Updated Version 4 - Qualcomm stock price drops, sluggish smartphone market casts a shadow over growth momentum

Supplemented with analyst commentary and margin information; updated stock price performance

Anhata Rooprai/Stephen Nellis

Reuters, November 4 - Qualcomm QCOM.O reported on Wednesday that its fourth-quarter smartphone chip sales missed Wall Street estimates due to tepid demand and a decline in revenue from Apple-related AAPL.O business, causing its stock price to drop by more than 6% in after-hours trading.

Although forecast revenues for its emerging data center business exceeded expectations, this failed to boost investor confidence as they remained focused on the sharp decline in the company’s core business.

According to Counterpoint Research, global smartphone shipments fell by 20% in the September quarter, hitting a 14-year low due to soaring memory chip costs driven by surging AI data center demand, which in turn pushed up device prices.

Qualcomm’s mobile business unit, which produces chips for smartphones, saw fourth-quarter revenues drop 26% to $5.14 billion, dragging chip segment revenues down 8% to $9.02 billion.

Analysts surveyed by Visible Alpha had previously expected mobile business revenues of $5.25 billion.

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Qualcomm CEO Cristiano Amon told Reuters in an interview that Android phone sales have bottomed out and are now gradually recovering.

“Unlike some other companies, we anticipated the memory issue early and prepared for it,” Amon said. “Now, we are starting to see sequential growth in Android business. We have indeed done well in non-mobile businesses.”

Investors had also been concerned about Apple AAPL.O switching to self-developed modem chips, and Qualcomm had previously warned that sales to the iPhone maker would decline faster than expected.

Amon stated that the first-quarter forecast for fiscal year 2027 released on Wednesday does not include any sales from Apple, and Qualcomm has been collaborating with other clients outside of its smartphone business.

“Excluding Apple, our design win scale for fiscal 2027 will achieve 70% year-over-year growth,” Amon said. “We expect non-mobile business (income) to fully replace the revenue that Apple brought, and as fiscal 2027 progresses, non-mobile business will achieve 60% year-over-year growth.”

According to data compiled by LSEG, the smartphone chip maker expects first-quarter revenue to range between $10.4 billion and $11.2 billion, with the midpoint above analysts’ average estimate of $10.48 billion.

The company expects chip business sales to be between $9.0 billion and $9.6 billion, higher than the expected $8.88 billion.

Adjusted earnings per share are expected to be between $2.15 and $2.35. The midpoint of $2.25 is below the anticipated $2.27.

During a conference call with analysts, CFO Akash Palkhiwala said that as rising chip prices take effect, base gross margins should recover to their historical 48%-50% range in the second quarter, with the full benefit materializing in the second half of fiscal 2027.

Bernstein analyst Stacy Rasgon said the share price declined because of Qualcomm’s “poor margin outlook” and its prediction for a flat 2027 smartphone market, which is “possibly being seen as too aggressive” compared to analysts’ expectations.

Visible Alpha data shows that Qualcomm expects its data center business revenue to reach $650 million in the first quarter of this fiscal year, above analyst expectations of $539.1 million.

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Beyond smartphones

A deal reached in September allows Amazon AMZN.O to purchase up to $60 billion (link) worth of AI chips and related data center products from Qualcomm, adding the online retail giant to its client list that already includes Microsoft MSFT.O and Meta Platforms META.O.

At the time of signing, the warrants Qualcomm issued to Amazon were valued at about $1.8 billion— similar to those issued by competitors such as AMD (link) to clients—and as purchase commitments and spending milestones are met, Amazon could obtain up to 25 million shares.

The company stated that revenues from two custom chip projects in collaboration with hyperscale cloud service providers will start being generated this quarter, followed by a phased launch of its AI accelerator products next year. The company aims for $15 billion (link) in annual data center revenue by fiscal 2029.

Earlier on Wednesday, the company signed a multi-year 5G agreement to provide radio equipment, baseband units, and software for SpaceX’s nationwide Starlink Mobile network SPCX.O, which is planned to launch in 2027.

“This new SpaceX contract will deliver multi-year benefits and involves deliveries of tens of thousands of devices. However, given the size of the mobile business, a 26% decline in phone sales indeed put considerable pressure on overall performance, and I think this is the main reason for the stock price drop,” said Anshel Sag, an analyst at Moor Insights & Strategy.

Fourth-quarter adjusted revenue fell 7% to $10.44 billion, higher than the expected $10.11 billion. Adjusted earnings per share were $2.17, beating the forecast of $2.16.

(To facilitate non-English speakers, Reuters has automatically translated its reports into several other languages. Since automated translation may contain errors or miss context, Reuters does not guarantee the accuracy of the automatically translated text and provides it solely for readers’ convenience. Reuters assumes no responsibility for any damage or loss caused by the use of the automated translation service.)