Heavy spending on research and development could depress profits somewhat in the short-term for chip giant Qualcomm, and that has investors bailing out of the stock today. The leading maker of chips for mobile devices also pointed to Asian competition as a concern going forward.
But for the quarter ending March 31, Qualcomm beat Wall Street’s expectations. It earned $1.17/share, up 16% from the year-ago quarter, on revenue of $6.12 billion, which was up 24% from the year-ago quarter. The company now expects full year revenue of $24 – $25 billion, up from its previous forecast. But higher spending levels will mean that earnings will be lower than initially projected.
The company’s third quarter forecast followed that trend, with a revenue forecast that was higher than analysts had previously expected, and an earnings forecast somewhat below expectations.
Investor reaction to Qualcomm’s earnings announcement stands in sharp contrast to the warm welcome that Wall Street gave ARM’s earnings release earlier this week. ARM is the British company that designs the cores that Qualcomm uses in its mobile processors. As part of its earnings announcement, ARM highlighted the fact that even low-cost Asian manufacturers use ARM designs for their chips. These are some of the same companies that are competing head-on with Qualcomm to supply makers of entry-level smartphones for developing markets.
Qualcomm has a diverse customer base, but it has been a major supplier to Apple, so the slowdown in demand for Apple’s devices will also impact Qualcomm.
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