May 1 (Reuters) - Qualcomm on Wednesday forecast fiscal third-quarter sales and adjusted profit above Wall Street expectations, driven by a faster-than-expected recovery in smartphone markets thanks to artificial-intelligence features.
The company has also branched out into selling chips for cars and devices such as headphones, which in the second quarter helped it beat Wall Street expectations.
Shares were up 4.2% in premarket trading.
The company said its sales to Chinese smartphone makers have grown 40% in the first half of its fiscal year, a sign of recovery in that market.
"Recently launched flagship Android devices powered by Snapdragon 8 Gen 3 are seeing strong demand globally, especially in China," Chief Executive Cristiano Amon told analysts on a conference call.
The company also beat expectations in areas such as its automotive chip business.
"Demand for all their products overall seems strong," said analyst Ben Bajarin of Creative Strategies. "The auto business is particularly interesting as they keep growing while others who compete there keep struggling."
Qualcomm forecast third-quarter sales and adjusted profit with midpoints of $9.2 billion and $2.25 per share, beating analyst estimates of $9.05 billion and $2.17 per share, according to LSEG data.
The San Diego, California-based company is the world's biggest supplier of chips for smartphones and counts both Apple, opens new tab and Samsung as customers. The company's sales declined sharply last year following a boom during the pandemic. The drop was felt especially in the Android phone market where Qualcomm draws most of its business.
The company faces competitive pressure from China's Huawei Technologies Co, which last year introduced a domestically made smartphone chip, and Taiwanese rival MediaTek, which last week said it expects rising sales this year as it gains market share among the premium-priced Android handsets.
Unlike MediaTek, Qualcomm has a license from the U.S. government to sell some older chips to Huawei despite wide restrictions on the Chinese company. Qualcomm said on Wednesday it expects that revenue to disappear by the end of this year and that it is pursuing negotiations with Huawei over a patent license agreement that expires in Qualcomm's fiscal 2025.
Even though Huawei's 5G chips are made in what analysts believe are violations of U.S. export control rules, the company still pays Qualcomm for the use of the U.S. firm's 5G patents.
For the fiscal second quarter ended March 24, Qualcomm's sales and adjusted profit were $9.39 billion and $2.44 per share, respectively, above analyst expectations of $9.34 billion and $2.32, according to LSEG data.
Qualcomm is hoping to benefit from consumer demand to upgrade devices to run AI chatbots directly on the device rather than going over to a data center.
In a challenge to Apple, Qualcomm plans to release a chip designed to power laptops starting this summer, though that small amount of early sales is unlikely to play a major role in the company's third-quarter forecast, analysts said.
In Qualcomm's chip segment, the company forecast fiscal third-quarter sales with a midpoint of $7.8 billion, compared with analyst estimates of $7.74 billion, according to LSEG data.
Qualcomm predicted third-quarter patent-licensing sales with a midpoint of $1.3 billion, compared with estimates of $1.29 billion.
For the just-ended fiscal second quarter, Qualcomm said chip and licensing revenues were $8.03 billion and $1.32 billion, respectively, compared with analyst estimates of $7.95 billion and $1.32 billion, according to LSEG.
Within Qualcomm's chip business, the company said that mobile handsets generated $6.18 billion in sales in the second quarter, compared with estimates of $6.23 billion, according to data from Visible Alpha. Automotive and Internet-of-Things chip revenues in the second quarter were $603 million and $1.24 billion, respectively, compared with analyst estimates of $578.9 million and $1.22 billion.
