NEW YORK, February 7: Two telecommunications equipment makers became the latest US victims of the Asian financial slowdown on Friday after saying they faced order cancellations from South Korea, their major export market.Qualcomm Inc's stock dropped about 15 per cent after the San Diego-based company said its second-quarter earnings would fall below first-quarter levels due to cancelled orders from South Korea.Qualcomm, which makes digital wireless communications systems, also said it would cut 700 temporary jobs. Qualcomm, the second most active Nasdaq issue, shed $8.50 to $47.75.
Sawtek, a cellular phone component maker, said a major Korean customer had asked to cancel orders for the first half of this year. Sawtek also supplies components to Qualcomm. Sawtek shares fell $6.19 to $24.44.
In a telephone interview, Sawtek chief financial officer Ray Link declined to name the customer but said it represented about 10 per cent of the company's annual revenues. In all, the company derives about 22 percent of its revenues from Korea. Sawtek is negotiating with the customer over the cancellations. Link declined to project to what extent potential order cancellations would cut into Sawtek's earnings, only saying, "We gave no guidance on that in our release."
Wall Street expected the company to earn $1.22 a share this fiscal year, up from 97 cents a share in 1996, according to First Call.
At least three brokerage firms downgraded Qualcomm, and several other analysts trimmed earnings estimates. Investment bank Hambrecht & Quist cut Sawtek.
Wall Street had expected Qualcomm's second-quarter results to match the first-quarter earnings of 50 cents per diluted share, according to First Call Corp, which monitors industry earnings forecasts.
Qualcomm did not comment on how much it expected second-quarter results to fall short of its first-quarter performance. In the second quarter a year ago, Qualcomm posted profit of $16.7 million, or 23 cents a share, on revenue of $585.7 million. Qualcomm said two Koreanmanufacturers have partly cancelled or postponed second-quarter orders of its Application Specific Integrated Circuits.
Qualcomm also said a previously announced Korean order for 1,800-megahertz (MHz) Q phones will not be fulfiled. It said second-quarter sales of the Q phone will be lower than planned due to the loss of the Korean order, the delay in introducing its 800-MHz cellular Q phone and a recent reduction in demand for 1,900-MHz PCS (personal communications services) Q phones. However, it said demand for its QCP models remains strong.
"We are confident that, despite the current economic turmoil, the Asian markets, including South Korea, represent vibrant long-term opportunities for Qualcomm and CDMA," Qualcomm chairman Irwin Jacobs said in a statement.CDMA, or code division multiple access, is a digital technology that aims to improve call quality and reduce the number of disconnected phone calls for digital cellular phone service. CDMA was developed and is licensed by Qualcomm. Korea is currentlythe largest market for CDMA technology, analysts said.
While Qualcomm may take some time to regain earnings momentum, overall sales and the CDMA market will continue to see growth, Lehman Brothers analyst Tim Luke said in a research note.
Luke said he maintained a long-term buy rating on the stock, saying Qualcomm's recent problems are only near-term issues.
The company said the 700 temporary manufacturing job cuts will come this week due to increased manufacturing efficiencies and a shift to products that require less labor to produce.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
