Chipmakers are demonstrating tangible evidence that they are feeling the effects of the U.S.-China trade war and the Trump administration’s ban on sales to Huawei Technologies.

On Wednesday, Qualcomm — the San Diego-based fabless chip vendor with perhaps the heaviest exposure to the China woes — disappointed Wall Street with its fiscal fourth-quarter forecast and warned of China-related headwinds for the next two quarters.

“The Huawei export ban, along with the pivot from 4G to 5G — which accelerated over the past couple of months — has contributed to industry conditions, particularly in China, that we expect will bring great headwinds in our next two fiscal quarters,” said Steve Mollenkopf, Qualcomm’s CEO, in a conference call with analysts.

Qualcomm cut its total handset shipment forecast for 2019 by 100 million units, saying that it now expects shipments to be between 1.7 billion and 1.8 billion units. The company also forecast that its sales for the current quarter, which closes in September, will be between $4.3 billion and $5.1 billion, well below consensus analysts’ expectations of about $5.63 billion.

Qualcomm said that it expects its overall sales to be down by 12% to 26% year over year in the current quarter and expects its modem chipset shipments to be down about 4% sequentially and down 31% to 40% year over year.

In addition to continued weakness in demand in China, Qualcomm said that it expects to feel the sting of Huawei’s continued push to gain more market share inside China, which is where the telecom giant has placed emphasis since it was placed on a U.S. export control blacklist in May.

Huawei increased its second-quarter China shipments by 31%, even as the country’s overall smartphone shipments declined for the ninth-straight quarter, according to market research firm Canalys. Huawei’s 38% second-quarter market share in China was the highest for any handset vendor in the country in eight years.

“As a result of the export ban, Huawei shifted their emphasis to building market share in the domestic China market, where we do not see the corresponding benefit in product or licensing revenue,” Mollenkopf said.

Mollenkopf said that the weak demand in China is also the result of Chinese customers working through existing 4G inventories ahead of what is expected to be an avalanche of 5G launches in early 2020. Qualcomm expects Chinese customers to cut down on launching new 4G handsets during the second half of the year, he said. As a result, Qualcomm does not expect to see the typical seasonal uptick in sales ahead of the holidays.

“We see continued weakness in China demand, Huawei gaining share inside of China, and our Chinese OEMs managing their inventory ahead of 5G,” said Dave Wise, Qualcomm’s interim chief financial officer.

Qualcomm’s projections for the next two quarters overshadowed an otherwise strong fiscal third quarter for the company. Qualcomm’s fiscal third-quarter sales came in at $9.6 billion, up 93% compared to the previous quarter and up 73% from the third quarter of fiscal 2018.

The company also reported a profit for the quarter of $2.1 billion, up 79% compared with the third quarter of fiscal 2018.

By: DocMemory
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