Global economic headwinds that began late last year continue to batter Qualcomm's financial results, with weak demand for smartphones and bloated inventories at manufacturers expected to linger at least through the first half of this calendar year.
While the wireless technology firm reported solid financial results Thursday for its fiscal first quarter ended Dec. 25, its outlook for the current quarter came up short of Wall Street analysts' forecasts.
San Diego's largest publicly traded company indicated that it would "actively manage operating expenses" to navigate the current slowdown, said Chief Executive Cristiano Amon in a conference call with Wall Street analysts.
"Combined with the actions we have already taken in the quarter, we expect to reduce non-GAAP operating expenses by approximately 5 percent relative to the run rate exiting fiscal 2022," he said.
The company did not disclose details of how it might trim costs. But it expects to continue to invest in automotive, Internet of Things and other areas aimed at diversifying its business beyond smartphones.
Some of the demand weakness seen with smartphones is spreading to the Internet of Things market, said Chief Financial Officer Akash Palkhiwala.
"Uncertainty remains. We are seeing that in handsets and Internet of Things, both from a demand perspective and inventory drawdown," he said. "In terms of the bottom, the way I think about it is we are going to see impact for the March and June quarters, and I think there is an opportunity from that point on as we grow in the second half of the year."
In December, Qualcomm cut about 150 positions at its San Diego headquarters, where it employs roughly 12,500 workers. The company had 51,000 full and part time workers worldwide as of Sept. 25.
Qualcomm joined a slew of technology companies reporting weaker financial results amid a broad economic slowdown and inventory correction, including Apple, Intel, Google parent Alphabet and others.
For the quarter, Qualcomm brought in revenue of $9.5 billion, down 12 percent over the same quarter last year.
Adjusted earnings reached $2.7 billion, or $2.37 per share — a drop of 27 percent year over year. Those results were close to being in line with Wall Street analysts' consensus projections for the quarter.
Looking ahead, however, Qualcomm's midpoint guidance pegs revenue for the current quarter at $9.1 billion and adjusted earnings of $2.15 per share.
Analysts were forecasting $9.6 billion in revenue and adjusted earnings of $2.29 per share.
Qualcomm released results after markets closed. Its shares ended regular trading down nearly 2 percent. But they shed another 2.8 percent in extended trading, falling to $132.01 on the Nasdaq Exchange.
Stacy Rasgon, an analyst with Bernstein Research, said the smartphone industry "remains very weak" with shipments down 18 percent year over year for the December quarter. That, coupled with the excess inventory overhang, is weighing down the sector.
But Rasgon also pointed to some positives for Qualcomm. The company announced Wednesday that its processors are powering 100 percent of Samsung's new Galaxy S23 smartphones worldwide.
Samsung typically uses Qualcomm chips in top-tier Galaxy smartphones sold in the U.S. and a few other countries, but it relies on its internally designed Exynos chips in Galaxy phones in many markets outside the U.S.
In addition, Qualcomm continues to supply 5G cellular processors for all of Apple's iPhones worldwide.
Previously, Apple, which is developing an in-house 5G chip and has been expanding its headcount in San Diego as part of that effort, was expected to have its chip ready this year. But it hasn't debuted yet, allowing Qualcomm to retain the iPhone business.
Qualcomm also continues to make progress on efforts to reduce its dependence on the mature smartphone market. In the quarter, sales of its advance driver assistance and digital cockpit technologies to automakers increased 58 percent to $456 million. Processors to power laptops and other non-smartphone, Internet-of-Things devices grew 7 percent to $1.7 billion.
"Despite near-term headwinds, our long-term growth opportunities remain unchanged," said Amon. "Our leading technologies such as advanced wireless connectivity, high-performance, low power (computing) and on-device intelligence are enabling the ongoing trend of digital transformation across industries. From a product and technology perspective, we believe we are in the strongest position in our history."
