What's going on?
Shares of American chip manufacturer Qualcomm dropped 8% on Thursday. It’s forecasting quarterly revenue below investors’ expectations, compounding a tough year for world’s biggest smartphone chip supplier.
What does this mean?
Qualcomm’s expecting its sales this quarter to be some 20% lower than the same time last year – and its profit looks set to fall too. One reason is that sales of smartphones are declining in 2018 for the first time ever. The company is hoping sales of modems for new 5G networks will help turn the tide, but it’s facing stiff competition from Intel.
Qualcomm’s fought battles on several fronts this year: the US government squashed a takeover approach from Singapore-based rival Broadcom, citing security concerns, while Qualcomm itself failed to win regulatory approval to acquire rival NXP Semiconductors. Qualcomm’s now preparing for a $7 billion courtroom battle with Apple, which recently stopped using chips from Qualcomm in a dispute over the fees it charges companies to use its patented technology. On Tuesday, a US judge seemed to side with Apple, ruling that Qualcomm must let rival chipmakers use its products – even the hated Intel.
Why should I care?
For markets: The smartphone industry’s going to voicemail.
The explosive growth of smartphones in the last decade has been very tasty for the chip industry. But every bag has a bottom: last quarter, global sales of smartphones fell 7% versus the same time last year. Even in China, where folks are buying sneakers and handbags en masse, they’re not buying new smartphones to snap a #shoppingselfie – sales dropped 15% last quarter. And nobody’s immune: even Apple’s sales growth forecast this quarter fell shy of investors’ predictions.
The bigger picture: China’s no longer the cash cow of yesteryear.
Tech companies have been hugely reliant on Chinese growth. But as its economy matures, that bumper growth is easing up. Chinese smartphone brands like Huawei and Xiaomi are now looking overseas – they’re hoping India, where sales are still growing, may be their sacred cow instead.