Qualcomm tumbles after signalling more pain from smartphone slump

By Aditya Soni

(Reuters) – Qualcomm (NASDAQ:) tumbled nearly 10% on Thursday after a gloomy forecast signalled more pain for the largest maker of smartphone chips from the ongoing slump in the consumer electronics market.

The drop was set to erase about $14 billion from Qualcomm’s market value. The stock has risen 19% this year, but underperformed the broader chip industry on worries about smartphone demand.

The company on Wednesday disappointed investors with a current-quarter revenue forecast that was below market estimates, as well as adjusted sales that missed expectations.

“Qualcomm’s results and guidance largely were unimpressive as the company is mired and pressured in handset units and global excess inventory at its customers,” Piper Sandler analysts wrote in a note.

Piper and other brokerages also flagged the lack of future “material” revenue from Huawei as a concern as Qualcomm does not have a license to sell its chips to the Chinese company.

“Huawei headwinds are new (and larger than we would have thought), and (Qualcomm) stock is admittedly un-sexy,” Bernstein analyst Stacy Rasgon said.

“At least the shares are inexpensive … But cheap by itself can be an unsatisfying thesis sometimes, and we could see it staying unloved for a while longer here.”

The company has a 12-month forward price-to-earnings ratio of 14.05, much lower than Nvidia (NASDAQ:)’s 43.94 and the industry median of 20.51.

Still, at least 11 brokerages upgraded their ratings on the stock, saying Qualcomm had executed well in what was a difficult period for several chip firms due to a slump in demand for consumer electronics.

“We have admired Qualcomm’s execution during this phase, with higher smartphone content vs initial expectations, higher 5G market share than initial expectations, and the foundations of a solid diversification strategy,” Morgan Stanley (NYSE:) analyst Joseph Moore said.

The company has been trying to grow its automotive unit, which provides chips used in cars, to reduce its reliance on its mainstay smartphone business. The automotive business grew 13% in the quarter and was a bright spot.