(Reuters) – Qualcomm Inc’s (QCOM.O) quarterly revenue and profit forecast fell short of Wall Street targets, driven by Huawei Technologies Co Ltd’s strong gains in the Chinese smartphone market, the U.S. company said, sending its shares down as much as 6%.
FILE PHOTO: A woman walks past a sign advertising Qualcomm at Mobile World Congress (MWC) in Shanghai, China June 28, 2019. REUTERS/Aly Song/File Photo
In an interview on Wednesday, Qualcomm Chief Executive Steve Mollenkopf told Reuters Huawei had stolen market share mainly from its domestic rivals such as Xiaomi Corp (1810.HK), Oppo and Vivo, all of which are major Qualcomm customers.
Huawei’s advance has spurred other phone makers to cancel 4G models planned for the rest of this year and instead focus on 5G models for release early next year that could drive growth for Qualcomm, he added.
“Huawei was very aggressive in terms of making sure they built their market share there because they couldn’t sell things internationally,” Mollenkopf said. “And the reaction of the (other Chinese phone makers) was, ‘Let’s go as fast as we can to 5G, because there’s a great opportunity there,’ even to the point of saying, ‘Let’s cancel 4G models.’”
Kinngai Chan, an analyst at Summit Insights Group, called Qualcomm’s outlook a “pause in 4G ahead of the transition to 5G.”
The extent to which Huawei weighed on Qualcomm’s forecast underscores the extent to which the Chinese company has become more of a rival than a customer to the San Diego-based company. Huawei, which was the subject of U.S. sales restrictions imposed in May, continues to buy a small number of Qualcomm chips.
The companies, which are among the world’s largest holders of patents related to 5G technology, are in a protracted licensing dispute. Huawei had been making good-faith payments and negotiations have inched forward, but Mollenkopf said no further payments are included in Qualcomm’s fiscal fourth quarter guidance.
“The companies are talking and we’re focused on a final agreement, but we don’t have it yet,” Mollenkopf said.
Huawei supplies many of its own chips for smartphones, and it grabbed market share from Chinese companies over the past quarter, according to market research firm Canalys. Those companies have become some of Qualcomm’s most important chip customers.
Mollenkopf said the U.S.-China trade war and a slow smart phone market drove Qualcomm to lower its outlook for 2019 sales of smart devices to a range of 1.7 billion to 1.8 billion, down from a previous estimate of 1.8 billion to 1.9 billion.
Qualcomm collects license fees from smartphone makers for using its patents in their devices. More device sales often result in higher revenue and profits.
The company’s modem chip shipments fell 22% to 156 million in the third quarter, missing analysts’ estimate of 160.1 million, according to FactSet.
Apple Inc (AAPL.O) and Qualcomm settled all their litigation in April. Apple signed a six-year patent license deal with Qualcomm, as well as a multi-year chip supply agreement.
The two have not said when Apple would resume using Qualcomm’s chips in iPhones after dropping them in favor of Intel Corp’s (INTC.O) chips for 2018 iPhone models.
Reporting by Munsif Vengattil in Bengaluru and Stephen Nellis in San Francisco; Editing by Sriraj Kalluvila and Richard Chang