Qualcomm says Chinese market is back to normal; predicts 30% fewer shipments globally in Q2 2020

In its forecast for the current quarter, leading smartphone chipset maker Qualcomm says that the world’s biggest smartphone market — China is returning to normal levels in terms of demand after the coronavirus outbreak.

The company predicts that it will generate about $4.4 billion to $5.2 billion in revenue for the second quarter of the year, i.e. Q2 2020. Qualcomm’s CEO Steve Mollenkopf said that the demand is “very close to the level it would be normally but the mix of 5G is better than we expected.”

Smartphone sales in China plummeted an unprecedented 22 percent during the first quarter after the COVID-19 outbreak forced companies to shut down their stores and production and supply chain were also compromised. But Steve Mollenkopf says that the issue has largely been fixed and future sales will depend on consumer spending levels.

While Qualcomm originally expected to ship about 175 billion to 185 billion modems in 2020, it’s no longer providing total market predictions. The company also said that it expects the smartphone industry to ship 30 percent fewer phones in the June quarter because of the COVID-19 crisis.

However, the company adds that there will be relatively strong demand for 5G smartphones across 2020. This contradicts Strategy Analytics report which claims that 5G smartphone shipments will be lower in 2020 than originally anticipated.

Qualcomm has reported fiscal second-quarter revenue increase by 4.7 percent to $5.2 billion. This is in line with the company’s earlier forecast and has topped estimates. Net income for the company fell to $468 million from $663 million a year earlier.

The response of the Chinese market after the COVID-19 pandemic about how quickly it can get back on its feet is vital as it gives indication about how the European and North American market will emerge after the pandemic.

The company also also cites other, non-coronavirus-related factors that may impact its revenue in the company quarter, including its licensing dispute with Huawei, network rollouts, and its dependance on “a small number of customers and licensees” and the premium-tier device segment of the market.

Despite the expected drop in demand for new devices, Qualcomm is still sticking to its original estimate for 5G devices shipped in 2020, with the company expecting to see 175 million and 225 million 5G phone shipments this year. The nascent 5G market is a big part of Qualcomm’s business, with the company’s modems serving as some of the only viable options for device manufacturers to support the next-generation network — to the point where Apple was forced to settle its ongoing disputes with the company in order to get access to those modems for its upcoming 5G iPhones.

Threats: Just like everyone else, Qualcomm is still expecting things to be rough next quarter. “Given the uncertainty caused by the COVID-19 pandemic, including the timing and pace of economic recovery, our guidance for the third quarter of fiscal 2020 is based on a planning assumption that there will be an approximate 30% reduction in handset shipments relative to our prior expectations,” the company said.

Qualcomm’s second-largest business, licensing out its patents and designs, looks like it’s also going to be soft next quarter. The company is forecasting between $750 million and $950 million for its third fiscal quarter, a drop from the $1.1 billion the segment posted this quarter. With so many under quarantine, it’s no surprise that R&D at other companies is likely to slow. The company said it expects a 42% drop in licensing revenue for the quarter when compared to the same period a year ago.

The power struggle: When it last reported earnings, Qualcomm estimated it would ship between 175 million and 225 million chips for 5G smartphones in 2020, out of about 1.75 billion to 1.85 billion total smartphone shipments overall. This time, Qualcomm hasn’t changed its stance on its 5G estimate, but interestingly declined to provide specific guidance for a total smartphone shipment estimate. 5G is certainly the future of the telecom industry, but when it comes to sales, it’s not really the present.

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