Qualcomm profit beats estimates, but memory costs cloud smartphone chip outlook

Qualcomm reported fiscal fourth-quarter results on Wednesday that beat Wall Street's profit estimates on paper but came wrapped in a cautious outlook tied to rising memory-chip costs, and investors sent the stock down sharply in after-hours trading. The San Diego company, the dominant supplier of modem and processor chips for Android smartphones, said revenue from its handset business fell 26 percent from a year earlier, even as its automotive unit posted a record quarter and its fledgling data-center business recorded its first meaningful revenue.

According to Qualcomm's fiscal fourth-quarter earnings release, the company posted GAAP revenue of $10.322 billion for the quarter ended September 27, down 8 percent from $11.270 billion a year earlier, and non-GAAP revenue of $10.442 billion, down 7 percent. Non-GAAP diluted earnings per share were $2.17, just ahead of the $2.16 analysts had expected, but down 28 percent from $3.00 in the same quarter last year. GAAP diluted earnings per share were $1.17, a sharp reversal from a $2.89-per-share loss a year earlier that had been caused by a one-time tax charge. The results, also filed with the Securities and Exchange Commission, showed handset chip revenue of $5.137 billion, down from $6.961 billion. Automotive revenue reached $1.990 billion, up 89 percent and the segment's first quarter above $2 billion, while internet-of-things revenue rose 4 percent to $1.888 billion. Licensing revenue was $1.304 billion, down 7 percent.

Memory costs squeeze the core phone business

The weakness in handsets traces back to a global run-up in memory-chip prices that has rippled through the smartphone supply chain for much of the year. Qualcomm raised its own component prices in September to offset higher input costs across wafer fabrication, packaging and memory, but the company said in its outlook that device makers have been passing those costs on to consumers, dampening demand even as unit shipments stabilize. Qualcomm said it does not expect the full benefit of its pricing actions to show up in chip-segment gross margins until the second half of fiscal 2027.

For fiscal 2026 overall, Qualcomm reported GAAP revenue of $43.12 billion, down 3 percent, and GAAP earnings per share of $12.70, a figure inflated by a $5.7 billion income-tax benefit, or $5.32 per share, from releasing a valuation allowance the company had set up a year earlier. Non-GAAP full-year earnings per share were $10.54, down 12 percent from $12.03.

Automotive record and an early data-center payoff

Automotive has become Qualcomm's clearest growth story outside the smartphone business, with chips for driver-assistance systems and in-car infotainment now sold to most major automakers. The quarter's $1.99 billion in automotive revenue, combined with a 4 percent rise in IoT sales, gave the two newer segments 36 percent combined year-over-year growth, a figure chief executive Cristiano Amon highlighted in the earnings release.

Amon told analysts on the earnings call that the data-center business generated about $650 million in revenue during the quarter, the first time Qualcomm has disclosed a figure for a business it has spent more than a year building around custom AI inference silicon and high-speed optical connectivity, following its acquisition of Alphawave Semi. The earnings release reiterated a fiscal 2027 data-center revenue target of $5 billion and noted a multi-generational product collaboration announced earlier this year with Amazon Web Services to co-develop custom AI chips. Amon framed the business as supply-constrained rather than demand-constrained.

"We don't have a demand issue; it's a supply issue," Amon said, adding, "If I had more supply, I would probably be doing better."

The quarter's licensing business also got a boost from renewed intellectual-property agreements. Qualcomm said it renewed long-term QTL patent license agreements with Apple, Huawei and Transsion, following a long-term patent cross-license agreement with Huawei that Qualcomm announced in October. Qualcomm's annual report filed with the SEC alongside the earnings release shows licensing revenue held essentially flat for the full year at $5.556 billion even as chip revenue declined.

Guidance disappoints, and shares slide

The reaction centered on guidance rather than the quarter just completed. Qualcomm forecast first-quarter fiscal 2027 revenue of $10.4 billion to $11.2 billion and non-GAAP earnings per share of $2.15 to $2.35 in its earnings release, a range that fell short of the roughly $2.27 per share and $10.48 billion in revenue analysts had been modeling, according to CNBC. Shares fell about 7 percent in extended trading following the release as investors weighed the near-term drag from memory costs against the longer-term automotive and data-center growth story. Qualcomm executives said on the earnings call that they expect the smartphone market to be roughly flat in calendar 2027, with sequential improvement already underway and Android shipments in China appearing to have bottomed out.

The results matter well beyond Qualcomm's own balance sheet. Android device makers that rely on Snapdragon chips face the same memory-driven cost pressure Qualcomm is passing through, which could show up in retail phone prices into next year. Automakers using Qualcomm's Snapdragon Digital Chassis platform benefit from a supplier whose automotive unit is scaling quickly, while the company's push into AI data-center silicon puts it in more direct competition with Nvidia, AMD and the custom-chip programs that hyperscalers like Amazon, Google and Microsoft have built internally.

What comes next

Qualcomm's next quarterly report, covering the period that will include its first full quarter of AWS-related data-center shipments, is expected in February. Investors and analysts will be watching whether the company's September price increases begin showing up in improved chip margins, whether memory costs stabilize across the broader semiconductor supply chain, and whether the data-center business can scale toward the $5 billion fiscal 2027 target management reiterated this week. For now, Qualcomm's diversification strategy, years in the making, is advancing on schedule in automotive and licensing even as the handset business that still generates roughly half of chip revenue absorbs a cost shock largely outside the company's control.