Qualcomm Inc. shares turned lower in the extended session Thursday after the chip maker forecast that inventory clearance would persist in the first half of the year, knocking the chip company's outlook just short of the Wall Street consensus.
Qualcomm $(QCOM)$ shares, which had initially gained 3% after hours, slipped as the company's earnings call started, drifting to as much as a 3% decline. The stock closed the regular session with a 1.9% decline at $135.85.
On the call with analysts, Qualcomm execs said weaker-than-expected handset demand and inventory drawdown were major headwinds and forecast that inventory clearance would persist in the first half of 2023, impacting results.
Qualcomm forecast adjusted earnings of $2.05 to $2.25 a share on revenue of $8.7 billion to $9.5 billion for the fiscal second quarter. Analysts had estimated earnings of $2.29 a share on revenue of $9.56 billion for the second quarter.
The company reported fiscal first-quarter net income of $2.24 billion, or $1.98 a share, compared with $3.4 billion, or $2.98 a share, in the year-ago period. The chip maker reported adjusted earnings, which exclude stock-based compensation expenses and other items, of $2.37 a share, compared with $3.23 a share in the year-ago period. Total revenue for the quarter fell to $9.46 billion from $10.7 billion in the year-ago period.
Analysts surveyed by FactSet had forecast $2.36 a share on revenue of $9.6 billion, based on Qualcomm's forecast of $2.25 to $2.45 a share on revenue of $9.2 billion to $10 billion.
Handset sales fell 18% to $5.75 billion, auto sales surged 58% to $456 million, and Internet-of-Things sales rose 7% to $1.68 billion, the company said.
Akash Palkhiwala, Qualcomm's chief financial officer, told analysts that weak demand for handsets and inventory drawdowns from original equipment manufacturers were acting as a large combined headwind, while inventory issues seem to have spread to IoT products.
"We have also seen IoT having the same, some of the characteristics, and we are seeing, a combination of those factors impacting the time period for which the drawdown lasts," Palkhiwala said.
"Again, as we look at it, this is a shorter-term thing," said Palkhiwala. "The drawdown doesn't impact the strength of the business. As the recovery happens we will be in a position to benefit from it."
"From a product and technology perspective, we believe we are in the strongest position in our history," Cristiano Amon, Qualcomm's chief executive, told analysts on the call, adding that the company's long-term plan remains unchanged.
Last quarter, Qualcomm's share price fell to lows not seen in more than two years after executives said there was up to 10 weeks of inventory in the channel, and forecast a $2 billion shortfall coming off record sales
And the glut doesn't appear to bode well for the mobile handset industry as research firm Gartner recently forecast that mobile phone shipments worldwide would fall 4% to 1.34 billion units in 2023, following an 11% drop in 2022.
Inventory problems have become a visible plague on the industry after a two-year, COVID pandemic-driven shortage, quickly flipped to a glut in 2022, as seen in earnings reports from Intel Corp$(INTC)$ and Advanced Micro Devices Inc$(AMD)$.
Qualcomm shares dropped 39.9% in 2022, while the PHLX Semiconductor Index dropped 35.8%, the S&P 500 index finished the year down 19.4%, and the tech-heavy Nasdaq Composite Index shed 33.1%.
Over January, however, markets rallied, and Qualcomm shares surged 21.2%, while the SOX index gained 15.4%, the S&P 500 gained 6.2% and the Nasdaq rose 10.7%.
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