Comms chips

Qualcomm Profits Sink on Weak Demand

Qualcomm has seen a sharp fall in sales and earnings in the final three months of 2015 amid falling demand for its mobile communications chips, which are used in smartphones and other devices.

Net income at the San Diego-based company fell by 24%, to $1.5 billion, compared with the year-earlier quarter, while revenues slumped 19%, to $5.8 billion.

Shares in Qualcomm Inc. (Nasdaq: QCOM) closed 2% down on the Nasdaq Wednesday after the manufacturer predicted that revenues could fall by as much as 29% in the current quarter.

Chip shipments are expected to fall from 233 million in the first three months of 2015 to between 175 million and 195 million in the same period of this year.

The update came just a day after Apple Inc. (Nasdaq: AAPL) flagged a major slowdown in iPhone sales and said its revenues would decline this quarter for the first time in more than a decade.

Markets were clearly disappointed with Qualcomm's outlook, although executives insisted results were stronger than they had been expecting. (See Qualcomm Slashes Revenue Forecast by $1B.)

"We signed several new license agreements in China and are on track with our cost reduction initiatives," said Steve Mollenkopf, Qualcomm's CEO, in a company statement. "Design traction for our new Snapdragon 820 processor continues to be strong, and we expect improving trends in our chipset business in the second half of fiscal 2016."

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Qualcomm faces headwinds from a number of directions and last year came under pressure to spin off its chips unit and focus on the more valuable patents business -- a move it eventually rejected in mid-December. (See Qualcomm Sees More Value in Staying United and Qualcomm Urged to Spin Off Chips Unit.)

While its patents business is thought to generate the bulk of its profits, technology rivals and competition authorities have accused Qualcomm of charging exorbitant royalties for its intellectual property.

Last February, it agreed to pay $975 million to settle a patent dispute in China, and its practices have also been under scrutiny in jurisdictions including Japan, South Korea, the US and the European Union. (See Qualcomm to Pay $975M in China Antitrust Spat.)

In the latest twist, South Korea's LG Electronics Inc. (London: LGLD; Korea: 6657.KS) has begun arbitration proceedings, claiming it has overpaid Qualcomm under an existing agreement. "That resulted in us deferring revenue of more than $100 million for the quarter," said Derek Aberle, Qualcomm's president, during a call with analysts, according to this Seeking Alpha transcript. "We believe LG's claims are without merit."

Another problem for Qualcomm has been the growing popularity of devices that do not incorporate its processors.

That includes Apple's iPhones, while South Korea's Samsung Corp. decided last year to use one of its own processors in the Galaxy S6 handset rather than a Snapdragon chip from Qualcomm.

Trying to placate shareholders demanding a company carve-up, Qualcomm last July announced plans to cut about $1.4 billion in costs through headcount reductions and by moving resources to lower-cost regions. (See Qualcomm Restructures to Cut $1.4B in Costs .)

ó Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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