By Stephen Nellis and Arsheeya Bajwa
(Reuters) – Qualcomm on Wednesday forecast fiscal third-quarter revenue and adjusted profit above Wall Street expectations, driven by a faster-than-expected recovery in smartphone markets thanks to artificial intelligence features.
The company has also expanded into selling chips for cars and devices like headphones, helping it beat Wall Street expectations in the second quarter.
Shares rose 4% in after-hours trading.
“Demand for all of their products appears to be strong overall,” said analyst Ben Bajarin of Creative Strategies. “The automotive business is particularly interesting as it continues to grow while others competing there continue to struggle.”
According to LSEG data, Qualcomm forecast third-quarter revenue and adjusted earnings at midpoints of $9.2 billion and $2.25 per share, beating analyst estimates of $9.05 billion and $2 $.17 per share.
The company, based in San Diego, California, is the world’s largest supplier of chips for smartphones and counts both Apple and Samsung among its customers. The company’s sales fell sharply last year after a boom during the pandemic. The decline was mostly felt in the Android phone market, where Qualcomm accounts for most of its business.
The company faces competitive pressure from China’s Huawei Technologies Co., which launched a domestically made smartphone chip last year, and Taiwanese rival MediaTek, which said last week it expects rising sales this year as it Gain market share among high-priced Android cell phones.
Unlike MediaTek, Qualcomm has a license from the U.S. government to sell some older chips to Huawei despite widespread restrictions on the Chinese company. Qualcomm said Wednesday that it expects revenue to disappear by the end of this year and that it is in negotiations with Huawei for a patent licensing agreement that expires in Qualcomm’s fiscal 2025.
Even though analysts believe Huawei’s 5G chips are manufactured in violation of U.S. export control regulations, the company is still paying Qualcomm to use the U.S. company’s 5G patents.
In the fiscal second quarter ended March 24, Qualcomm’s revenue and adjusted profit were $9.39 billion and $2.44 per share, respectively, above analyst expectations of $9.34 billion, according to LSEG data -dollars or 2.32 US dollars.
Qualcomm hopes to capitalize on consumer demand for device upgrades to run AI chatbots directly on the device rather than turning to a data center.
To challenge Apple, Qualcomm plans to launch a chip that will power laptops starting this summer. But that small portion of early sales likely won’t play a big role in the company’s third-quarter guidance, analysts said.
In Qualcomm’s chip segment, the company forecast third-quarter revenue an average of $7.8 billion, compared with analyst estimates of $7.74 billion, according to LSEG data.
Qualcomm forecast third-quarter patent licensing revenue to average $1.3 billion, compared with estimates of $1.29 billion.
According to LSEG, Qualcomm’s chip and licensing revenues for the just-ended second fiscal quarter were $8.03 billion and $1.32 billion, respectively, compared to analyst estimates of $7.95 billion and $1, respectively. $32 billion.
Within Qualcomm’s chip business, the company said mobile phones generated $6.18 billion in revenue in the second quarter, compared with estimates of $6.23 billion, according to data from Visible Alpha. Automotive and Internet of Things chip sales were $603 million and $1.24 billion, respectively, in the second quarter, compared with analyst estimates of $578.9 million and $1.22, respectively billion US dollars.
(Reporting by Stephen Nellis in San Francisco and Arsheeya Bajwa in Bengaluru; Additional reporting by Noel Randewich in Oakland, Calif.; Editing by Matthew Lewis)