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(Reuters) -Qualcomm Inc forecast third-quarter revenue above analyst expectations after beating second quarter revenue and profit estimates on Wednesday, largely due to its move to focus on a growing non-handset business to cushion a likely hit from slowing smartphone demand.
The strong earnings outlook and record quarterly revenue for the last quarter immediately pushed Qualcomm (NASDAQ:QCOM) shares up about 5% in after-hours trading.
Lockdowns in China, war in Ukraine and rising inflation has taken a toll on consumers, preventing them from spending on electronic gadgets like phones. However, Qualcomm remained cushioned from that so far.
“The market in China is changing a bit. I think we’re kind of less impacted by it because we’re really focused on the premium and high-tier” smartphone market, Chief Executive Officer Cristiano Amon told Reuters.
Research firm Canalys’ analyst Runar Bjørhovde said smartphone makers will want to sell high-end phones as the supply chain constrains production, while consumers will want to buy cheap phones as inflation and uncertainty hold them back from spending.
He said the “sweet spot” will be in the mid-range devices ($300-$800), where Qualcomm has a strong hold and excellent partnerships with the vendors who dominate this market segment.
Qualcomm’s strong handset earnings also pushed up Apple Inc (NASDAQ:AAPL)’s shares about 1% in after-hours trading on expectation it hints to strong earnings for the iPhone maker on Thursday.
“These (Qualcomm) results lay the foundation to make a strong case that the smart phone business is still strong after the traditionally big holiday quarter,” said Dan Morgan, senior portfolio manager at Synovus (NYSE:SNV) Trust Company, adding that Qualcomm derives 25% of its sales from making modem solutions for Apple.
Still to reduce its dependence on handsets, Qualcomm has been diversifying its revenue streams by catering to other markets including automotive, and that strategy has been a success so far, Amon said.
For example, Qualcomm’s automotive business pipeline is now at $16 billion, up from $13 billion late last year, mostly thanks to a deal it struck recently with automaker Stellantis, said Amon.
Revenue from chips catering to automotive and internet-powered gadgets rose 41% and 61%, respectively, during the second quarter, while revenue from its mainstay handset business rose 56%, helped by the new Snapdragon launch.
Amon also told Reuters that Qualcomm is open to participating in an IPO by Arm Ltd, which makes blueprints that chipmakers, including Qualcomm, use to design chips. After Nvidia (NASDAQ:NVDA) Corp’s deal to buy Arm fell apart due to regulatory hurdles, SoftBank Group Corp, which owns the British chip technology company said it would move to list it.
Qualcomm forecast current-quarter revenue between a range of $10.5 billion and $11.3 billion, compared with analysts’ estimates of $9.98 billion, according to IBES data from Refinitiv.
Adjusted revenue for the quarter ended March 27 was $11.16 billion, above estimates of $10.6 billion.
Excluding items, Qualcomm earned $3.21 per share, beating estimates of $2.91.
