Qualcomm blames Europe for slump in chip sales

Chipmaker Qualcomm suffered a drop in stock price on the news that it would be missing analysts' projections of 130 million chips sold in the period ending in September by between five and 10 million.

The shortfall is being blamed on poor European sales as inventories of CDMA-related products are being cleared out, something which has been on the cards for a while. "Chip units for autumn are light," admitted Qualcomm's chief financial officer Bill Keitel in a conference call with press and investors.

"The blame likely lies in Europe," he claimed during the call. "European inventory correction now seems to be a fact, instead of a theory."

While any such inventory correction will be a temporary issue for the company, there could be bigger problems on the horizon. While its flagship Snapdragon application processor has a number of fans, many companies are looking towards rival Nvidia's Tegra 2 platform for their tablet devices. As a result, Qualcomm risks being shut out of an increasingly lucrative market.

According to Bloomberg Tero Kuittinen, an analyst at MKM Partners LLC, had projected chip sales of 130 million for the company, but these are now being scaled back to between 120 million and 125 million.

The news saw Qualcomm's share price drop 3.8 per cent, denting the 16 per cent gain the company has enjoyed since the beginning of the year. Despite this, the company is bullish. "Qualcomm delivered strong year-over-year results again this quarter as our business performed well across all key guidance metrics," chief executive Paul E. Jacobs claimed in a statement.

"We continue to see healthy growth in CDMA-based device shipments of approximately 18 percent in calendar year 2011, and we are pleased to be raising our revenue and Non-GAAP earnings guidance for the fiscal year, driven primarily by strong global smartphone adoption and the addition of Atheros," he added.

Revenue for the company rose in the third quarter by 34 per cent year-on-year but dropped six per cent quarter-on-quarter thanks to the slow European market, while operating income slumped 22 per cent from last quarter. Despite this, net income - at $1.04 billion - is up 35 per cent year-on-year and four per cent quarter-on-quarter.