Qualcomm confirms it is downsizing in China

Qualcomm plans to downsize its business in China amidst concerns over the economic situation and demand uncertainties, it emerged late last week.

However, the US-based chipmaker denied a rumour that it will close down its R&D centre in Shanghai, according to local financial news outlet Yicai.

The business publication contacted Qualcomm following what it describes as Internet reports that claimed the Shanghai facility was for the chop, a move that would bring about large-scale job losses. Qualcomm confirmed that it is staying in Shanghai, describing the claims as false and overblown, but it’s pretty clear that all is not well in China for Qualcomm.

The firm told Yicai that it has mainly scheduled staff redundancies and other downsizing measures for the fourth quarter of the fiscal year – which ends about now – and will be completed in the first half next year. Qualcomm explained that the downsizing in China forms part of the cost-cutting measures, including layoffs, it warned about in its fiscal Q3 results call last month.

Weakened consumer demand for new smartphones and other Qualcomm-equipped devices, triggered by the global macroeconomic situation, hit the chipmaker’s quarterly revenue and bottom line, and it did indeed highlight upcoming workforce reductions, albeit noting that it had yet to finalise its plans. With fiscal Q4 just drawing to a close, we might well expect more from Qualcomm on this pretty soon. It cautioned that these cost-cutting efforts will bring restructuring charges, much of which it will account for in its fourth-quarter numbers.

Those numbers will not make comfortable reading. Qualcomm predicted in August that Q4 sales will come in at $8.1 billion-$8.9 billion, down from $11.4 billion in the same quarter last year, while EPS will fall to $1.37-$1.57 from $2.54. All in all, that’s quite a slide.

We don’t have to look far to see exactly why Qualcomm is struggling. Canalys’ figures for the three months to the end of June showed an ongoing decline in the global smartphone market – the sixth consecutive quarter of decline, to be precise. While the analyst firm is optimistic about early signs of recovery, there is little wonder companies like Qualcomm are feeling the pinch.

Indeed, Qualcomm itself warned of continued uncertain demand for smartphones and so forth in the months ahead, hence its decision to make some cuts.

While the company hasn’t yet given much away about its plans for China – it has an R&D centre in Beijing as well as its Shanghai hub – the country will likely feature fairly heavily in the restructuring announcement, whenever it comes. According to Yicai, Qualcomm’s R&D facility in Shanghai, which has been open since 2010, employs 393 people.

Like Qualcomm’s staff in the rest of the world, those almost 400 people are probably now seriously considering their future. They won’t all lose their jobs, but clearly some will. That’s not a great situation for anyone to find themselves in, particularly in the current climate.

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