Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Qualcomm (NASDAQ:QCOM) dropped more than 11% early Thursday after the chip maker beat quarterly expectations, but followed with disappointing guidance.
So what: Fiscal first quarter 2015 revenue rose 7% year over year to $7.1 billion, which translated to 6% growth in adjusted net income per share to $1.34. Analysts, on average, were looking for earnings of $1.25 per share on sales of $6.93 billion.
However, Qualcomm also reduced its full-year revenue and earnings outlook for its semiconductor business by $800 million and $0.30 per share, respectively. Now, Qualcomm expects fiscal 2015 revenue of $26 billion to $28 billion, and adjusted earnings per share of $4.75 to $5.05. By contrast, analysts were modeling earnings of $5.21 per share and revenue of $27.8 billion.
Now what: Qualcomm elaborated there are three reasons for its guidance reduction.
First, a "shift in share among OEMs at the premium tier" has reduced its near-term opportunity for sales of integrated Snapdragon processors. Second, Qualcomm is seeing heightened competition in China, where it resolved a previously disclosed dispute with a licensee, but still believes there are certain licensees which aren't fully complying with contractual obligations to report sales of licensed products.
Third -- and likely the biggest catalyst of today's decline -- Qualcomm no longer expects its Snapdragon 810 processor to be in the upcoming design of a "large customer's flagship device." Qualcomm isn't naming names, but a Bloomberg report last week indicates it's Samsung, which apparently dropped the cutting-edge chip from its upcoming Galaxy S6 due to overheating issues in testing.
Make no mistake: That's an enormous loss. And while Qualcomm remains solidly profitable, given its current headwinds I can't blame the market for bidding shares down so aggressively today.
Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.