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Alphabet Misses On Q1 Revenue, Earnings As ‘Other Bets’ Loss Widens

Alphabet ( GOOGL ) unit Google reported Q1 sales and earnings that earnings that missed Wall Street’s expectations. Alphabet reported its total revenue rose 17% year over year to $20.257 billion. Analysts polled by Thomson Reuters had expected $20.37 billion. Earnings per share ex items rose 14% to $7.50. Analysts had wanted to see EPS ex items of $7.97. Revenue excluding traffic acquisition costs or TAC – what the company pays to other sites to carry its ads – climbed 18% to $16.469 billion. Analysts had expected $16.54 billion. The diverse group that Alphabet calls its “Other Bets” range from self-driving cars to smart home device maker Nest. The Other Bets segment logged an $802 million operating loss in Q1, Alphabet reported, deepened from a $633 million loss in the year-earlier quarter. When Alphabet released Q4 earnings in February, the tech giant revealed that it logged an operating loss of $3.6 billion on such moonshot projects in 2015. As is its custom, Alphabet did not provide guidance. Analysts polled by Thomson Reuters are expecting to see Q2 total revenue rise 17.45% year over year to $20.82 billion. Alphabet is expected to post Q2 EPS ex items of $8.22, up 17.6% year over year. Q2 revenue excluding TAC is expected to rise 18.09% year over year to $16.946 billion, according to Factset. “Our Q1 results represent a tremendous start to the year with 17% revenue growth year on year and 23% growth on a constant currency basis. We’re thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long term growth,” said Alphabet CFO Ruth Porat in a statement. Alphabet stock was down 5% in after hours trading on Thursday after closing at 780, up a fraction.

Virtual Reality Goes From Virtually Nothing To $2 Billion Market

Virtual reality headsets will generate about $2.3 billion in sales worldwide this year, up from next to nothing last year, market research firm IDC predicted Thursday. Shipments of VR headsets will skyrocket to 9.6 million units this year, IDC said. Driving the market are three high-definition headsets: Facebook ’s ( FB ) Oculus Rift, HTC’s Vive and Sony ’s ( SNE ) PlayStation VR. The market also will get a boost from lower-cost devices, such as Samsung Gear VR, which use a smartphone as the display. IDC predicts that annual shipments of VR headsets will reach 64.8 million units in 2020, with a five-year compound annual growth of 184%. “Video games will clearly be the lead rationale for people to pick up an Oculus Rift, HTC Vive or PlayStation VR this year,” IDC analyst Lewis Ward said in a statement . Exciting new VR games on the way will lead to a wave of interest in buying VR hardware, especially this holiday shopping season, he said. This month, research firm Strategy Analytics predicted that VR headsets would generate sales this year of $895 million worldwide. It predicted sales of 12.8 million VR headsets this year, skewed toward low-cost, smartphone-based devices. The Oculus Rift, which began shipping on March 28, costs $599. HTC Vive went on sale April 5 and costs $799. PlayStation VR will cost $399, and it goes on sale in October. Oculus Rift and HTC Vive require the use of a high-end PC, and PlayStation VR needs to be coupled with the PlayStation 4 game console. The tangential market of augmented reality (AR) headsets, such as Microsoft ’s ( MSFT ) HoloLens, will take longer to develop, IDC said. IDC is forecasting sales of 400,000 AR headsets this year, rising to 45.6 million in 2020. “While development kits from players such as Microsoft, Meta and others point to a strong future in AR hardware, these devices are dramatically harder to produce than VR products,” IDC analyst Tom Mainelli said in a report. “Doing this right is more important than doing it fast, and we urge the industry to continue its slow and steady approach to hardware development here, as AR is going to have a profound impact on the way we interact with technology and the way we do our jobs for many years to come.” In the meantime, expect to see more companies experimenting with AR software on smartphones and tablets, he said. VR headsets cover the wearer’s entire field of vision and provide an immersive video and audio experience. AR headsets are computerized glasses that overlay information onto a wearer’s field of view. RELATED: Augmented Reality Could Be The Next Big Leap For Personal Computing .

Qualcomm Loses Apple Business To Intel, Confronts Smartphone Drop

While not mentioning Apple ( AAPL ) by name, Qualcomm ( QCOM ) implied it will lose business to Intel ( INTC ) as a chip supplier for the iPhone 7, Apple’s newest smartphone expected to launch this fall. The comments came during the company’s quarterly earnings  conference call after the market close Wednesday, with Qualcomm’s EPS guidance falling short of Wall Street estimates. Qualcomm CEO Steve Mollenkopf told analysts it was important for planning purposes to factor in “a range of second-sourcing assumptions at our large customers.” He said improving demand for premium and high-tier devices in the second half of the fiscal year would be “offset by reduced demand for thin modem products and low-tier chipsets.” “Apple iPhone 7 modem share loss is confirmed,” wrote Pacific Crest Securities analyst Michael McConnell in a research note late Wednesday, a point of view shared by other analysts. The understanding is that Intel will be a second-source supplier to Apple for chips in the iPhone 7 that manage connections to wireless networks, called either modem or baseband chips. Qualcomm is expected to remain the primary supplier to Apple for these chips, but the win by Intel was seen as a setback to Qualcomm, the leading smartphone chip developer. McConnell says Qualcomm is likely to lose a 20% to 30% share of baseband chips in the new iPhone to Intel, worth annual revenue of about $600 million to $900 million, he wrote. He maintained an overweight rating on Qualcomm but lowered the price target to 61 from 63. Qualcomm stock was down about 1%, near 51.50, ahead of the closing bell in the stock market today . Qualcomm stock is down 25% in the past year. Smartphone Slowdown Weighs On Qualcomm The loss to Intel comes as Qualcomm is maneuvering through a slowdown in smartphone sales as the market nears saturation. Qualcomm lowered its guidance on smartphone device sales to about 1.67 billion in 2016 from previous guidance of 1.72 billion. It expects year-over-year growth of about 8%, down from 10%. IDC estimates smartphone shipments in 2015 rose 10% to 1.4 billion units, slowing from 27% growth in 2014. IDC expects smartphone growth in China to be flat in 2016. It was the maturing smartphone market and the potential for market share loss that that caused Rosenblatt Securities to downgrade Qualcomm to neutral from buy, though it maintained a price target of 57. RBC Capital analyst Amit Daryanani said there was a lot to digest in the Qualcomm earnings report, given the increased uncertainty. Risks to the stock price include lower smartphone pricing, lower royalty rates, increased competition from a variety of manufacturers and slower smartphone growth. Qualcomm is dealing with the market changes in multiple ways. It has focused on a $1.4 billion cost-reduction plan, boosting cash flow and profit, bolstering research and development, positioning for industry growth and making China licensing a top priority, among other steps. The company says that it’s on track to realize at least $700 million in savings in fiscal 2016, an increase of $100 million from its original estimate. Qualcomm reported revenue of $5.6 billion for the quarter ended March 27, down 19% from the year-earlier quarter but beating the consensus estimate of $5.34 billion. It was the fourth quarter in a row of decelerating revenue, year over year. Earnings per share minus items fell 26% to $1.04, but that number topped the 96-cent consensus estimate of analysts polled by Thomson Reuters. It was the fourth quarter in a row that EPS has decelerated. Qualcomm’s fiscal Q3 revenue guidance beat, but views on EPS missed.