Updated from 4:20 p.m.

Citing a slowdown in key European and Asian markets,

Qualcomm

(QCOM) - Get Report

slashed 2005 guidance, sending its shares tumbling.

The San Diego-based wireless tech shop cut its handset sales target by 5% and cut its fiscal-year revenue growth forecast by half, to 11%. The company now expects to make $1.16 a share for the year on revenue of $5.6 billion, down from previous guidance of $1.17 a share on revenue of $6.05 billion.

The news came as Qualcomm posted fiscal-second quarter numbers that beat earnings expectations but fell shy on the top line. The company made 29 cents a share on revenue of $1.37 billion, as compared to a Thomson First Call consensus estimate calling for 27 cents a share on revenue of $1.4 billion.

One observer said the company is in the midst of a technology transition that apparently isn't going exactly as planned.

"It looks like their old CDMA business is slowing faster than the pick up in new WCDMA sales," said one buy side analyst. "I think the prices on WCDMA phones will probably start to come down. That will help stimulate sales especially as strong demand kicks in later in the year."

The analyst, who was buying Qualcomm shares Wednesday, says Qualcomm is probably still working through excess inventory due to double ordering by customers who were forced into limited shipment allocations when chip supplies were tight late last year. That hangover typically "lasts about six months and should be done by the end of June," says the analyst.

For its part, Qualcomm cited a slowdown in the rollout of so-called third-generation wireless networks for its weak outlook.

"Our revised guidance, as compared to our prior fiscal year 2005 guidance, reflects a lower acceleration of WCDMA handset sales as operators optimize their WCDMA networks, anticipate future lower-priced handsets, and work to identify successful pricing and marketing strategies for new wireless voice and data services," the company said. "We are reducing our calendar 2005 handset estimate by approximately 5% due to a slower WCDMA ramp-up in Western Europe and anticipated channel inventory adjustments in CDMA2000, notably for Latin America and Southeast Asia. However, we expect increasing market share for our WCDMA chipsets."

In early after-hours action, Qualcomm dropped $1.51 to $31.70.