Qualcomm’s bottom line slumped thanks to China

qualcomQualcomm forecast first quarter profit below analysts’ expectations as the chipmaker struggles against fierce competition from Chinese and Taiwanese rivals.

Qualcomm reported its fiscal fourth-quarter earnings fell to $1.1 billion from $1.9 billion a year ago.

Revenue fell 18 per cent to $5.5 billion. Analysts had projected $5.21 billion. This was all better than analysts expected, thanks mostly to reduced costs, but the problem appears to be in the future.

The company is facing huge delays in closing Chinese licensing agreements with its two main Chinese customers.

President Derek Aberle said some Chinese customers were “improperly withholding” royalties on Qualcomm’s patents by changing the way they report sales. The company had half of its fiscal 2014 revenue from Chinese customers, so this was a big deal.

Qualcomm is expected to announce job cuts and other cost cutting steps in the face of stiff competition. Things are expected to get worse as chipmakers consolidate.

On the bright side demand for the new version of its flagship Snapdragon mobile chips was stronger than it had expected in the fourth quarter.

The company was hurt earlier this year by Samsung Electronics decision to use an internally developed processor, instead of the Snapdragon chips, in its Galaxy S6 smartphones.

Samsung had not ruled out using Qualcomm’s chips in the future and media reported last month that the South Korean company’s Galaxy S7 phones for the US and China markets were expected to use Snapdragon 820 chips.

The net income attributable to the company fell 44 percent to $1.06 billion.