Qualcomm shares fell 4.2% in premarket trading on Thursday as the chipmaker's downbeat forecast for its patent licensing business overshadowed strong expectations for quarterly sales and profit.
The company disappointed investors after it said the licensing business, which accounted for 14.8% of its total revenue in the reported quarter, would see no sales growth this year following the expiration of its agreement with Huawei Technologies.
Analysts at TD Cowen said they were expecting the impact of the removal of Huawei royalty to be mild but see it adding "another brick to the wall of worry facing the stock."
Qualcomm (NASDAQ:QCOM), the world's biggest supplier of modem chips that connect smartphones to wireless data networks, beat first-quarter results on strong demand for AI features in mobile devices.
The midpoint of the second-quarter sales forecast of $10.75 billion and an adjusted profit of $2.80 per share, came in above analysts' estimates of sales of $10.34 billion and an adjusted profit of $2.69 per share, according to data from LSEG.
Qualcomm credited robust sales from China for growth in its smartphone unit, as government subsidies and a slew of flagship launches power demand in the country.
While analysts at BofA Global Research expect demand trends to normalize in China in the long term, they said new handset subsidies could fuel demand in the near term.
Although the chip designer's shares rose modestly in 2024, their gains of 6% pale in comparison with a 171% jump in AI chip leader Nvidia (NASDAQ:NVDA)'s stock. They have, however, far outperformed shares of Intel (NASDAQ:INTC) , which lost 60%, and Advanced Micro Devices (NASDAQ:AMD) , which shed 18%, last year.
Qualcomm's median price target is at $194.5, compared with $199 before the results, according to data compiled by LSEG.
Qualcomm's 12-month forward price-to-earnings ratio is 15.02, compared with Nvidia's 27.64, INTC's 32.21 and AMD's 22.5.
Arm Holdings (NASDAQ:ARM) shares dropped 4.6% after the chip tech provider said it would no longer meet the top end of its previous full-year forecast. Qualcomm also said Arm has withdrawn a threat to terminate its license agreement with the chip technology provider.
