Qualcomm's upbeat profit forecast, results send shares higher

Once 5G networks are extensively available someday next year, Qualcomm, the world's largest provider of smartphone chips, and its competitors stand to benefit because the phones would require more chips to achieve the boost.

Qualcomm's 5G market estimate, disclosed during a fourth-quarter earnings report, is the first from the company.

While Qualcomm settled its broad-ranging legal dispute with Apple and the iPhone maker agreed to resume using its chips, the company lost an FTC case that alleged unfair business practices and has been ordered to renegotiate patent licenses.

Analysts on average expected adjusted earnings of 71 cents a share on sales of $4.76 billion, according to FactSet, down significantly from expectations ahead of Qualcomm's previous earnings report. The unit suffered a drop in sales from the ban on US firms selling certain products and services to Huawei, and also a more general pivot by smartphone makers from 4G to 5G handsets.

Qualcomm patched up its battle with Apple earlier this year.

Qualcomm's other business segment, Qualcomm CDA Technologies, reported revenue of $3.61 billion, down 22% from a year ago. That pivot means many of Qualcomm's customers are working through their existing 4G inventory and holding off buying new chips, at least until the New Year.

Nonetheless, Qualcomm had an "exceptional quarter" overall and things are likely to get even better, said Patrick Moorhead of Moor Insights & Strategy.

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"The 5G party may be kicking off, but for now we don't know if the guest of honor will be dancing up a storm, or still peeking through the drapes", Bernstein analyst Stacy Rasgon wrote in a preview of Qualcomm's earnings. "Qualcomm appears to be well-positioned for volume given its mainstream choosers and end-to-end RF capability".

5G networks promise faster speeds and imperceptible transmission lag times for mobile devices.

That prediction includes the current quarter, which Qualcomm projected will continue a pattern of year-over-year earnings declines as it continues to exclude any royalty payments from Huawei in its results and projections.

As noted at the company's 5G Summit in October, Qualcomm said that 30 live 5G networks are in operation, and more than 40 OEMs are planning to release 5G devices in the future.

Moreover, he added, "given the depth of Qualcomm's portfolio and its strength in many key markets and sectors, the company should be able to look forward to more good times".

The news sent shares up almost 5.1% to $89.00 in after-hours trading. "Our technology and inventions leave us extremely well positioned as 5G accelerates in 2020". But Qualcomm Chief Financial Officer Akash Palkhiwala said on an investor call there would be "two inflection points" for 5G chips next year.

The company expects first-quarter adjusted profit of US$1.20 per share, above estimates of 83 cents, according to IBES data from Refinitiv. Its former financial, George Davis, left the company to become Intel's CFO in April. Qualcomm said that the board had unanimously approved the appointment of Palkhiwala.

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