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Qualcomm shrugs off loss of Huawei sales as 4Q beats forecast

US chipmaker expects 5G to provide further boost to earnings despite trade war

Qualcomm expects its investments in 5G will start to pay off in the first half of 2020   © Reuters

PALO ALTO, U.S. -- Qualcomm beat fourth-quarter earning expectations despite making no sales to Huawei Technologies during the quarter, the U.S. chipmaker announced on Wednesday, saying it logged solid growth in its licensing business and expects commercialization of 5G to boost revenue further next year.

Qualcomm's total revenue dropped to $4.81 billion in the quarter through September. This is down $1 billion from a year ago but better than the Wall Street analyst consensus of $4.76 billion, as the impact of the ongoing trade war between the U.S. and China eases.

"Our business outlook is impacted by several factors, including weaker demand in China and certain developed regions, Huawei's share again in China, and OEM managing 4G inventory ahead of the transition to 5G," said Akash Palkhiwala, Qualcomm's newly appointed CFO.

The company's licensing business, which generates revenue from patents and other licensing arrangements, grew 4% in the past quarter, despite recording no new sales from Huawei in the period. The growth came partly from a settlement over royalties with Apple and Apple's contract manufacturers.

Qualcomm expects revenue in its first fiscal quarter of 2020, which will end in December, to come in between $4.4 billion and $5.2 billion. The guidance excludes revenue from Huawei as the U.S. government continues to ban American companies from selling technology to the Chinese company. Moreover, the two companies have not yet resolved their patent licensing dispute.

"Our revenue guidance does not include Huawei, so as that gets resolved that would be incremental to the range," Palkhiwala said.

Going forward, Qualcomm is betting its growth on the commercialization of 5G, especially in China.

In October, all three mobile operators in China launched commercial 5G services in the world's largest smartphone market.

"We now estimate that by the end of this year, the three operators will deploy a total of approximately 130,000 5G base stations," said Qualcomm CEO Steve Mollenkopf in the earnings call on Wednesday. "We further estimate that by the end of 2025, 5G base station deployments will increase to approximately 1 million, which to put in context is ten times the scale of the entire network of a large U.S. operator."

"The order of magnitude of deployment in China is significant," he added.

But competition in China will likely be intense.

Huawei has been a key customer of Qualcomm, as it buys chips from the U.S. company for its smartphones, the Chinese tech giant's chip unit HiSilicon Technologies is a competitor to Qualcomm because it is also developing 5G mobile chips.

The U.S. export ban has forced Huawei to adopt more of its own in-house chip solutions and is also helping Huawei chip business gain shares in China.

"We have seen a weaker market demand in China, and that combined with Huawei gaining shares in domestic China" contributed to market uncertainty in the region, according to Mollenkopf.

Shares of Qualcomm rose more than 5% in after-hours trading.

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