Qualcomm shares plunge as weak smartphone chip sales outweigh strong momentum in data center business

Reuters, November 5 - In pre-market trading on Thursday, Qualcomm QCOM.O shares fell about 9% after its smartphone chip sales (link) missed Wall Street expectations, raising concerns that weakness in its core mobile business could offset gains from emerging areas like data center chips.

If the pre-market decline holds, Qualcomm's market value will evaporate by about $17.5 billion.

• As artificial intelligence infrastructure spending continues to strain supply across the entire semiconductor industry, the chip design company faces a dilemma: surging demand for data centers has pushed up memory costs, while smartphone sales are slowing.

• "Unlike some other companies, we anticipated the coming memory shortage and prepared early," Qualcomm CEO Cristiano Amon told Reuters.

• He added that demand in the Android business has improved quarter-over-quarter and the company has made solid progress expanding beyond the mobile business.

• Qualcomm's push into data center and automotive chips has strengthened its long-term growth prospects, but most brokerages believe those prospects have yet to translate into stronger short-term profitability as Apple revenue declines and input costs continue to weigh on earnings.

• "In an environment rich in AI semiconductor targets, we lack confidence in delivering growth over the next three years; moreover, as the business transitions to commercial solutions, it remains unclear whether the custom chip-based foundation can continue to develop," analysts at Morgan Stanley said.

• The company's largest business segment—its mobile business—saw quarterly revenue decline by 26% to $5.14 billion, resulting in an 8% drop in overall chip segment sales to $9.02 billion.

• Qualcomm's current price-to-earnings ratio is 16.78, well below peers such as MediaTek 2454.TW at 25.41 and Intel INTC.O at 33.28.

• According to data from London Stock Exchange Group (LSEG), at least eight brokerages cut their price targets for the stock after the earnings report.

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