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Qualcomm Snapdragon 810 CPU dumped from flagship smartphone

While China woes rumble on: Watchdog on one hand, deadbeat partners on the other

Qualcomm reported record revenues for the first quarter of its fiscal 2015 on Wednesday, but the mobile chipmaker warned investors that it's still struggling to make headway in the all-important China market.

The San Diego, California company reported net income of $1.97bn for the three months ending on December 28, which beat analysts' expectations and was a 7.2 per cent increase over the year-ago period. That net income came off revenues of $7.10bn in the quarter.

Qualcomm's earnings for the period, on the other hand, slightly underperformed at $1.17 per diluted share.

As in past quarters, sales of equipment and services brought in the lion's share of Qualcomm's revenues. The figure totaled $5.22bn in Q1, which was 12.1 per cent higher than the same quarter a year ago.

Licensing revenues, meanwhile, were down 4.4 per cent, to $1.88bn.

While the numbers looked good for the first quarter, however, Qualcomm backpedaled from its earlier guidance for fiscal year 2015, citing challenging market conditions.

"Looking ahead, we have lowered our revenue outlook for our semiconductor business for the second half of the fiscal year and lowered our EPS expectations," Qualcomm CEO Steve Mollenkopf said in the company's earnings press release [PDF]. "These changes reflect our revised expectations related to OEM mix, sales to a large customer and heightened competition in China."

China is a particularly important market for Qualcomm, owing to the projected explosion of mobile phone sales in the region, which is the most populous on Earth.

But the China market has been a tough nut for the firm to crack. For one thing, Qualcomm has come under the baleful eye of the country's National Development and Reform Commission (NDRC), which has accused it of abusing its market position and overcharging customers. Rumor has it that Qualcomm may be asked to pay fines of as much as $1bn to settle the matter.

What's more, while Chinese manufacturers are eagerly gobbling up Qualcomm tech, the chipmaker believes many of them are underreporting the amount of it they use.

"We also believe that certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed products to us (which includes certain licensees underreporting a portion of their 3G/4G device sales and a dispute with a licensee) and that unlicensed companies may seek to delay execution of new licenses while the NDRC investigation is ongoing," the company said.

On the plus side, Qualcomm said it had successfully resolved a dispute with one unnamed Chinese licensee during the first quarter.

Nonetheless, it has reduced its revenue guidance for fiscal year 2015 to between $26.0bn and $28.0bn, down from a range of $26.8bn to $28.8bn. Qualcomm's total revenues for fiscal 2014 were $26.5bn.

Part of that reduction, it said, is due to increased competition from homegrown chips produced by Chinese manufacturers.

But Qualcomm also said it's seeing less demand for its integrated Snapdragon system-on-chip (SoC) units, with more OEMs instead ordering Qualcomm modem chipsets for lower-end devices. One unnamed major manufacturer is expected to drop Qualcomm's Snapdragon 810 processor from a forthcoming flagship phone – which may be Samsung's upcoming Galaxy S6, leaked specs for which show it containing a processor that doesn't match specs for Qualcomm's product line.

The news did not come as music to Qualcomm investors, who sent the firm's share price tumbling down more than 8 per cent in after-hours trading. ®

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