Qualcomm Inc., the largest seller of semiconductors for mobile phones, fell after forecasting fiscal third-quarter profit that may miss some analysts’ estimates as average phone prices come under pressure.
Net income in the period that ends in June will be 80 cents to 88 cents a share, San Diego-based Qualcomm said yesterday in a statement. Analysts on average had projected earnings of 87 cents, according to data compiled by Bloomberg. The shares dropped 5.4 percent, the worst decline this year.
Qualcomm’s results are seen as a proxy for growth in the handset industry because its technology and chips dominate in advanced models with Internet access. Average selling prices for phones, the basis for calculating licensing income, may not reach the high end of the company’s earlier targets as more sales come from markets where consumers favor cheaper devices.
“They’ve got revenue upside, but you’re not seeing it flow through as much as you would like,” said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co. in New York, who rates Qualcomm shares outperform. “You’re not seeing the earnings upside.”
Qualcomm dropped $3.56 to $62.44 at the 4 p.m. close in New York. The stock is little changed this year, compared with an 11 percent gain for the Standard & Poor’s 500 Index.
For the year, Qualcomm predicted average selling prices as high as $224 per phone. That’s lower than earlier company predictions that ASPs might be as much as $226 per phone. In the most recent period, Qualcomm was paid royalties based on an average price of $214 to $220 per phone. That means ASPs will have to increase later this year for the company to meet the high end of its forecast, said Ian Ing, an analyst at Lazard Capital Markets LLC in San Francisco.
Revenue in the third quarter will rise to $5.8 billion to $6.3 billion, Qualcomm said yesterday, compared with an average analyst prediction of $5.88 billion. Average selling prices will increase from the second quarter as new, more expensive phones come to market, Qualcomm said.
Net income in the second quarter, which ended on March 31, fell 16 percent to $1.87 billion, or $1.06 a share, from $2.23 billion, or $1.28, a year earlier. Sales increased 24 percent to $6.12 billion. Analysts on average had predicted earnings of $1.03 a share on sales of $6.09 billion.
While growth in emerging markets such as China is helping Qualcomm’s sales, gains are coming in lower-priced chips, a trend that is hurting profitability. Revenue in its chip business rose 28 percent from a year ago to $3.92 billion in the second quarter. Operating margin -- operating income as a percentage of sales -- at that division narrowed to 17 percent from 26 percent in the prior three months.
“If you look at the emerging regions, they are becoming a much more significant portion,” Chief Executive Officer Paul Jacobs said in a telephone interview. “China was a big strength for us.”
The majority of Qualcomm’s revenue comes from baseband chips, which connect phones to cellular networks and are sold to wireless-device makers such as Apple Inc. and Samsung Electronics Co. Most of the company’s profit comes from the licensing of so-called code division multiple access technology, a radio-communications standard used in handsets and phone systems. Even phones that don’t use its chips generate royalties for Qualcomm if they are compatible with networks that use the CDMA standard.
The company has gained market share in semiconductors by being the first to sell modem chips that support the long-term evolution standard, or LTE, which provides the fastest download speeds. Qualcomm has a market share of more than 90 percent in LTE, according to researcher Forward Concepts.