Qualcomm Inc., a chip designer that supplies to top handset makers like Apple Inc and Samsung Electronics, witnessed nearly an 8% premarket dip on Thursday after signalling that its crucial smartphone market would take longer to rebound from a post-pandemic slump. This would result in the company losing about $10 billion in market valuation. The company blamed this weakness on the timing of purchases by a customer that only buys its cellular modems and China, where an expected post-COVID recovery was yet to materialize.
The quarterly revenue outlook of Qualcomm was the second time a chip firm had underwhelmed Wall Street this week. Advanced Micro Devices slumped more than 9% on Wednesday after a dour forecast. This report was somewhat sobering, leading to thirteen brokerages cutting price targets on Qualcomm's stock.
Although Qualcomm faced a setback in its smartphone market, there were some encouraging signs for the company. Its automotive revenue jumped 20%, and the internet-of-things unit reported in-line sales, indicating that Qualcomm's efforts to diversify away from the smartphone market were on track.
However, competition is deepening from Taiwan's MediaTek in the high-end smartphone chips, which may pose a challenge for Qualcomm. Additionally, the company's modem-only customer, believed to be Apple, purchased modems from Qualcomm in greater volumes earlier than normal due to the supply chain issues. As a result, the next two quarterly estimates will be adversely impacted by Apple.
The analysts worry about customers mixing lower now that wafers are no longer scarce. China will remain a headache with no timeline for recovery there. Despite these concerns, Qualcomm's efforts to diversify away from the smartphone market seem promising.
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