Qualcomm's profit slips as Chinese revenues decline

The fierce competition emerging from China and Taiwan is adversely impacting the performance of Qualcomm Inc. The drop in business from China has eroded the profitability of Qualcomm as the dragon country accounted for half of the revenues in 2014.

However, relying on a strong line-up of chips across various levels and operational improvement, Qualcomm is confident of improving performance in 2016.

The company is keen on reducing production cost. Qualcomm's outlook remains positive in the smartphone and other related segments as its advanced mobile technologies can help it developing next-gen solutions. 

The transition to the 14-nanometer node is expected to save production costs for the company. Qualcomm couldn't complete new license agreements in China and didn't generate revenues from original equipment manufacturers (OEMs) in the world's second-largest economy. 

Qualcomm is developing next-gen solutions for automotive communications using its latest mobile technology. It's also focusing on Internet of Things (IoT), mobile computing, networking, small cells and data center solutions for enhancing business volume.

Qualcomm's forecast for the first quarter is below the market expectations. The Qualcomm's agreements with two Chinese companies are taking longer than expected.

Qualcomm's President Derek Aberle said some Chinese customers are withholding royalties on its patents. Some customers even change their report sales to avoid royalty on Qualcomm's patents, he said.

In 2014, the company earned half of its total revenues from Chinese market only. The US company is hoping that once new agreements are finalized, then the issue will be resolved.

Qualcomm is in the process of reviewing its strategy. Jana Partners, a hedge fund, suggested it spin off chip unit from patent-licensing business, which is very profitable for the company. 

The soft outlook for 2016 disappointed investors and this pushed down the share price 5.3 percent to $60.26 on Nasdaq.

The quarterly net income eased to $1,061 million or 67 cents per share from $1,894 million or $1.11 in the previous corresponding quarter. The total revenues for the quarter dropped 18.5 percent on year-on-year to $5,456 million. However, it was above analysts' forecasts of $5,210 million. 

The revenues from CDMA technology segment added $3,625 million during the quarter. But it fell 25.2 percent when compared with the previous year's quarter. Qualcomm technology licensing revenues were $1,785 million marginally down 0.6 percent on year-on-year. 

Qualcomm shipped 203 million CDMA-based MSM chipsets during the quarter and this was 14 percent lower on year-on-year basis. The average selling price (ASP) of the 3G/4G handset with an in-built Qualcomm chipset was $207-213.

Qualcomm's chipsets are mostly used in Apple's iPhone, Alphabet Inc's Google Android, Microsoft's Windows, etc.