By Stephen Nellis and Max A. Cherney
(Reuters) -Qualcomm on Wednesday forecast fiscal second-quarter profit slightly above Wall Street estimates and sales in line with market expectations but investors were concerned about the chip maker's Android sales in China.
The sales outlook reflects interest in new Qualcomm chips with features designed to help run chatbots, image generators and other artificial-intelligence features directly on a device instead of in cloud computing data centers.
Shares seesawed in after-hours trading and were last down 0.8%.
Qualcomm executives told analysts on a conference call that after a flurry of making new chips for Android phones released at the end of last year, they expect chip sales into the company's most important market to be flat in the current fiscal second quarter. Analysts said this indicated Qualcomm is losing market share to rivals in China.
Qualcomm predicted sales and adjusted profit with a midpoint of $9.30 billion and $2.30 per share for the current fiscal second quarter ending in March. The outlook compares with analyst estimates of $9.30 billion and $2.25 per share, according to data from LSEG.
In addition to the results, the company said on Wednesday it has reached a chip supply deal with Samsung to supply chips globally for its top-end Galaxy S24 model. But that deal does not cover all of Samsung's newest models, some of which will use Samsung's own chips, a reversal from the previous generation of phone where the South Korean electronics giant used Qualcomm chips exclusively.
Indeed, Qualcomm is facing challenges on multiple fronts, with Huawei using Qualcomm only for 4G phones due to U.S. export restrictions and Taiwan's MediaTek challenging Qualcomm's stronghold in mid- and premium-tier Android phones.
"A simple comparison against MediaTek results and outlook clearly confirmed our concern that Qualcomm is losing market share in the Chinese Android market," said Kinngai Chan, an analyst at Summit Insights.
In its patent business, Qualcomm said Apple extended a licensing deal through March 2027. Qualcomm said in September it had signed a deal to supply Apple with chips through 2026 but noted that part of a patent deal made with the iPhone maker in the wake of a major antitrust battle was set to expire next year.
For Qualcomm, "5% revenue growth and 24% earnings growth is very constructive in a skeptical earnings season environment," said Thomas J. Hayes of Great Hill Capital.
San Diego, California-based Qualcomm is also expanding into other markets such as personal computers, with partners such as Dell Technologies and Lenovo Group expected to debut laptops with chips that Qualcomm claims are faster than Apple's in-house processors.
For the fiscal first quarter ended on Dec. 24, Qualcomm reported sales and adjusted profit of $9.94 billion and $2.75 per share, above estimates of $9.52 billion and $2.37 per share, according to LSEG data.
In Qualcomm's chip segment, the company forecast fiscal second-quarter sales with a midpoint of $7.9 billion, above analyst estimates of $7.86 billion. Qualcomm predicted second- quarter sales with a midpoint of $1.3 billion in its patent-licensing business, in line with estimates of $1.3 billion.
For the just-ended fiscal first quarter, Qualcomm said chip and licensing revenues were $8.42 billion and $1.46 billion, respectively, above/below analyst estimates of $7.99 billion and $1.41 billion, according to LSEG data.
Within its chip business, Qualcomm said that mobile handsets generated $6.69 billion in sales in the first quarter, above estimates of $6.37 billion, according to data from Visible Alpha. Automotive and Internet-of-Things chip revenues in the first quarter were $598 million and $1.14 billion, respectively, compared with analyst estimates of $518.3 million and $1.22 billion.
(Reporting by Stephen Nellis and Max A. Cherney in San FranciscoAdditional reporting by Arsheeya Singh Bajwa in Bengaluru Editing by Sayantani Ghosh and Matthew Lewis)