Qualcomm Incorporated (NASDAQ: QCOM) today announced that it expects a reduction in second quarter earnings and Communications Systems margin from the prior quarter, due primarily to recent events involving its customers in South Korea.
Two Korean manufacturers have just requested a partial cancellation or postponement of second quarter orders of Application Specific Integrated Circuits (ASICs). Further, following a recent visit to Korea, the Company concluded that a previously announced order for 1800 MHz Q phones will not be fulfilled. Sales of the Q phone are expected to be lower than planned in the second quarter due to the loss of the Korean order for 1800 MHz Q phones, the delay in introducing the 800 MHz cellular Q phone, and a recent reduction in demand for 1900 MHz PCS Q phones. Demand for the QCP models remains strong, and production ramp up at QPE continues.
"We are confident that, despite the current economic turmoil, the Asian markets including South Korea represent vibrant long-term opportunities for Qualcomm and CDMA," said Dr. Irwin Jacobs, chairman and CEO of Qualcomm Incorporated. "We are working actively with our Korean customers to help them weather this difficult economic downturn. CdmaOne technology continues to be rapidly deployed around the world. Although the financial markets remain in a state of flux, we anticipate the weaker won will strengthen Korean suppliers in their export of CDMA and other products in future quarters. Further, we do not believe that the economic downturn in this region will delay global acceptance of cdmaOne, now present in more than 30 countries around the world."
Despite the continuing ramp up in capacity at QPE, the Company is reducing its manufacturing workforce by approximately 700 temporary workers this week. This reduction is partly due to the change in mix between the Q phone, with its higher labor content, and the QCP portable phones, with their lower labor content, and partly to ongoing cost improvements and increased manufacturing efficiencies. The Company previously indicated that temporary employment levels at QPE vary with changes in production levels.
Qualcomm continues to lead the evolution of cdmaOne, including higher data rates and capacity and the recent successful demonstration of a GSM/CDMA overlay system. Looking forward, the Company notes the now central role of the Company's technology in third generation (3G) systems, as indicated by the selection of W-CDMA by the European Telecommunications Standards Institute (ETSI).
Headquartered in San Diego, Qualcomm develops, manufactures, markets, licenses and operates advanced communications systems and products based on its proprietary digital wireless technologies. The Company's primary product areas are the OmniTRACS system (a geostationary satellite-based, mobile communications system providing two-way data and position reporting services), CDMA wireless communications systems and products and, in conjunction with others, the development of the Globalstar low-earth-orbit (LEO) satellite communications system. Other Company products include the Eudora Pro electronic mail software, ASIC products, and communications equipment and systems for government and commercial customers worldwide. For more information on Qualcomm products and technologies, please visit the Company's web site at http://www.qualcomm.com.
Except for the historical information contained herein, this news release contains forward-looking statements that are subject to risks and uncertainties, including the Company's ability to successfully manufacture and sell significant quantities of CDMA handsets, ASICs and infrastructure equipment on a timely basis, changes in economic conditions of the various markets the Company serves including the Asian markets, continued currency fluctuations and risk, the ability to develop and introduce cost effective new products in a timely manner, potential delays in the commercial implementation of the Company's CDMA technology, continued growth in the CDMA subscriber population and the scale-up and operations of CDMA systems, developments in current or future litigation, the Company's ability to effectively manage growth and the intense competition in the wireless communications industry, risks associated with vendor financing, timing and receipt of license fees and royalties, failure to satisfy performance obligations, as well as the other risks detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended September 28, 1997 and most recent Form 10-Q.
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