Qualcomm Forecast Shows China Phone Market May Be Rebounding

Qualcomm Forecast Shows China Phone Market May Be Rebounding
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Qualcomm gave a more positive outlook than analysts expected, sparking optimism that the Chinese smartphone market is showing signs of life, according to Bloomberg. Sales will be $4.8 billion to $5.6 billion in the fiscal third quarter, the company said in a statement. Analysts on average expected revenue of $5.45 billion.

The San Diego-based company is the biggest maker of chips that power most smartphones, making its results a key indicator of the sector’s health. Recent reports by other companies in the industry raised concern about weak demand, particularly in China, the world’s largest smartphone market.

Qualcomm is the main supplier to China’s largest smartphone makers. That suggests recent industry reports of weaker component demand may be focuses on Apple. Qualcomm executives said in an interview that China’s smartphone market is starting to improve.

While the company had experienced close to a halt in chip orders at the end of 2017 from China, sales of phones have been good enough to help shift a buildup of unused components, said CFO George Davis. “You’ve seen inventory go down pretty rapidly,“ he added.

Profit in the fiscal second quarter was 80 cents a share, excluding certain items. Adjusted revenue was $5.2 billion. Analysts had predicted adjusted earnings of 70 cents a share on revenue of $5.19 billion.

One of the cornerstones of the company’s plan to reignite earnings growth is its acquisition of NXP Semiconductors. That deal, the biggest Qualcomm has ever attempted, was announced in 2016 and is still waiting for regulatory approval in China.

The company is still confident it can close the transaction ahead of a July 25 deadline. While trade tension between the U.S. and China suggests permission is unlikely to come soon, the two sides are likely to settle into calmer negotiations starting next month, said CEO Steve Mollenkopf.