25 January 2020
Qualcomm CEO Steve Mollenkopf said Huawei had stolen market share mainly from its Chinese rivals, which are all customers of Qualcomm. Photo: Reuters
Qualcomm CEO Steve Mollenkopf said Huawei had stolen market share mainly from its Chinese rivals, which are all customers of Qualcomm. Photo: Reuters

Qualcomm outlook clouded by Huawei’s smartphone gains in China

Qualcomm Inc.’s quarterly revenue and profit forecast fell short of Wall Street targets, driven by Huawei Technologies Co. Ltd.’s strong gains in the Chinese smartphone market, Reuters reports.

Its shares fell as much as 6 percent.

Steve Mollenkopf, Qualcomm’s chief executive, told Reuters in an interview on Wednesday that Huawei had stolen market share mainly from its domestic rivals such as Xiaomi Corp. (01810.HK), Oppo and Vivo, all of which are major Qualcomm customers.

Huawei’s advance has spurred other phone makers to cancel 4G models planned for the rest of this year and instead focus on 5G models for release early next year that could drive growth for Qualcomm, he added.

“Huawei was very aggressive in terms of making sure they built their market share there because they couldn’t sell things internationally,” Mollenkopf said.

“And the reaction of the [other Chinese phone makers] was, ‘Let’s go as fast as we can to 5G, because there’s a great opportunity there,’ even to the point of saying, ‘Let’s cancel 4G models.’”

Mollenkopf said Qualcomm will not see benefits from that shift until early 2020 but said 5G rollouts by carriers appeared to be on track, including in China where Huawei is also a major telecommunications gear supplier.

Kinngai Chan, an analyst at Summit Insights Group, called Qualcomm’s outlook a “pause in 4G ahead of the transition to 5G”.

Huawei’s effect on Qualcomm’s forecast underscores the extent to which the Chinese company has become more of a rival than a customer to the San Diego-based company. Huawei, which was the subject of US sales restrictions imposed in May, continues to buy a small number of Qualcomm chips.

But the companies, which are among the world’s largest holders of patents related to 5G technology, are in a protracted licensing dispute.

Huawei had been making good-faith payments and negotiations have inched forward, but Mollenkopf said no further payments are included in Qualcomm’s fiscal fourth-quarter guidance.

“The companies are talking and we’re focused on a final agreement, but we don’t have it yet,” Mollenkopf said.

Huawei supplies many of its own chips for smartphones, and it grabbed market share from Chinese companies over the past quarter, according to market research firm Canalys. Those companies’ higher-end phones, which compete against directly with Huawei’s models, tend to use Qualcomm chips.

Mollenkopf said the US-China trade war and a slow smartphone market drove Qualcomm to lower its outlook for 2019 sales of smart devices to a range of 1.7 billion to 1.8 billion, down from a previous estimate of 1.8 billion to 1.9 billion.

Qualcomm collects license fees from smartphone makers for using its patents.

The company’s modem chip shipments fell 22 percent to 156 million in the third quarter, missing analysts’ estimate of 160.1 million, according to FactSet.

Qualcomm forecast total fourth-quarter revenue of US$4.3 billion to US$5.1 billion and profit of 65 US cents and 75 US cents per share, below estimates of US$5.63 billion and US$1.08 per share, according to IBES data from Refinitiv.

Qualcomm is also seeking to pause the enforcement of a sweeping antitrust decision in a case brought by the US Federal Trade Commission. The company has said the ruling could upend its licensing talks with handset makers around 5G technology.

Revenue for the third quarter ended June 30 was US$4.9 billion, missing analysts’ estimates of US$5.08 billion. That excluded a one-time payment from Apple for unpaid royalties while the two were in a legal dispute.

Excluding items, Qualcomm earned 80 US cents per share, beating analysts’ average estimate of 75 US cents.

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