Qualcomm stock sinks as memory shortage drags on forecast

Qualcomm recently announced its fiscal first-quarter earnings, surpassing market expectations, yet its forecast disappointed investors due to persistent global memory shortages. Following the earnings report, Qualcomm's stock experienced a significant drop in after-hours trading. For the upcoming quarter, Qualcomm projected adjusted earnings per share between $2.45 and $2.65, with revenues anticipated between $10.2 billion and $11 billion. In contrast, analysts surveyed by LSEG had estimated sales of $11.11 billion and earnings of $2.89 per share. Company executives attributed the cautious guidance to the ongoing memory shortfall impacting production capabilities. The shortage is particularly affecting data center memory, which is diverting production resources away from memory used in smartphones and other devices. Qualcomm's smartphone customers, who typically manage their own memory supplies alongside Qualcomm's processors and modems, are adjusting their purchasing strategies in response to memory availability. Qualcomm's Chief Financial Officer, Akash Palkhiwala, indicated that the guidance discrepancy is primarily due to the memory situation. CEO Cristiano Amon noted that memory constraints could significantly influence the mobile market's growth. Despite high demand for handsets and a current upgrade cycle in the smartphone sector, Amon expressed concerns about potential supply issues. While it's unclear if smartphone manufacturers will increase prices, Amon anticipates that Qualcomm's clients will pivot towards higher-end devices, which are better equipped to handle rising memory costs compared to budget models. He emphasized that this memory shortage represents a broader industry challenge affecting consumer electronics as a whole. In the latest quarter, Qualcomm reported $7.82 billion in handset sales, marking a 3% year-over-year increase. Overall revenue for the company grew by 5%, with its smaller divisions experiencing faster growth rates. The internet of things sector, which includes chips for industrial applications and the technology behind Meta's Ray-Ban smart glasses, saw a remarkable 9% increase in sales, reaching $1.69 billion. Additionally, Qualcomm's automotive and robotics segment, supplying chips to manufacturers like Toyota, grew by 15% to $1.1 billion. Net income for the quarter, which ended in December, slightly decreased to $3 billion, or $2.78 per diluted share, compared to $2.18 billion, or $2.83 per diluted share, during the same period last year. Alongside its chip sales, Qualcomm continues to license its intellectual property for technologies like 5G, with QTL (Qualcomm Technology Licensing) revenues hitting $1.59 billion during the quarter, representing a more profitable segment of the business.