(Bloomberg) -- Qualcomm Inc., the world’s biggest seller of smartphone processors, is expecting a modest recovery for the industry in 2024, with phone shipments getting stronger but the market for internet-connected appliances remaining sluggish.

Phone shipments, which declined in 2023, will be “flat to up slightly” in 2024, the company said Wednesday on a conference call following its fiscal first-quarter earnings report. Though phone manufacturers have mostly worked through excess inventory, oversupply remains a problem in Qualcomm’s second-largest business — providing chips for connected devices. 

The shares fell as much as 5.7% to $140.09, marking the biggest intraday decline since September.

In an interview with Bloomberg Television, Chief Executive Officer Cristiano Amon said that concerns about inventory were overblown. The handset market is no longer struggling with a glut, and the market for internet-connected devices — a segment known as the Internet of Things — is passing its lowest point and will soon return to growth, he said. 

“Handsets are getting back to normal,” Amon said. New phones with artificial intelligence functions are exciting, but it’s still difficult to predict when they will capture the imagination of consumers and drive a spike in sales, he said. 

Qualcomm sales will be $8.9 billion to $9.7 billion in the fiscal second quarter, the company said. That was in line with an average analyst estimate of $9.36 billion. Excluding certain items, profit will be $2.20 to $2.40 a share in the current quarter, versus an average projection of $2.26.

Investors have been looking for signs that consumers are upgrading their smartphones at a faster pace. On that front, Qualcomm had good news: Revenue from handsets gained 16% last quarter, compared with a 27% decline in the previous three months.

Qualcomm also said Wednesday that Apple Inc. extended a patent licensing agreement by two years. It now runs until March 2027. The chipmaker also signed a new agreement with Samsung Electronics Co., with the South Korean company agreeing to base future devices on Qualcomm processors.

Apple is the world’s largest smartphone maker — after passing Samsung last year — and will give further insights into the state of the industry Thursday. That’s when the company is due to report its quarterly results. 

While Amon is trying to lessen his dependence on the phone market — with forays into automotive and personal computer chips — Qualcomm’s earnings are still heavily influenced by demand for handsets, particularly in China.

In the fiscal first quarter, which ended Dec. 24, profit was $2.75 a share, excluding some items. Revenue was up 5% at $9.9 billion. Analysts had estimated profit of $2.36 and sales of $9.54 billion.

The Internet of Things remained a weak spot. Revenue from that business fell 32%. Qualcomm’s automotive sales rose 31%.

The San Diego-based company’s main product is a processor that runs many of the world’s best-known phones, including many of Samsung’s Galaxy line. It also sells the modem chips that connect Apple’s iPhone to high-speed data networks.

An additional portion of Qualcomm’s profit comes from licensing the fundamental technology that underpins all modern mobile networks — fees that phone manufacturers pay whether they use Qualcomm-branded chips or not.

--With assistance from Ed Ludlow and Caroline Hyde.

(Updates with CEO comments starting in fourth paragraph.)

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