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Qualcomm Projects Strong Revenue, Suggesting Smartphone Gain

Ian King

(Bloomberg) -- Qualcomm Inc. gave a stronger-than-predicted forecast for the current quarter, indicating that smartphone demand -- fueled by new wireless technology -- may be picking slowly up after a prolonged slump. The company’s shares rose in extended trading.

Investors have been waiting to see whether Qualcomm, after five consecutive annual revenue declines, can parlay its claim of leadership in fifth generation, or 5G, wireless technology into a return to sales growth. While revenue is still declining from a year earlier, the market is stronger than feared and the company is poised to benefit from the rapid uptake of 5G early next year, Chief Executive Officer Steve Mollenkopf said in an interview. Hitting the top end of its revenue range would provide the chipmaker with the first quarterly sales expansion in six quarters.

“There’s a lot of activity on 5G,” Mollenkopf said. “The quarterly performance and the forecast reflects “our confidence in the inflection point of 5G next year.”

Fiscal first-quarter revenue will be $4.4 billion to $5.2 billion, the San Diego-based company said Wednesday in a statement. That mid-point of the estimate, $4.8 billion, compares with an average of analysts’ projections of $4.78 billion, according to data compiled by Bloomberg. Profit and revenue in the fourth quarter topped estimates.

Qualcomm, whose chips are the main component in most of the world’s smartphones, has suffered shrinking revenue as consumers hang on to their handsets longer. In China, Huawei Technologies Co., which supplies itself with the majority of its crucial components, has been gaining market share, hurting demand for Qualcomm chips used by Huawei’s rivals. The new services are debuting this year with handsets from Samsung Electronics Co. that will take advantage of the faster downloads and response times offered by the upgraded networks. Mollenkopf said that there are now 230 5G phone models designed on the company’s chips, up from 150 three months ago.

After shrinking to as low as 1.7 billion units in 2019, the smartphone market will rebound next year, Qualcomm said. The company expects shipments as high as 1.85 billion units in 2020, including as many as 225 million 5G handsets.

Cristiano Amon, the head of Qualcomm’s chip unit, called that 5G estimate conservative. If consumers decide to upgrade phones more often, that number could go up, he said on a conference call with analysts.

“The company is clearly pinning future growth on 5G playing out very well with extremely high adoption among consumers,” said Edward Jones & Co. analyst Logan Purk. “We just question how quick the uptake will be. There will be plenty of adopters that will pick it up. It will generate some sort of refresh but at the end of the day it’s not proven technology.”

A renewed supply relationship with Apple Inc. for future versions of the iPhone and 5G high-speed networks and phones are causing optimism that the company’s financial performance will improve.

Qualcomm still needs to resolve its ongoing technology licensing dispute with Huawei and succeed in its appeal against a sweeping antitrust ruling from a case brought by the U.S. Federal Trade Commission. The company has ongoing talks but isn’t in a position to report any progress, Mollenkopf said. A trade agreement between China and the U.S. might help, he said.

Separately, the company said it appointed Akash Palkhiwala as chief financial officer. He has been serving as the interim CFO since August.

Qualcomm shares rose about 5% in extended trading after closing at $84.63 in New York. The stock has gained 49% this year, about equal to the rise in the Philadelphia Stock Exchange Semiconductor Index.

Net income rose to $506 million, or 42 cents a share, in the period ended Sept. 29, from a loss of $513 million, or 36 cents, a year earlier. Excluding certain items, profit was 78 cents a share, compared with an average estimate of 71 cents. Revenue declined 17% to $4.81 billion. Analysts on average had predicted $4.71 billion in sales.

Qualcomm is unique in the chip industry because the company gets the bulk of its profit from licensing patents that it says cover the fundamentals of all modern phone systems. The majority of Qualcomm’s revenue comes from selling chips that run phones and connect them to cellular networks.

Technology licensing revenue was up 4% in the quarter from a year earlier to $1.16 billion in the quarter, providing $792 million of profit before taxes, Qualcomm said. Both totals increased from a year ago but declined from the prior quarter. The chip division provided $3.61 billion in revenue and $499 million of profit. Revenue was down 22% from a year ago and profit slid 37%.

While Qualcomm settled its broad-ranging legal dispute with Apple and the iPhone maker agreed to resume using its chips, the company lost an FTC case that alleged unfair business practices and has been ordered to renegotiate patent licenses. Qualcomm is appealing the decision and seeking a stay on the decision so it doesn’t have to immediately start those renegotiations.

(Updates with comments from analyst in the eighth paragraph.)

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack, Molly Schuetz

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