Key Notes
- Qualcomm beat adjusted earnings and revenue estimates, but handset chip sales fell 26% from a year earlier.
- The first-quarter adjusted EPS midpoint of $2.25 is below the $2.32 estimate despite a higher revenue midpoint.
- Management targets $5 billion in fiscal 2027 data-center revenue while higher input costs weigh on margins.
Qualcomm (NASDAQ: QCOM) shares fell about 5% in early after-hours trading on Wednesday after the chipmaker reported a steep decline in handset sales and offered a profit outlook whose midpoint fell short of expectations, despite beating quarterly earnings and revenue estimates.
Adjusted earnings were $2.17 a share, just above the $2.16 estimate, while adjusted revenue of $10.44 billion exceeded the $10.12 billion forecast. The company’s results covered the fiscal fourth quarter ended September 27.
The stock traded at $164.51 at 21:06 UTC, down 5.01% from its $173.19 regular-session close, according to CNBC’s quote data. That reversed a 5.33% gain during the regular session and put the focus on the transition beyond smartphones.
An Earnings Beat With a Smaller Handset Business
The beat against expectations came against a weaker year-earlier comparison. Adjusted quarterly revenue declined 7%, while adjusted earnings per share fell 28% from $3.00. On a GAAP basis, revenue was $10.32 billion and earnings were $1.17 a share.
Handset chip revenue fell 26% to $5.14 billion, removing about $1.82 billion of sales from Qualcomm’s largest chip business. Automotive and connected-device growth softened that decline but did not eliminate it.
QCT, the semiconductor division, generated $9.02 billion in revenue, down 8%. Its earnings-before-tax margin fell to 24% from 29%, meaning the division earned less on each dollar of sales as well as selling less overall.
The licensing business also weakened. QTL revenue declined 7% to $1.30 billion, with earnings before tax down 10% to $918 million. Renewed long-term agreements with Apple, Huawei and Transsion nevertheless give Qualcomm important continuity in its royalty business.
Automotive Growth Helps Fund a Broader Ambition
Automotive revenue rose 89% to $1.99 billion, nearly doubling from a year earlier. Internet-of-things revenue increased 4% to $1.89 billion. Together, the two businesses grew 36%, providing a counterweight to smartphones.
Chief Executive Cristiano Amon expects non-handset revenue to grow more than 60% in fiscal 2027 and reiterated a $5 billion data-center revenue target for that year. Those are management forecasts; the fourth-quarter figures show how much of the transition still lies ahead.
Qualcomm has already laid out its data-center plans with the AI200 and AI250 platforms. Its results also highlighted a multigeneration collaboration with Amazon for AI data centers, extending the search for growth into large computing systems.
Connectivity remains another route beyond phones. Earlier Wednesday, SpaceX selected Qualcomm technology for a planned nationwide Starlink Mobile network, as we reported. The announcement broadens Qualcomm’s commercial opportunities, although it does not by itself establish how much revenue that project will contribute in the next quarter.
The Outlook Puts Costs in Focus
For the fiscal first quarter, Qualcomm expects revenue of $10.4 billion to $11.2 billion and adjusted earnings of $2.15 to $2.35 a share. The $10.8 billion revenue midpoint is above the $10.55 billion estimate, but the $2.25 earnings midpoint is below the $2.32 forecast.
That combination gives shareholders a more complicated outlook than a simple sales miss. Revenue can exceed expectations while profit disappoints if the product mix becomes less favorable or the cost of supplying those products rises.
Qualcomm said input costs are increasing across wafer fabrication, assembly, testing, advanced packaging, memory and other materials. It is raising product prices in response, but expects the full benefit for QCT gross margins only in the second half of fiscal 2027.
Until those price changes take fuller effect, investors have to weigh the pace of growth in new businesses against the pressure on margins. The data-center ramp offers a larger market, but entering that market is not the same as delivering the expected profit from it.
Investment Rises as Cash Generation Slows
Full-year capital expenditure reached $2.49 billion, more than double the prior year’s $1.19 billion and above the $1.86 billion estimate supplied ahead of the results. Operating cash flow declined to $11.15 billion from $14.01 billion.
Qualcomm returned $11.67 billion to shareholders through buybacks and dividends during the year, including $7.82 billion of repurchases. That exceeded annual operating cash flow before capital spending, illustrating the competing demands on the company’s cash.
The forecast leaves Qualcomm with a difficult handoff: automotive is growing rapidly, but smartphones still supply more than half of chip revenue. The company is counting on data centers to help close the gap while higher product prices work their way through margins.
