Updated Version 1 - Qualcomm shares plunge as weak smartphone chip sales overshadow growth in data center business

Updated paragraphs 1 and 2, added chart

Reuters, November 5 - Qualcomm QCOM.O shares fell more than 9% in early trading on Thursday, after the company’s smartphone chip sales (link) missed Wall Street expectations. This raised concerns that weakness in its core mobile business might offset gains from new growth areas such as data center chips.

If the decline continues, Qualcomm's market capitalization could evaporate by more than $17 billion.

• As artificial intelligence infrastructure spending squeezes supply across the entire semiconductor industry, the chipmaker faces a dilemma: on one hand, surging data center demand is driving up memory costs, while on the other, smartphone sales are slowing down.

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

• He added that Android business demand had improved quarter-on-quarter, and the company had made solid progress in expanding beyond mobile phones

• Qualcomm’s push into data centers and automotive chips has bolstered its long-term growth prospects, but most brokerages believe that these improvements have not yet translated into stronger short-term earnings due to continued pressure from declining Apple revenue and rising input costs

  https://www.reuters.com/graphics/QUALCOMM-RESULTS/REVENUE-SEGMENTS/xmvjwmxaapr/chart.png

• “Amid an environment rich with AI semiconductor ambitions, we lack confidence in business growth within the next three years; also, as the business transitions toward general-purpose solutions, it is unclear whether the foundation built on custom chips can continue to develop,” said analysts at Morgan Stanley

• The chipmaker's largest business unit – the mobile business – saw quarterly revenue drop 26% to $5.14 billion, leading overall chip sales to fall 8% to $9.02 billion

• Qualcomm currently has a price-to-earnings ratio of 16.78, far below industry peers such as MediaTek (2454.TW) at 25.41 and Intel (INTC.O) at 33.28

• According to data compiled by London Stock Exchange Group (LSEG), at least 10 brokerages have cut their price targets for the stock after the earnings report

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