated earnings of 99 cents on sales of $6.46 billion, according to data compiled by Bloomberg.

Qualcomm’s chip division is suffering as some customers, such as Samsung Electronics Co., look elsewhere for phone components.While Qualcomm has made some progress in getting paid royalties for phone makers’ use of its technology in China since settling an antitrust investigation there, it’s still not being fully compensated, executives said. The company is also losing out on chip orders for lower-end phones sold in China.

“It’s disappointing - it underscores their lack of visibility in the market,” said Bill Kreher, an analyst at Edward Jones & Co. He has a hold rating on the stock. “The company has new concerns to go with the old concerns it was trying to solve.”

Qualcomm’s stock fell less than 1 percent to close at $68.34 on Thursday.

In February, the company agreed to settle an antitrust investigation in China by paying a $975 million fine and offering discounted license fees on phones for that market. The settlement helped allay concern that the company wouldn’t be allowed to collect royalties in the world’s largest mobile market.

Qualcomm said it’s in the process of signing up new licensees in China and trying get paid in full by existing customers that had been avoiding some royalties.

In Korea, the Fair Trade Commission has opened a new investigation into the company’s licensing business, Qualcomm President Derek Aberle said on the call. The chipmaker has previously disclosed investigations by regulators in the United States and Europe.

The company is the world’s third-largest chipmaker, trailing only Intel Corp. and Samsung in revenue, thanks to Qualcomm’s existing reach in the phone business. Its processors and modems still provide the main components in the majority of smartphones sold.

Qualcomm’s ownership of patents covering the fundamentals of high-speed data-capable phone systems also let it charge royalties on smartphones that use the technology, whether or not they include its chips.

For the second quarter, which ended March 29, Qualcomm’s net income fell to $1.05 billion, or 63 cents a share. Sales were $6.89 billion. Excluding certain costs, profit was $1.40 a share. Analysts on average had projected profit of $1.34 a share on sales of $6.82 billion.

Qualcomm has lost orders because Samsung’s Galaxy S6 model is built on the Korean company’s own chips.

More business from the world’s biggest handset maker is going away as the new Galaxy Note will use similar components to the S6 and other older models in Samsung’s line are phased out, Chief Executive Officer Steve Mollenkopf said Wednesday.

“It’s the same competitive environment,” Mollenkopf said in a phone interview. “It’s just a little deeper than we would have thought.”

Samsung is Qualcomm’s second-largest customer, after Apple Inc.’s contract manufacturer Hon Hai Precision Industry, according to a Bloomberg supply-chain analysis.

Qualcomm is aiming to reassert its leadership of the market with a new version of its Snapdragon chips to debut later this year and said that in China phone makers will begin to use a new type of modem chips, a market where it has a lead in technology.

The chipmaker also reduced its forecast for chip sales in the second half of the year, and Mollenkopf said the company is looking at ways to reduce costs to make the company the right size for the opportunities ahead.

“We’re on the other side of the China issues and we’re starting to see the indicators in that business that show it’s heading in the right direction,” Mollenkopf said in an interview.

Bloomberg