Qualcomm expects a steep drop in phone shipments as coronavirus hurts demand
But it still expects 5G phone shipments to be strong in 2020 and says phone launches for this year are still on track.
Qualcomm, based in San Diego, Calif., is the world's biggest mobile chipmaker.
Qualcomm on Wednesday became the latest company to confirm what everyone expected: The novel coronavirus pandemic is going to hurt phones sales. But a bright spot will be 5G, which should be just as strong this year as the company earlier predicted.
Qualcomm, which sells more wireless chips than any other vendor on the planet, said handset makers likely will ship about 30% fewer phones in the June quarter than it previous expected. And that follows a 21% drop in phone demand in the first three months of the year because of weakness in China, it said.
The company sold 129 million modems in its fiscal second quarter, and it expects to sell 125 million to 145 million in the fiscal third quarter.
"In the June quarter, we estimate the overall handset market to be down approximately 30%, driven by the impact of shutdowns in the rest of the world, while benefitting from the rebound we are seeing in China," Qualcomm CEO Steve Mollenkopf said Wednesday during a call with analysts. "Total demand will depend on the speed of the economic recovery."
Qualcomm is a key partner for companies like Apple and Samsung. Its modems connect the majority of the world's phones to wireless networks, and it had been expecting a big boost this year from the move to 5G. Because of its position as a key supplier, it has insight into the health of the mobile industry and can provide information into how COVID-19 is impacting tech.
Qualcomm typically forecasts how many 3G, 4G and 5G phones will be shipped each calendar year. It previously said it expected about 1.75 billion to 1.85 billion units in 2020. It no longer has provided a total market prediction but said it still expects vendors to ship 175 million to 225 million 5G phones this year. Analysts like Strategy Analytics have said the number of 5G phones shipped this year will likely be lower than earlier anticipated.
"As we look to the second half of calendar 2020 ... there are a few regions with minor delays in 5G network deployments," Mollenkopf said. But "overall, 5G is progressing as planned."
Qualcomm executives on Wednesday also said phone launches for this year are largely on track. That, and the comments about the 5G shipments this year, likely will reassure Apple fans, though Qualcomm didn't specifically mention the iPhone maker. Apple's upcoming iPhones, expected this fall, will use 5G modems from Qualcomm. There have been worries the phones won't launch on time.
"There's been a lot of intensity to maintain those schedules," Mollenkopf said of smartphone industry launch plans. "In general, you're not going to see big changes in that."
2020 was supposed to be a strong year for the phone industry, as innovations like 5G and foldable screens got people shopping again. Instead, financial struggles and worries about COVID-19 will limit the number of devices companies can make and how many phones people will actually buy. Even once the worst of the pandemic is behind the US and other markets, the global economy will likely continue to struggle.
So far, more than 3.1 million people have been infected by COVID-19, and tens of millions have lost their jobs. Cities and entire countries have issued lockdowns, shuttering stores, canceling events and forcing citizens to stay at home to help contain the coronavirus.
Phone struggles
Smartphone shipments saw their biggest ever drop in February -- down 38% to 61.8 million units, according to Strategy Analytics -- as the novel coronavirus ravaged China, one of the world's largest markets and a vital manufacturing hub. For this whole year, phone sales should hit a 10-year low.
Qualcomm's guidance follows similar comments from Samsung, the world's biggest handset maker. The South Korean company, a key customer for Qualcomm's chips, on Tuesday warned that the coronavirus would "significantly" hurt its smartphone and TV operations in the coming months. Samsung said a shrinking market and store closures "make a drop in earnings seem inevitable," while "5G network investments may face reductions or delays" in Korea and around the globe.
Apple, too, has been impacted by the pandemic. The company in February said the coronavirus would hurt its revenue and iPhone supply. China is one of Apple's biggest markets and the primary location where its devices like the iPhone are assembled. Because factories closed during the peak of the coronavirus outbreak in China, it caused iPhone shortages around the globe, Apple said. Since that time, Apple has reopened its stores in China but has closed all retail locations outside the region, indefinitely. The company will report its quarterly earnings on Thursday.
Qualcomm, for its part, "executed extremely well in the second fiscal quarter," Mollenkopf said. The company's revenue and per-share earnings, excluding some items, was in line with Qualcomm's prediction.
The company reported fiscal second-quarter net income of $468 million, or 41 cents a share, down from $663 million, or 55 cents a share, a year earlier. Excluding certain items, Qualcomm's income totaled $1.02 billion, or 88 cents a share.
The company reported revenue of $5.22 billion, up from $4.98 billion a year ago.
Analysts polled by Yahoo Finance expected Qualcomm to report per-share earnings of 78 cents on revenue of $5.02 billion.
Going forward, Qualcomm expects fiscal third-quarter revenue of $4.4 billion to $5.2 billion. Wall Street projected $4.89 billion. It also expects to report earnings of 29 cents to 49 cents a share, or 60 cents to 80 cents a share, excluding items. Analysts predicted per-share earnings of 75 cents a share.
Qualcomm said its per-share earnings are taking at least a 30-cent hit because of the coronavirus pandemic.
Qualcomm shares climbed 3.2% to $81.49 in after-hours trading, following a 4.9% rise during the regular session. Investors likely are relieved the results weren't as bad as feared.