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August 3, 2023
US chip maker Qualcomm warned of impending job cuts as weak demand led to steep declines in both revenue and profits.
Sales totalled $8.45 billion during the three months to 25 June, down 23% on last year. In an SEC filing on Wednesday, Qualcomm said revenues were negatively impacted by macroeconomic weakness, which in turn weakened consumer demand for new smartphones and other Qualcomm-equipped devices.
A related and compounding issue for Qualcomm is that OEMs are sitting on higher-than-normal inventories – quarterly chipset shipments to device makers were down $1.9 billion compared to the previous year.
Unsurprisingly, market weakness also hit Qualcomm’s bottom line.
Pre-tax earnings plunged 59% year-on-year to $1.76 billion, while net income fell 52% to $1.80 billion.
Qualcomm’s gloomy financial report is hardly surprising given the state the smartphone market is in right now.
According to IDC figures published last week, global smartphone shipments totalled 265.3 million units in Q2, down 7.8% on last year. It attributed the decline to soft demand, inflation, macroeconomic uncertainty and excess inventory.
China’s Xiaomi recorded the biggest fall, with shipments coming in at 33.2 million, down 16% on Q2 2022. Samsung was not far behind – shipments fell 15.2% to 53.5%. Apple is a little more resilient, its Q2 volumes fell to 42.5 million from 45.4 million.
Despite the poor showing, IDC is fairly optimistic about the market’s prospects for the second half of the year and the beginning of 2024. It predicts that inventories will begin to normalise in Q3 and that the market could return to growth by the end of the year.
Qualcomm is markedly more cautious about its prospects, warning that it expects the economic uncertainty and its effect on demand will linger a little while longer.
For the current quarter, it expects sales to come in at $8.1-$8.9 billion, down considerably from the $11.4 billion it turned over in the same period a year ago. It expects diluted earnings per share to fall within the range of $1.37-$1.57. That compares unfavourably to the $2.54 it earned last year.
As a result of all this, Qualcomm is preparing to wield the axe.
“Given the continued uncertainty in the macroeconomic and demand environment, we expect to take additional restructuring actions to enable continued investments in key growth and diversification opportunities. While we are in the process of developing our plans, we currently expect these actions to consist largely of workforce reductions, and in connection with any such actions we would expect to incur significant additional restructuring charges, a substantial portion of which we expect to incur in the fourth quarter of fiscal 2023,” Qualcomm said in its SEC filing.
While the contents of Qualcomm’s earnings report weren’t entirely surprising given what’s going on out there, it was clearly worse than what the market expected, because Qualcomm’s share price tumbled after hours by more than 9.5%.
Nonetheless, CEO Cristiano Amon is focusing on the positives, which boils down to Qualcomm’s product portfolio putting it in a position to take maximum advantage of growth areas like IoT and automotive.
“We are pleased with our technology leadership, product roadmap and design-win execution, which position us well for growth and diversification in the long term,” he said.
This being 2023, AI inevitably gets a mention too.
“As AI use cases proliferate to the edge, on-device AI has the potential to drive an inflection point across all our products,” he said. “Qualcomm remains best positioned to lead this transition given the unmatched accelerated computing performance with the power efficiency of our platforms.”
Nick is a freelancer who has covered the global telecoms industry for more than 15 years. Areas of expertise include operator strategies; M&As; and emerging technologies, among others. As a freelancer, Nick has contributed news and features for many well-known industry publications. Before that, he wrote daily news and regular features as deputy editor of Total Telecom. He has a first-class honours degree in journalism from the University of Westminster.
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