Chipset-making giant Qualcomm is facing a challenging period as it contemplates further employee layoffs amidst declining smartphone sales, macroeconomic uncertainties, and risks in the Chinese market.
The company's stock has taken a hit following disappointing sales reports and a warning of potential additional layoffs in the future.
The tech industry's economic slowdown and a dampened demand environment have compelled Qualcomm to lay off 5% of its workforce.
The company attributes these difficult decisions to the current macroeconomic conditions, which have significantly impacted smartphone sales and, consequently, the demand for its mobile-phone chips.
Notably, Qualcomm's chip sales have plummeted by a staggering 25 percent year over year in the third quarter of 2023.
The company's net income has also been severely affected, declining by 52 percent year over year. This sharp decline in revenue and profitability has been a major concern for investors, leading to an 8 percent drop in the company's stock value following the earnings call.
The layoffs have had a profound impact on affected employees, leaving them jobless and grappling with the daunting task of finding new employment opportunities.
For foreign workers, such as Indian tech professionals, who are working in the United States on H-1B visas, the downsizing has been particularly distressing. With uncertainties surrounding their work status, these foreign workers face additional challenges in securing new roles and visa approvals.
Despite the current setbacks, Qualcomm's CEO, Cristiano Amon, remains optimistic about the company's future. He believes that Qualcomm's work in artificial intelligence (AI) positions them uniquely to capitalize on the upcoming on-device Gen AI opportunity.
The company's focus on allowing users to run ChatGPT-style products directly on their phones is seen as a potential strategy to appeal to consumers and drive handset sales.
However, the broader smartphone market in the United States continues to face headwinds. According to Counterpoint Research, smartphone shipments in the US declined by 24 percent year over year in the second quarter.
This marks the third consecutive quarter of YoY decline, with Android brands like Samsung, Motorola, and TCL-Alcatel experiencing significant drops in shipments. On the other hand, Apple managed to maintain more resilient shipment numbers, leading to an increase in its market share.
The uncertain macroeconomic and demand environment has compelled Qualcomm to anticipate further restructuring actions.
The company aims to actively manage operating expenses and reduce non-GAAP operating expenses by approximately 5 percent relative to the run rate exiting fiscal '22.
In conclusion, Qualcomm is facing substantial challenges in the current market landscape, with declining smartphone sales and macroeconomic uncertainties impacting its chip sales and overall profitability.
The potential for further layoffs adds to the uncertainty for employees, especially for foreign workers on H-1B visas. However, the company remains determined to navigate these obstacles and capitalize on AI advancements to drive future growth in the on-device Gen AI space.
As the tech industry evolves, Qualcomm's ability to adapt and innovate will play a crucial role in its future success.