5G Demand Cushions Virus Impact As Qualcomm Forecasts Upbeat Revenue

Chip maker Qualcomm signed more contracts for 5G phones, that require higher priced micro processing chips, during the first quarter as the company forecast revenue for the current quarter largely in line with market expectations, even as the coronavirus pandemic have severely disrupted production channels and resulted in a drop in demand and sale for smartphones

Higher prices for its mobile chips propelled Qualcomm to beat Wall Street estimates for revenues and profits for its second quarter which pushed its shares up by 5 per cent in after hour trading.

For its third quarter, the revenue forecast issued by the company was between $4.4 billion and $5.2 billion. According to IBES data from Refinitiv, analysts had been expecting a revenue forecast of $4.89 billion.

The outlook for the full year as presented by Qualcomm was in contrast to what other players in the industry have made, which includes the likes of Intel and Texas Instrument. Most of the other major chip makers have either withdrawn or slashed previously made forecast for revenue because of the economic impact of the coronavirus pandemic and its hit to demand and global supply chains.

In the second quarter, there was year on year decline in demand for handsets because of the coronavirus pandemic which in turn affected its demand for its chip, said Qualcomm, the biggest supplier of modem chips of the world that are used for connecting smartphones and other devices to data networks. The company predicted a year on year reduction of 30 per cent for the current year in mobile handset shipments globally.

A drop in sale of mobile devices also meant a drop in the revenues and profits for Qualcomm since the company generates most of its revenues and profits from licensing its technologies that are used for connecting hand held devices with wireless data networks.

However, in a sign that the company was benefiting from an increase in demand for high-end chips, it was selling its chips at an average price of $31.8 where as it pre4viously sold it for $23 a piece.

The company reported revenues from its licensing business at $1.07 billion for its second quarter compared to analysts’ estimates of $1.01 billion according to FactSet.

The client list of Qualcomm for its chips includes Apple Inc., Samsung Electronics and LG Electronics.

According to Canacord Genuity analysts, the long-term 5G cycle is expected to benefit Qualcomm, according to the company, even though there is high uncertainty in smartphone demand and supply because of the coronavirus pandemic spreading all across the world in the short term.

While more than 85 5G license agreements have been signed by it, launching or announcement of commercial 5G devices have been announced by more than 45 vendors, Qualcomm said.

(Adapted from SCMP.com)

Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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