Good news about chip shortage


For investors looking for signs that the global semiconductor shortage is near an end, Qualcomm Inc. offered some solace: Though problems are expected to persist until next year, the chipmaker is now more adept at getting its hands on scarce parts.

Qualcomm has farmed out production of certain products to multiple manufacturers, helping ensure it has enough supplies. The moves helped the company deliver an upbeat forecast for the latest quarter, sending its shares up as much as 7.6% in late trading Wednesday.

“We do have constraints really across the board,” Chief Financial Officer Akash Palkhiwala said on the company’s earnings conference call. “But we feel pretty comfortable that the overall supply picture is playing out exactly as we had planned.”

Even with the challenges, the company is benefiting from the growing appetite for smartphone chips and a push into new markets. Qualcomm, the world’s largest smartphone chipmaker, expects earnings of $2.90 to $3.10 a share in the period ending in December, well above the $2.58 predicted by Wall Street. Revenue will be $10 billion to $10.8 billion, compared with an average estimate of $9.73 billion.

Chief Executive Officer Cristiano Amon has diversified Qualcomm’s suppliers to ensure the company can get what it needs. He also has been working to lower a dependency on mobile-phone chips by selling semiconductors to automakers and other manufacturers.

“Now we have more growth vectors than just mobile,” Amon said in an interview. “Clearly Qualcomm is no longer defined by a single market.”

Qualcomm shares climbed as high as $149 in extended trading. They had been down 9.1% this year through Wednesday’s close, trailing a 28% gain by the Philadelphia Stock Exchange Semiconductor Index.

New 5G networks — a speedier wireless standard — are helping fuel sales of phone chips. Qualcomm earnings also are getting a boost from the internet of things, or IoT, the push to bring online connections and electronics to a wide range of appliances.

For consumers, Qualcomm chips are appearing more in tablets, virtual-reality headsets and wearables. In industrial applications, the company’s products can be found in energy metering, warehouse logistics systems and retail point-of-sale equipment. Sales at its IoT division were up 66% to $1.54 billion last quarter.

Qualcomm’s flagship phone-chip business rose 56% to $4.69 billion. Growth is mostly coming from smartphones that use the Android operating system, Amon said.

Like many other chipmakers, Qualcomm outsources production to companies such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. A surge in demand has left these foundries unable to keep up, but there have been recent signs that chip shortages may be easing.

A closely watched measure of chip delivery times didn’t grow as quickly in October — a hopeful sign. And the delays shrank for some kinds of semiconductors. More broadly, a key logistics provider said this week that supply-chain snags are subsiding. The problems have snarled ports and hit everything from cars to sneakers.

Qualcomm, based in San Diego, was able to rejigger its supply chain by having more than one provider make three of its key products. It expects smartphone chip sales to hit a record level this quarter, and it’s prioritizing that product line over some of its less profitable businesses.

“We’ve done what we said we’d do,” Amon said.

What’s working for Qualcomm may not be universally applicable. The company is one of the very few with the scale and design expertise to be able to have the same part manufactured by different companies. And even then, it’s taking a toll. Because Qualcomm is focusing on its most profitable smartphone components, other divisions are expected to see flat sales this quarter.

Excluding certain items, profit was $2.55 a share in the fiscal fourth quarter, compared with Wall Street’s average estimate of $1.95. Adjusted revenue grew 43% to $9.32 billion, topping the $8.86 billion projection.

The company is unique in the industry because a large chunk of its profit comes from technology licensing. Makers of phones pay to use Qualcomm’s technology, regardless of whether they buy its chips, because the company owns patents that cover some of the fundamentals of mobile communications.

After a multiyear legal battle with Apple Inc., the two companies settled and Qualcomm has become a supplier of modems — the chips that connect phones to cellular networks — to the iPhone. Some investors are concerned that revenue from that agreement will be relatively short lived because Apple will eventually build its own component.

Apple warned last week that it was struggling to keep up with iPhone demand, hurt by supply constraints. The problems will trim sales by more than $6 billion this quarter, CEO Tim Cook said after delivering earnings.

But with Android — not the iPhone — fueling Qualcomm’s phone-chip growth, that may be less of a concern.

“The fastest growth opportunity for us in handsets is the Android opportunity,” Amon said.



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