Qualcomm reported weaker-than-expected fourth-quarter revenue from its smartphone chip business, hit by declining Apple sales and a 20% drop in global smartphone shipments. However, the company is seeing new momentum in Android handset sales and strong growth prospects in its non-handset and AI chip businesses.
- Smartphone chip revenue fell 26% to $5.14 billion, missing estimates
- Global smartphone shipments dropped 20% in Q3 to a 14-year low
- Non-handset business expected to grow 60% in fiscal 2027
What happened
Qualcomm's fourth-quarter smartphone chip revenue declined by 26% to $5.14 billion, falling short of analyst expectations of $5.25 billion. The overall chip segment revenue was down 8% to $9.02 billion, pressured by weak demand and reduced sales to Apple as the iPhone maker transitioned to its own modem chips. The global smartphone market experienced a 20% contraction in shipments during the September quarter, marking a 14-year low.
Despite the disappointing handset revenue results, Qualcomm's total adjusted sales beat estimates, reaching $10.44 billion with adjusted profits of $2.17 per share. The company also advanced agreements with major customers, including a deal for Amazon to purchase up to $60 billion in AI chips and data center products, as well as a new multi-year 5G contract with SpaceX for the Starlink Mobile network starting in 2027.
Why it matters
The slump in smartphone chip sales highlights the broader challenges facing Qualcomm amid a shrinking smartphone market and rising memory chip prices driven by demand for AI server storage. Increased costs for high-bandwidth memory have raised consumer electronics prices, squeezing margins for smartphone processor makers.
Qualcomm's transition away from dependence on Apple is significant as the company recalibrates its business towards non-handset markets and AI-focused data center products. With a forecasted 60% year-over-year growth in non-handset revenue for fiscal 2027 and expanding partnerships with hyperscalers and cloud providers, Qualcomm is positioning itself for future growth beyond smartphones.
What to watch next
Market watchers should monitor Qualcomm's execution of its AI and data center chip strategies, including ramp-up of AI accelerators expected next year. The $15 billion revenue target from data-center products by fiscal 2029 will be a key milestone in determining the company's success in diversifying away from its legacy handset business.
Additionally, investors will be paying close attention to Qualcomm's quarterly results updates to assess the recovery of Android handset sales and the impact of newer high-bandwidth memory pricing on overall profitability. The progress of the new 5G deal with SpaceX and growth in non-handset design wins will also be critical indicators of Qualcomm's evolving market position.