By Stephen Nellis and Arsheeya Bajwa
(Reuters) -Chip designer Qualcomm (NASDAQ:) on Wednesday forecast sales and profit in the current quarter would exceed Wall Street estimates as the company benefits a wave of launches of flagship Chinese smartphones, and its shares rose 8.5% in extended trading.
Qualcomm said it expects sales and adjusted profits for its fiscal first quarter, which will cover the holiday shopping season in U.S. and European markets, with a midpoint of $10.90 billion and $2.95 per share. Wall Street expected $10.59 billion and $2.86 per share, according to data from LSEG.
For the fiscal fourth quarter ended Sept. 29, Qualcomm said sales and adjusted profits were $10.24 billion and $2.69 per share, beating analyst expectations of $9.91 billion and $2.56 per share.
The San Diego, California-based company is the biggest supplier of smartphone chips and is benefiting from a recovery in the smartphone markets as consumers upgrade devices for artificial intelligence applications such as chatbots and image generators.
While Qualcomm’s current outlook topped Wall Street expectations, investors are still trying to gauge how quickly its revenue stream from Apple (NASDAQ:) will fade. Apple is working on its own modem chips, and Qualcomm has warned investors that the iPhone maker will stop using its chips at some point. Some analysts believe Apple accounts for up to a quarter of Qualcomm’s revenue.
While Qualcomm has a deal to keep selling chips to Apple until at least 2026, Wall Street is watching to see whether Qualcomm’s efforts to break into laptops and artificial intelligence in data centers will ramp up quickly enough to offset declines in Apple revenue.
In an annual filing on Wednesday, Qualcomm said Apple has “utilized modem products of one of our competitors in some of its devices rather than our product” but did not name the competitor. Taiwan’s MediaTek Inc and South Korea’s Samsung Electronics (KS:) are Qualcomm’s biggest rivals in the modem market.
But launches of new flagship phones from Chinese Android brands such as Xiaomi (OTC:) , Oppo and Vivo helped lift Qualcomm’s forecast, said Kevin Cassidy, managing director at Rosenblatt Securities.
Qualcomm on Wednesday also said it had signed a new licensing agreement with Shenzhen Transsion Holdings Co Ltd , a Chinese firm that makes phones for developing markets.
The company also disclosed that it stopped shipping 4G smartphone products to Huawei Technologies Co on May 7. Before that, it derived about $560 million in sales from the Chinese telecommunications giant.
Qualcomm is in a protracted legal dispute with Arm, whose technology Qualcomm uses in almost all its flagship products. Arm last month threatened to cancel a key license with Qualcomm, and the trial in a case brought by Arm in a license dispute is set to start in December.
In Qualcomm’s chip segment, the company forecast fiscal first-quarter sales with a midpoint of $9.3 billion, compared with analyst estimates of $9.02 billion, according to Visible Alpha data. Qualcomm predicted first-quarter sales with a midpoint of $1.55 billion in its patent-licensing business, compared with estimates of $1.51 billion.
For the just-ended fiscal fourth quarter, Qualcomm said chip and licensing revenues were $8.68 billion and $1.52 billion, respectively, compared with estimates of $8.42 billion and $1.45 billion, according to Visible Alpha data.
