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Tech Industry

Qualcomm stock falls after warning

Qualcomm shares drop following a preliminary second-quarter warning and an announcement that the company will lay off 700 workers.

    Qualcomm (QCOM) stock dropped by as much as 18 percent in morning trading today, following a preliminary second-quarter warning issued by the company, in which it announced that earnings will be hurt as a result of several Korean manufacturers revoking or postponing orders, and that it would lay off 700 workers.

    The company's stock fell to as low as 46-1/8 in early trading today, down from yesterday's close of 56-1/4. Volume was nearly 10 million by 8:30 a.m. PT, about 4-1/2 times average daily trading.

    The maker of communications systems and products based on digital wireless technology said yesterday that two Korean companies already have delayed or canceled orders for Application Specific Integrated Circuits (ASICs).

    Qualcomm, which also produces the popular email product Eudora, concluded that a previously announced order for 1800 MHz Q phones will not be fulfilled. Sales of the Q phone are expected to be lower than planned in the second quarter as a direct result of the loss of Korean orders, as well as because of a delay in introducing the 800 MHz cellular Q phone and a recent reduction in demand for 1900 MHz PCS Q phones. Q phones are digital portable telephones that offer telephone, pager, and voice-mail services.

    The company said, however, that demand for its QCP models remains strong despite weakness in the Asian market, and noted that production ramp-up for the QCP line continues.

    At the same time, however, the company said it is reducing its manufacturing workforce by approximately 700 temporary workers. This reduction is due partly to a shift in the company?s manufacturing efforts--away from the Q phone, with its higher labor requirements, and toward the QCP portable phones, with their lower labor requirements. The staff reduction also is due to ongoing cost improvements and increased manufacturing efficiencies.

    SoundView Financial Group analyst Albert Lin cut his fiscal 1998 earnings-per-share estimate on Qualcomm to $1.41, from $2.19, and said fiscal 1999 assumptions "are under review with more moderate downward implications.'' The analyst maintained a "short-term hold, long-term buy" rating.

    Cowen & Co. cut its rating to "neutral" from "buy," and Merrill Lynch lowered its rating to "neutral" from near-term "accumulate," but held its long-term rating at "accumulate."