The global slowdown of the smartphone market is taking its toll on major chipmakers.
U.S. chipmaker Qualcomm is forecasting fiscal third quarter sales of between $5.2 billion and $6 billion or $5.2 billion on average, lower than its third quarter revenue of $5.8 billion in 2015. Earnings per share are expected within the range of $0.90 and $1, compared to last year's $0.99.
The company expects lower chip shipments for the third quarter estimated between 185 million and 195 million, down from 225 million a year earlier.
While Qualcomm beat analysts' projected 23 percent drop in the first quarter of the year, ending the quarter with 19.5 percent, the company's third quarter projection for EPS is a bit shy from the analysts' $1.02.
Smartphone Market Slowdown And Saturation
Market research firm IDC predicts that the smartphone industry will continue to experience slow growth at 5.7 percent this year versus 10.4 percent last year.
The United States, Western Europe, China and other mature markets have been hit with single-digit growth last year, and this trend is expected to continue through 2020, IDC predicted.
Smartphone users have "been hit by a malady known as 'phone fatigue.' Consumers in mature markets have been turned off by a lack of exciting features in new phones, causing more of them to stick with their current smartphones," reported CNET.
Adding to the 'malady' is the mobile carriers' move to scrap subsidized plans, forcing customers to cash out the full retail price of the phones they want to buy, something that not all buyers can do. This puts a chill on sales of high-end models, CNET added.
Competition is also influencing an already saturated smartphone market as major players outbid each other in retail price.
GFK, a leading research firm based in Nuremberg, Germany, reported that the 7 percent increase in smartphone sales in 2015 was offset by the 6 percent decline in average selling price in 2014 and 2 percent in 2015.
Qualcomm Continues To Build Momentum With Its Snapdragon 820
The San Diego-based chipmaker gets the bulk of its revenue from its chip business. Snapdragon processors are making waves in the premium and high-end devices.
Samsung is using Snapdragon in its flagship line of Galaxy S7 phones. Qualcomm also won supply agreements with manufacturers like Lenovo and Xiaomi. All iPhones, including the new iPhone SE, use 3G/4G cellular radios supplied by Qualcomm.
However, the company's chip technology licensing business contributes to most of the profit.
"We've continued to make gains on the licensing side in China and this continues to be positive for the company," said Qualcomm CEO Steve Mollenkopf in a conference call.
In a licensing dispute with LG that is expected to be resolved during the year, Qualcomm is eyeing a windfall revenue of $200 million under the licensing agreement with LG. Qualcomm is also expecting an optimistic outcome in another licensing dispute with Yulong Computer Telecommunication Scientific Co.
Despite beating expectations, the Qualcomm stock was valued at $50.50 in after market trading on Wednesday, down 3 percent.
Photo: Karlis Dambrans | Flickr