Qualcomm shares fall on downbeat forecast for licensing business

(Reuters) -Shares of chipmaker Qualcomm fell about 5% in early trading on Thursday as a weak outlook for its patent licensing business outweighed strong expectations for quarterly sales and profit.

The company disappointed investors after it said the licensing business, which accounted for 14.8% of its total revenue in the reported quarter, would see no sales growth this year following the expiration of its agreement with Huawei Technologies.

Analysts at TD Cowen said they were expecting the impact of the removal of Huawei royalty to be mild but see it adding "another brick to the wall of worry facing the stock."

However, analysts noted that Qualcomm has secured license agreements with two other Chinese smartphone firms.

Qualcomm - one of the biggest makers of processors that power smartphones - beat first-quarter results on strong demand for AI features in mobile devices. 

The company's performance is often viewed as an indicator of overall end-market demand in the smartphone industry.

The midpoint of the second-quarter sales forecast of $10.75 billion and an adjusted profit of $2.80 per share, came in above analysts' estimates of sales of $10.34 billion and an adjusted profit of $2.69 per share, according to data from LSEG. 

Qualcomm credited robust sales from China for growth in its smartphone unit, as government subsidies and a slew of flagship launches power demand in the country.

The company is "executing well in its own right with upsides from all aspects of its business, including Handsets, Autos as well as IoT continuing to surprise investors positively," J.P.Morgan analysts said.

Although the chip designer's shares rose modestly in 2024, their gains of 6% pale in comparison with a 171% jump in AI chip leader Nvidia's stock. They have, however, far outperformed shares of Intel, which lost 60%, and Advanced Micro Devices, which shed 18%, last year.

Qualcomm's median price target is at $192, compared with $199 before the results, according to data compiled by LSEG. 

The company's 12-month forward price-to-earnings ratio is 15.02, compared with Nvidia's 27.64, INTC's 32.21 and AMD's 22.5.

Arm Holdings shares dropped 4.5% after the chip tech provider said it would no longer meet the top end of its previously issued full-year forecast. Qualcomm also said Arm has withdrawn a threat to terminate its license agreement with the chip technology provider.

(Reporting by Kanchana Chakravarty, Harshita Mary Varghese and Arsheeya Bajwa In Bengaluru; additional reporting by Danilo Masoni; Editing by Amanda Cooper and Anil D'Silva)