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Qualcomm forecasts upbeat revenue as 5G demand mitigates virus impact

Qualcomm on Wednesday forecast current-quarter revenue largely in line with expectations as it signed more contracts for 5G phones, which use higher-priced chips, at a time when the Covid-19 pandemic has disrupted production channels and led to a fall in demand for smartphones.

The company also beat Wall Street estimates for second-quarter profit and revenue on the back of higher prices for its mobile chips, sending its shares up 5 percent in trading after the bell.

Qualcomm forecast total revenue of between US$4.4 billion and US$5.2 billion for its third quarter. Analysts had estimated revenue of US$4.89 billion, according to IBES data from Refinitiv.

However, the company’s outlook was in contrast to many other chip makers, including Intel and Texas Instrument, who have either withdrawn or cut their revenue forecasts, citing the impact of the virus on demand and supply channels.

Qualcomm, the world’s biggest supplier of modem chips that connect mobile phones and other devices to data networks, said coronavirus reduced demand for handsets by about 21 percent in the second quarter from a year earlier, and forecast 30 percent reduction in handset shipment in the current quarter.

The fall in device sales means less profit and revenue for Qualcomm, as it makes most of its profit from licensing its technologies that allow phones to connect to wireless data networks.

The company, however, sold chips at an average price of US$31.8 compared with their earlier price of US$23 – a sign that it is benefiting from a rise in demand for high-end chips.

Qualcomm’s second-quarter revenue from its licensing business stood at US$1.07 billion, above estimates of US$1.01 billion, according to FactSet.

The company’s chips power smartphones from Samsung Electronics, LG Electronics and Apple.
Earlier this month, Gartner cut its forecast for global semiconductor revenue in 2020, and estimated a decline of 0.9 percent compared with its previous estimate of 12.5 percent growth.

Despite near-term uncertainty in smartphone demand and supply due to the coronavirus outbreak, Qualcomm is expected to benefit from the long-term 5G cycle and its earnings are likely to recover next year, Canacord Genuity analysts said.

Qualcomm said it has signed more than 85 5G license agreements and more than 45 vendors have launched or announced commercial 5G devices.

Total revenue for the company rose about 5 percent to US$5.22 billion in the second quarter ended March 29, beating analysts’ estimates of US$5.03 billion.

Excluding items, the company earned 88 cents per share, beating expectations of 78 cents per share.

―SCMP

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