Qualcomm shares slide as smartphone slump puts pressure on its core business
The chipmaker reported a 26% drop in handset revenue and warned that memory costs and Apple's departure will continue to weigh on the market. Qualcomm is betting on data centers, automotive and other businesses to reduce its reliance on smartphones.
Qualcomm shares were down more than 9% in Thursday trading, extending losses after the chipmaker reported a 26% drop in handset chip revenue and warned that a shrinking phone market and Apple's departure will continue to weigh on its core business, even as it argued that the worst may be over.
"We closed fiscal 2026 with many of the uncertainties that have been weighing on our business now behind us," CEO Cristiano Amon told analysts. "Specifically, QTL license renewals, the loss of Apple as a customer, and the negative impact of memory pricing on the size of the mobile industry."
Handset revenue fell to $5.14 billion, below the $5.25 billion analysts expected, according to Reuters and Visible Alpha. Adjusted revenue declined 7% to $10.44 billion, beating estimates, while adjusted earnings per share came in at $2.17. For the first quarter of fiscal 2027, Qualcomm forecast revenue of $10.4 billion to $11.2 billion, with the midpoint above analysts' estimates, and adjusted earnings per share of $2.15 to $2.35, with the midpoint slightly below expectations.
CFO Akash Palkhiwala said price increases, which will begin to take effect in the second fiscal quarter, are expected to lift gross margin back toward its historical range of 48% to 50%, albeit at the lower end. The full benefit is expected in the second half of fiscal 2027. Custom chips for data centers will be "accretive to our operating margins, but dilutive to gross margins," he said.
Qualcomm expects revenue from businesses outside handsets to grow by more than 60% in fiscal 2027, bringing the handset business to less than half of total revenue. The company forecast data-center revenue of more than $650 million in the first quarter, $5 billion for the full fiscal year and an annualized exit rate of $7 billion, as it works toward a $15 billion target for fiscal 2029. "We expect to be constrained by supply rather than demand for upsides beyond the $5 billion," Palkhiwala said.
Most of this year's data-center revenue is expected to come from two hyperscaler customers, one of them Amazon, Amon said. Amazon's warrants are "the exception" to Qualcomm's usual terms, Palkhiwala said.
Qualcomm's automotive business posted its first $2 billion quarter, with revenue up 89%. Amon said the company's agreement to supply technology for SpaceX's Starlink Mobile 5G network would contribute mostly to fiscal 2028 revenue.
Qualcomm also renewed its patent license agreements with Apple, Huawei and Transsion. "We were able to hold the rates and the royalties as we renewed the contracts," Palkhiwala said.
