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Qualcomm Tops Estimates on Strong Chip Sales, but Forecast Weak

The company is still having a tough time concluding some deals in China.

Asa Mathat

Qualcomm on Wednesday reported earnings and revenue that topped analyst expectations amid a stronger-than-expected quarter for its chip business. However, shares of Qualcomm dropped in after-hours trading as the chipmaker warned that its sales and earnings for the current quarter will be significantly below last year.

The San Diego, Calif.-based company said that, excluding certain items, it earned $1.4 billion, or 91 cents per share, on revenue of $5.5 billion for the three months ended Sept. 27. Analysts had been expecting per-share earnings of 86 cents and revenue of about $5.2 billion, after Qualcomm said in July to expect between 75 cents and 95 cents per share on revenue of between $4.7 billion and $5.7 billion.

For the current quarter, though, the company forecast adjusted per-share earnings would fall sequentially, to somewhere between 80 cents and 90 cents, with revenue of $5.2 billion to $6 billion, well below last year’s $7.1 billion.

The company’s stock was recently changing hands at $57.19, down $3.07 or about 5 percent.

In July the company said it would reshape its board, cut $1.4 billion in costs and reduce staff by 15 percent. Qualcomm has since sold its Vuforia augmented reality unit, but has also stepped up efforts to move its chips into markets beyond phones, including drones and security cameras.

“We are encouraged by customer reaction to our flagship Snapdragon 820, are on track to deliver on our fiscal 2016 cost reduction targets and expect to exit fiscal 2016 on an improving financial trajectory,” CEO Steve Mollenkopf said in a statement. However, he also noted that it is taking longer than the company had hoped to conclude negotiations with some Chinese customers.

Qualcomm settled an antitrust dispute with the Chinese government earlier this year that established a new option for companies there that want to license Qualcomm’s technology. However, Qualcomm has had difficulty concluding negotiations with many phone makers on new terms, a move that has cost the company revenue as Qualcomm says some companies aren’t making required payments.

The company did complete a deal with Huawei earlier this year and more recently with ZTE and TCL, but some key companies are holding out.

“The key point is we believe we are going to resolve these things,” Mollenkopf said in an interview with Re/code, adding that the company has been cautious about assuming any new resolutions in its short-term financial guidance.

The company has also cut its forecast for the year three times amid struggles in its core chip business. It took a big hit when Samsung bypassed Qualcomm’s Snapdragon 810 for the Galaxy S6 and instead used its homegrown Exynos processor.

Qualcomm is hoping to win back at least some of Samsung’s high-end business next year by tapping the Korean electronics firm to manufacture the Snapdragon 820 in its own plants. Sources say Samsung will use the Snapdragon 820 for at least some models of its next flagship phone, while others may use an Exynos processor.

Mollenkopf said that the Snapdragon 820 has been designed into more than 60 devices, but declined to talk about which specific companies are using it. “The feedback we’ve gotten from customers is strong,” he said. “It’s something that is going to contribute to the strength of our 2016 business.”

In addition to the cost cuts, Qualcomm said it is continuing to study whether to split its chip and licensing businesses, an idea the company has in the past rejected but which some shareholders have been encouraging. Qualcomm says it expects to complete its review, as planned, by the end of the calendar year.

Mollenkopf said that the company is open to anything that would allow its business to operate better, but noted that “the business model we have has served us very, very well.”

This article originally appeared on Recode.net.