The coronavirus outbreak in China poses a potential threat to the mobile phone industry, said Qualcomm Inc while adding that it is likely to impact its manufacturing and sales.
These comments by Qualcomm, the world’s biggest supplier of “modem” chips has resulted in the tumbling of chip stocks despite signs that an industry downturn was ending.
During a conference call with investors following the release of its quarterly results, Qualcomm’s chief financial officer, Akash Palkhiwala, said Qualcomm expects “significant uncertainty around the impact from the coronavirus on handset demand and supply chain.”
With the news reaching the market, Qualcomm’s shares fell by 3.75% in after-hours trade.
However, Qualcomm has forecast its second quarter revenues above Wall Street estimates thus hinting that the protracted slowdown in the global chip industry is tapering down.
Qualcomm has lowered the bottom end of its earnings-per-share (EPS) guidance by 5 cents to account for possible disruptions, said Palkhiwala.
Qualcomm officials tried to calm analysts’ nerves during the conference call, saying the impact of the coronavirus will not be felt in the biggest 5G markets of 2020, which is United States, South Korea and Japan; they also said Qualcomm will weather disruptions.
“If we have an issue, a supply chain issue or demand issue in China, we tend to have the ability to have other regions to back it up,” said Qualcomm’s CEO Steve Mollenkopf. “So we tend to look at the business in terms of our planning. We want to make sure that we maintain that strength across different markets.”
Investor worries on China’s coronavirus has overshadowed results that have otherwise beat expectations.
In an interview, Mollenkopf said, the company’s “forecast reflected strong demand for radiofrequency chips from phone makers, especially in China, where brands are putting 5G capabilities into cheaper devices that will sell in greater quantities sooner than Qualcomm had originally anticipated”.
He went on to add, “It’s really the first time that you’re seeing that significantly in our numbers”.
Qualcomm did not change the number of 5G mobile handsets that it expects to sell in 2020, which is between 175 million and 225 million.
The chipmaker has forecast total revenue in the range of $4.9 billion to $5.7 billion for its second quarter, largely above analysts’ average estimate of $5.08 billion, according to IBES data from Refinitiv.
Its revenue forecast for its chip segment is between $3.9 billion to $4.5 billion, versus analysts’ estimates of $3.8 billion, according to Refinitiv data.
Excluding items, Qualcomm earned 99 cents per share in the first quarter, topping analysts’ average estimate of 85 cents. Its revenue rose by 5% to $5.08 billion, beating analysts’ estimates of $4.83 billion.