Chipmaker Qualcomm forecast fourth-quarter revenue above Wall Street estimates on Wednesday, betting on strong demand for high-end Android devices and the need for more chips in smartphones that are getting AI upgrades.
Qualcomm shares dropped 1.3% in after hours trading.
Shares of San Diego, California-based Qualcomm had risen more than 5% in extended trading, but pared gains to fall over 1% after the firm flagged a revenue hit from the U.S. revoking one of its export licenses for sanctioned Chinese telecom firm Huawei Technologies.
Tighter export curbs on sharing high-end chip technology with China and mounting Sino-U.S. trade tensions are keeping chipmakers from serving one of the largest markets for semiconductors.
"This change will impact our revenues in both the current quarter and the first quarter of fiscal 2025," CFO Akash Palkhiwala said on a post-earnings call, without specifying the magnitude of the impact.
Qualcomm will continue to negotiate with Huawei, said Alex Rogers, president of the company's licensing segment.
The company said early in May that it did not expect any chip revenue from Huawei Technologies beyond 2024, but was pursuing licensing negotiations with the Chinese firm.
Shares of Arm Holdings also lost 13% in extended trading on Wednesday after the chip firm's cautious revenue forecast fell short of sky-high expectations from investors.
The warning on trade curbs overshadowed Qualcomm's optimistic forecast. The addition of AI capabilities to smartphones has driven a resurgence in end-market demand after the industry slumped to its lowest level in years, lifting orders for Qualcomm.
The company forecast a fourth-quarter revenue range with a midpoint of $9.9 billion, compared with analysts' average estimate of $9.71 billion, according to LSEG data.
The addition of AI features have also led to smartphone providers using more of Qualcomm's semiconductors in their devices to help support advanced processing requirements.
For its core segment that sells chips to customers, the company forecast a fiscal fourth-quarter sales range with a midpoint of $8.4 billion, compared with Visible Alpha estimates of $8.33 billion.
"We believe Apple and ARM-based PCs are driving Qualcomm's handset outlook. We think the premium tier smartphone market, which Qualcomm has more market share in, is faring better than the mainstream segment," said Summit Insights analyst Kinngai Chan.
Analysts expect Apple to return to revenue growth when the iPhone maker reports results for its fiscal third quarter on Thursday.
Qualcomm may also benefit significantly from the rebounding personal computer market where its Arm-based processors used in Microsoft's latest AI PCs threaten Intel and AMD's longstanding stronghold over the industry.
For its patent-licensing segment, the company forecast fourth-quarter sales range with a midpoint of $1.45 billion, higher than Visible Alpha estimates of $1.37 billion.
The biggest smartphone chips maker expects an adjusted fourth-quarter earnings range with a midpoint of $2.55 per share, compared with estimates of $2.45.
Within Qualcomm's chip business, the company said that revenue from mobile handsets grew 12% to $5.9 billion in sales in the third quarter.
Automotive revenue grew 87% to $811 million and Internet-of-Things chip revenues fell 8% to $1.36 billion.
Qualcomm had entered the automotive market as a bid to reduce its dependence on the smartphone market and diversify its business.
(Reporting by Arsheeya Bajwa in Bengaluru, additional reporting by Juby Babu in Mexico City; Editing by Devika Syamnath)
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