Qualcomm Sees Lower Sales in South Korea
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from Bloomberg News
SEOUL (June 28) -- Qualcomm Inc., which developed mobile-phone technology used by 57 million people worldwide, said sales of its chips could decline next quarter because of lower demand in South Korea, its largest market.
Qualcomm Treasurer Dick Grannis said the company will ship more than 14.5 million phone chips in the third quarter ending this month. That could drop by 1 million or 2 million units in the fourth quarter ending in September, he said. Qualcomm gets a quarter of its phone-chip sales in South Korea.
The Korean government banned the country's five phone service providers from discounting handsets to attract new subscribers as of June 1. The move more than doubled phone prices for consumers. Several analysts have said they expect demand for Qualcomm's chips to fall and had cut their earnings estimates for the company, causing the stock to fall this month.
``The Korean weakness for this upcoming quarter is now tangible,'' said Prudential Volpe Technology Group analyst Pete Peterson, who cut his fiscal fourth-quarter earnings estimate to 28 cents a share from 31 cents. He maintained his ``strong buy'' rating on Qualcomm stock.
Shares of San Diego-based Qualcomm fell 1/2 to 63 3/16 in early afternoon trading. They've dropped 64 percent this year, the fourth-worst performance in the Standard & Poor's 500 Index, after rising 27-fold in 1999 to lead the index. Trading of 26.2 million shares made the company the fourth-most active U.S. stock.
Earnings
Qualcomm said it doesn't expect ``these developments in South Korea to affect pro forma earnings in the third quarter of fiscal 2000.'' Analysts expect the company to have profit of 27 cents a share this quarter. That's expected to rise to 30 cents a share next quarter. The company is forecast to earn $1.43 a share in fiscal 2001.
Peterson reduced his fiscal 2001 forecast to $1.40 a share from $1.63, mainly to remove expectations for sales in China. He said he was ``relatively unique'' among brokerage analysts in including such sales in earnings estimates.
Semiconductors for phones accounted for 38 percent of Qualcomm's revenue in the fiscal second quarter, while royalties from patent licenses accounted for about 23 percent.
There are ``still a lot of factors that could develop,'' Grannis said. Analysts have noted the possibility of the Korean government reversing the ban, something it has done before.
Qualcomm said it hopes to make up for the possible shortfall through marketing programs in South Korea, higher exports to other countries and sales of new chips that provide faster Internet access.
Korea has 27 million mobile-phone service subscribers all using handsets that use Qualcomm's code division multiple access standard. Phone-makers Samsung Electronics Co. and LG Information and Communication Co. dominate the Korean market.
Before the ban, more than 2 million handsets were ordered, according to local newspapers. Still, local brokerage analysts have lowered their forecasts for annual handset sales for Samsung and LGIC by as much as 50 percent.
Jun/28/2000 13:13 ET
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