Shares of chipmakers Arm and Qualcomm slide as smartphone sales skid – News

Shares of the chipmakers Arm Holdings Plc and Qualcomm Inc. were both heading lower in today’s after-hours trading session.

The decline in Arm’s stock was perhaps understandable, given its mixed results, but Qualcomm will be wondering what it did wrong after beating expectations on earnings and revenue and offering strong guidance for the current quarter.

First up was Arm, whose stock fell more than 8% in extended trading after it posted disappointing first-quarter earnings and revenue. The company delivered earnings before certain costs such as stock compensation of 35 cents per share, matching Wall Street’s forecast, while revenue came to $1.05 billion, just shy of the analyst’s target of $1.06 billion.

The company’s net income fell 42%, to just $130 million, while its guidance wasn’t much better. Executives forecast a range of between $1.01 billion and $1.11 billion, which is more or less in line with the Street’s target of $1.05 billion.

Arm has made a name for itself by designing the architecture for computer chips that power the vast majority of the world’s smartphones, as well as tablets and wearable devices. In recent years, its chip designs have also started appearing in data center servers and in PCs.

However, the company’s story may change, for Arm Chief Executive Rene Haas (pictured) told Reuters in an interview after the results were published that he’s now looking to invest more heavily in technology that goes “beyond designs.” He didn’t say so directly, but the suggestion is that Arm could be thinking of building its own, complete processors, or having a contract manufacturer make them for it.

On an earnings call with analysts, Haas elaborated on this a bit more, admitting that there is an “execution risk.” Arm, which sells its chip designs to almost every major semiconductor company, would also risk turning its main customers into competitors if it did decide to sell its own chips.

However, those customers might still be interested in buying Arm’s complete chips. For instance, the likes of Microsoft Corp. and Amazon Web Services Inc. both design their own data center processors based on Arm’s architecture designs, and according to Haas, some of them have “asked for a better starting point.”

According to Haas, that better starting point might be an entire chiplet designed and provided by Arm, which could then be integrated into custom chips. It could also have the entire chip built itself, according to the customer’s specifications. “We’re looking now at the viability of moving beyond the current platform to additional subsystems, chiplets or possibly full solutions,” Hass said.

That’s all well and good, but investors seemed to be more focused on Arm’s immediate business, which is earning royalties from the sales of other companies’ chips that utilize its architectural designs. Unfortunately for Arm, that business isn’t doing so great, primarily because of dwindling smartphone sales that it has little direct control over.

“The growth wasn’t quite as strong in the smartphone sector as maybe we’d expected,” Arm Chief Financial Officer Jason Child admitted on the call.

Arm’s problem is that U.S. President Donald Trump continues to create economic uncertainty with threats of implementing big, blanket tariffs on any country that doesn’t negotiate a separate trade agreement. In turn, that uncertainty continues to curtail consumer spending on smartphones. As a result, Arm’s “license and other revenue” declined 1% from a year earlier, to $468 million. Royalty revenue, which stems from the sales of more complete architecture designs, was a bright spot, up 25%, to $585 million.

Despite the after-hours decline, Arm’s stock is still up more than 29% in the year to date, outperforming the broader S&P 500 Index, which is up just 8% in the same period.

Qualcomm beats expectations, but handsets fall short

Though Arm’s after-hours movements could be easily explained, it’s a lot less clear why investors were taking out their frustrations on Qualcomm.

The chipmaker, which dominates the market for smartphone semiconductors, delivered solid third-quarter results, with earnings of $2.77 per share beating the Street’s target of $2.71, and revenue growing 10%, to $10.37 billion, just ahead of the $10.35 billion forecast.

The results helped Qualcomm to increase its net profit to $2.66 billion in the quarter, up from $2.13 billion a year earlier.

Qualcomm’s guidance was decent too, with executives saying they’re looking at revenue of $10.7 billion at the midpoint of their guidance range, ahead of Wall Street’s $10.35 billion target. They’re also looking for earnings of $2.85 per share, versus the $2.83-cent analyst forecast.

The one glaring blot on Qualcomm’s results was revenue from its handset business, which makes chips for smartphones. It reported total sales of $6.33 billion, shy of the Street’s forecast of $6.44 billion. Even so, the company made up for it with strong gains in its automotive and internet of things businesses, where revenue increased by 21% and 24%, respectively.

Qualcomm also reported growth in its QTL division, which makes money from patent licensing fees for technologies it has developed, such as the 5G standard. Overall, the unit generated $1.32 billion in sales, up 11% from the year-ago period.

Just like Arm, Qualcomm is eager to expand its business further and has plans to design and sell chips that can be used directly in data centers for artificial intelligence workloads. On a conference call with analysts, Qualcomm CEO Cristiano Amon (pictured, above) said the company is already holding discussions with a major cloud infrastructure provider over such a move, which could start generating revenue for the company by fiscal 2028.

“While we are in the early stages of this expansion, we are engaged with multiple potential customers,” Amon said. “We are currently in advanced discussions with a leading hyperscaler.”

That prospect, however, wasn’t enough to quell whatever concerns investors have about Qualcomm’s near-term prospects, and its stock fell more than 5% after-hours. As a result, Qualcomm’s shares are up just over 3% in the year to date.

Photos: Arm/YouTube and SXSW/YouTube