January 28, 2015 / 9:09 PM / in 3 years

Qualcomm says key customer passed on new chip, stock drops

A Qualcomm sign is pictured in front of one of its many buildings in San Diego, California November 5, 2014. REUTERS/Mike Blake

SAN FRANCISCO (Reuters) - Qualcomm Inc (QCOM.O) reduced its outlook for fiscal 2015, saying it expects its newest Snapdragon mobile chip will not be used in a major customer’s flagship smartphone, sending its shares lower.

The San Diego, California, company also warned that “challenges” with another of its chips had hurt its competitiveness in China, where Qualcomm has been disappointed with growth that has fallen short of expectations.

The chipmaker said in a statement on Wednesday it expects fiscal 2015 revenue between $26.0 billion and $28.0 billion, down from a previous estimate of between $26.8 billion and $28.8 billion.

It now expects non-GAAP diluted earnings per share for fiscal 2015 between $4.75 and $5.05, compared to a previous range of $5.05 to $5.35.

Top smartphone maker Samsung Electronics Co Ltd (005930.KS) decided not to use the new Qualcomm Snapdragon 810 processor for its next flagship Galaxy S smartphone after the chip overheated during testing, Bloomberg reported earlier this month. Samsung had declined to comment on the report.

Qualcomm Chief Executive Steve Mollenkopf told analysts on a conference call that the Snapdragon 810 performed well and is on track to be used in 60 devices.

Samsung designs and makes its own line of smartphone processors, the Exynos, but the Korean company in the past has depended on Qualcomm’s chips for many of its smartphones.

“Qualcomm has a lot of market share but they have some customers with scale to do their own silicon, and it looks like that’s happening,” said Bernstein analyst Stacy Rasgon. “This may be a trend.”

Qualcomm said “product challenges” with a chip in China have created an opening for smaller competitors.

“We have already addressed many of the initial product challenges in order to support early customer device launches in these tiers and are continuing to further enhance the performance of this chip,” Mollenkopf said.

China’s expanding high-speed 4G network is driving demand for smartphones with leading-edge technology, but Qualcomm’s opportunities have been clouded by a year-old antitrust investigation there and troubles collecting royalty payments from device makers.

The company said it resolved a dispute with a major licensee in China but that the timing and impact of a resolution of the National Development and Reform Commission’s (NDRC) investigation remain uncertain.

Qualcomm reported first-quarter revenue of $7.1 billion, up 7 percent. Analysts on average had expected first-quarter revenue of $6.94 billion, according to Thomson Reuters I/B/E/S.

First-quarter net income was $2.0 billion, up 5 percent from a year ago. GAAP diluted earnings per share were $1.17.

Non-GAAP earnings were $1.34 per share, versus $1.25 expected by analysts.

Qualcomm shares fell 8 percent in extended trading after closing down 1.09 percent at $70.99 on Nasdaq.

Reporting by Noel Randewich; Editing by Meredith Mazzilli and Phil Berlowitz

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