Qualcomm Forecast Misses as Key Customer Loss Hurts Mobile Chip Sales

Qualcomm Inc forecast current-quarter revenue and profit below analysts' expectations, saying the loss of a key customer and delays in product launches by some smartphone makers would hurt sales of its flagship Snapdragon chips.

Shares of the company, which also reported a 46 percent drop in second-quarter profit, were down about 2 percent in extended trading on Wednesday.

Earlier this year, longtime customer Samsung Electronics Co opted to use an internally developed processor for its new Galaxy S6 smartphone and Note rather than Qualcomm's latest Snapdragon mobile chip.

The company also cut its full-year revenue and profit forecast for the second time, citing lower sales of Snapdragon chips.

"I think the recovery of the (chipset) business, given the loss of share at Samsung, will take time," Topeka Capital Markets analyst Suji Desilva said, adding that a recovery was unlikely in the near term.

Most of Qualcomm's revenue comes from selling baseband chips, which enable phones to communicate with carrier networks, but a majority of its profit comes from licensing patents for its CDMA cellphone technology.

Hedge fund Jana Partners has been putting pressure on the company to spin off the chip business from its highly profitable patent-licensing business. Last week, the fund said Qualcomm's chip business was "essentially worthless" at current valuations.

On a post-earnings conference call, the company said it had hired an "outside expert" to review the cost structure of its chip business in order to drive growth.

Qualcomm's high-margin licensing business has also had its fair share of problems. The company agreed in February to pay a fine of $975 million, the largest in China's corporate history, to settle a long-standing antitrust probe by the government.

Much of the decline in Qualcomm's profit for the second quarter was due to the settlement, which also requires the company to lower its royalty rates on patents used in China.

The company forecast an adjusted profit of 85 cents-$1 per share and revenue of $5.4 billion-$6.2 billion for the third quarter.

Analysts on average were expecting a profit of $1.14 per share and revenue of $6.50 billion, according to Thomson Reuters I/B/E/S.

Excluding items, the company earned $1.40 per share. Revenue rose 8.3 percent to $6.89 billion.

Analysts on average had expected a profit of $1.33 per share and revenue of $6.83 billion, according to Thomson Reuters I/B/E/S.

© Thomson Reuters 2015