Qualcomm jumps as optimism on smartphones, AI chips outweigh dismal forecast

By Joel Jose

April 30 (Reuters) – Qualcomm shares jumped more than 13% on Thursday, as investors latched on to the chief executive’s optimism about a recovery in its smartphone business and data center opportunities, eclipsing a weak third-quarter forecast.

CEO Cristiano Amon, in an interview with Reuters on Wednesday, said the company was confident that the smartphone market will start to rebound after its fiscal third quarter.

Qualcomm, one of the world’s largest suppliers of smartphone chips, has increasingly sought to reduce its dependence on the cyclical handset market by expanding into high-growth segments such as data center processors and autonomous vehicle chips.

The diversification strategy follows heightened uncertainty from smartphone makers this year, as a sharp rise in memory chip prices has driven up the cost of global consumer electronics, prompting customers to rein in purchases.

Apple , one of Qualcomm’s largest customers, sourced modems from the chipmaker for years.

However, the iPad maker’s push for building in-house modem chips has threatened Qualcomm’s share of Apple’s silicon components and, thereby, the chipmaker’s revenue growth.

Qualcomm had warned investors that it expects market share loss from Apple as a modem-chip customer, once their technology licensing agreement expires in 2027.

“It (Apple’s market share loss) leaves the company searching for a narrative in a handset business increasingly dependent upon smaller-scale brands to compete with Apple and Samsung,” Morgan Stanley added.

DIVERSIFYING INTO DATA CENTER BUSINESS

Qualcomm has been pushing to enter the fast-growing data center chip market and plans to begin shipping products before the end of the year.

Amon said the company is working with customers on three kinds of chips: central processing units, accelerators for inference and custom chips called ASICs.

The booming market for ASICs has benefitted rivals such as Broadcom and Marvell Technology.

Earlier this week, an analyst report said Qualcomm and Taiwan’s MediaTek are co-development partners for an AI-first smartphone that OpenAI plans to build.

At least 14 brokerages raised their price targets on Qualcomm’s stock following the results, according to data compiled by LSEG.

While the chip designer’s shares rose on investor optimism, some analysts disagreed with Amon’s remarks that the worst of the memory crunch is over.

“While Qualcomm will have visibility into stabilizing handset revenues, the smartphone industry is hardly out of the woods with the likelihood of further pressure in the underlying market, with further worsening of memory shortages and memory price increases,” analysts at J.P. Morgan said.

(Reporting by Joel Jose in Bengaluru; Editing by Shreya Biswas)