November 13, 2008 / 7:32 PM / 11 years ago

Qualcomm halts UMB project, sees no major job cuts

NEW YORK (Reuters) - Qualcomm Inc (QCOM.O), seeking to cut costs in the face of slowing demand for cell phones, has stopped developing a next-generation wireless technology called Ultra Mobile Broadband.

The U.S. flag flies next to one of Qualcomm's many buildings in San Diego, California, July 22, 2008. REUTERS/Mike Blake

The wireless chip maker will put its resources into a rival high-speed technology called Long Term Evolution, which some of its major customers, such as Verizon Wireless, have backed, said Qualcomm Chief Executive Paul Jacobs.

Jacobs told an annual analysts’ meeting on Thursday that there are no plans to undertake “a large layoff across the company” as he expects a modest market recovery in cell phone chip demand the second half of 2009.

Qualcomm issued weaker-than-expected full-year forecasts last week, leading some investors to question how sure it could be of its outlook in the difficult economic environment.

“We’re trying to do as good a job as we can predicting the market. With that said there’s still some uncertainty out there,” Jacobs said, citing challenges in predicting phone volume sales and product mixes for 2009.

Jacobs said he was still seeing growing demand for advanced cell phones, putting Qualcomm in a good position as it sells technology licenses as well as chips.

“We’re looking at difficult times in the near term, but the long-term strength of the company is strong,” he said.

Qualcomm expects customers to tighten inventory levels to support 14 weeks of sales in the first half of fiscal year 2009, down from 19 weeks in September.

Jacobs said that device manufacturers were much more cautious than carriers, which appeared “somewhat cautious.” On the sidelines of the conference, he said operators would likely cut spending on network equipment before devices.

“I would expect if they make a trade off, the trade off would be more around capital spending than handsets,” he said.

Some analysts were relieved Qualcomm repeated its fiscal 2009 guidance, first issued just a week ago.

“Normally you wouldn’t even think about that,” said Pacific Crest analyst James Faucette, adding that investors were taking nothing for granted after trends had turned bad so quickly.

Analysts said that Qualcomm’s most notable focus during its presentations was on its efforts to win customers and expand beyond cell phones.

Qualcomm said it wants to increase business from existing cell phone makers such as Sony Ericsson, as well as sell chips to market leader Nokia NOK1V.HE after ending their legal battles with a technology licensing agreement.

Steve Altman, Qualcomm’s president, said that while it remains to be seen whether the company would earn a chip contract with Nokia, “it’s ours to earn now.”

Qualcomm said its Snapdragon chips, aimed at consumer electronics such as pocket computers or low-power laptops, would be in the first devices in the first half of 2009.

Faucette said it made sense for the company to apply its expertise to other areas as the phone market may shrink next year. He said he expects 1.2 billion to 1.4 billion phone sales in 2009 compared with about 1.3 billion phone sales in 2008.

As for Mediaflo, its mobile television business, Qualcomm plans to expand it beyond the United States, where it has its own network to kick-start demand for the technology. Chief Operating Officer Len Lauer said Qualcomm could look to buy airwaves in markets such as India.

The company said its estimate, given about three years ago, for spending $800 million on developing the Mediaflo USA network was outdated but it did not give spending details beyond saying that 2009 capital spending would be lower than 2008 spending for the network.

Shares of Qualcomm closed up almost 7 percent on the Nasdaq in line with the general market. Its shares finished at $34.82 after falling as low as $30.82 earlier in the session.

Reporting by Sinead Carew, editing by Matthew Lewis, Leslie Gevirtz

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