Daily Management Review

Qualcomm Quarterly Sales Drop Due To Chip Supply Constraints


Qualcomm Quarterly Sales Drop Due To Chip Supply Constraints
The sales of United States based semiconductor and chop maker Qualcomm Inc have been hampered by semiconductor supply constraints - which has in fact roiled the global industry, resulting the shares of the company dropping by 7.6 per cent in after-hours trading.
The global shortage of chips has forced automakers such as General Motors Co to cut down on production at multiple factories.
Even though Qualcomm is not involved in manufacturing of the chips that are used for making vehicles and are currently causing production problems, the company works with several of the same chip contract manufacturers that are having trouble meeting demand for chops. Qualcomm expects the first half of the current year to face shortages of chips, said company executives without making any further detailed comments.
"If we could make more, we could sell it," Chief Executive Steve Mollenkopf said in an interview to the news agency Reuters.
The stocks of the San Diego, California-based chip designer dropped at the stock market despite the company forecasting sales and profits for its fiscal second quarter well over the estimates of the Wall Street. The company expects sale and profit rise from a large number of smartphone buyers all across the world upgrading their devices to make them compatible to the new 5G networks that are being laid down in several countries.
Following the blacklisting and sanctions imposed by the United States government on the Chinese firm Huawei Technologies Co Ltd, Wall Street had expected healthy gains for the company. The blacklisting of Huawei made it very difficult for the Chinese firm to build mobile handsets. According to expectations of analysts, after the sanctions, much of the market share of Huawei would flow to its Android-based rival makers who moistly use chips from Qualcomm. However the actual gains made by investors were a disappointment for investors.
"Now with the change in the market, we have kind of 16% of the market that was not available to us before being available. So as we kind of look further out, we see this as a pretty material expansion of (addressable market) for us," Chief Financial Officer Akash Palkhiwala said on a call.
While describing Qualcomm’s results as being "respectable", Stacy Rasgon, an analyst at Bernstein, said that the expectations of the company were high. "It's not a blowout," he said.
With its chip business turning out to be more profitable and accounting for a larger part of its total global business, the business strategy of Qualcomm is undergoing a change. However, its gross margins are being hit because of a continuous drop in the lucrative license revenues of the company.
The sales and adjusted profit for the company for its first fiscal which ended on December 27 came in at $8.24 billion and $2.17 per share, while the estimates of analysts for the same metric were at $8.27 billion and $2.10 per share, according to data from Refinitiv. Further, estimates according to FactSet data for the revenues from Qualcomm’s chip and licensing revenue were beaten at $6.53 billion and $1.66 billion respectively.