Qualcomm Beats Q4 Estimates as Handset Revenue Falls 26%
Qualcomm beat Wall Street’s fiscal fourth-quarter earnings and revenue estimates, but a weaker-than-expected earnings outlook and a 26% decline in handset revenue put renewed attention on how quickly automotive and data center businesses can offset pressure in its core smartphone operation.
The chipmaker reported fiscal Q4 GAAP revenue of $10.32 billion and adjusted earnings of $2.17 per share. Analysts had expected approximately $10.12 billion of revenue and adjusted EPS of $2.16. A year earlier, Qualcomm generated $11.27 billion of revenue and $3.00 of adjusted EPS.
Qualcomm’s first-quarter revenue forecast of $10.4 billion to $11.2 billion was stronger than the approximately $10.6 billion Wall Street consensus at the midpoint. Adjusted EPS guidance of $2.15 to $2.35, however, gives a midpoint of $2.25 compared with analysts’ expectation of roughly $2.32, contributing to a decline in the shares after the report.
How Much Damage Is Handset Weakness Doing?
Qualcomm’s QCT chip business generated $9.02 billion of fourth-quarter revenue, down 8% from a year earlier but ahead of the roughly $8.8 billion analysts had expected.
Inside that segment, handset revenue fell 26% year over year to $5.14 billion from $6.96 billion. The decline was also worse than the approximately $5.3 billion expected by analysts and accounted for most of the contraction across QCT.
The figures confirm the risk identified ahead of earnings in FinanceFeeds’ preview of Qualcomm’s fourth-quarter results: newer businesses are growing quickly, but handset weakness remains large enough to offset much of that progress.
For the full fiscal year, handset revenue declined 13% to $24.07 billion. Total QCT revenue fell 3% to $37.21 billion, while QCT earnings before tax declined 13% and its EBT margin narrowed from 30% to 27%.
Investor Takeaway
Qualcomm no longer needs automotive and other businesses merely to grow quickly. They increasingly need to replace billions of dollars of declining handset revenue while the company also manages weaker QCT margins.
Can Automotive Offset the Smartphone Decline?
Automotive was the strongest part of Qualcomm’s quarter. Revenue reached a record $1.99 billion, up 89% from $1.05 billion a year earlier and marking the company’s first quarter above $2 billion on a rounded basis.
Full-year automotive revenue rose 52% to $6.00 billion, making the business increasingly material relative to Qualcomm’s handset operation. Internet of Things revenue was less dramatic, rising 4% in the quarter to $1.89 billion and 8% for the year to $7.13 billion.
Combined automotive and IoT revenue increased 36% year over year in the fourth quarter. Chief Executive Cristiano Amon said fiscal 2027 will mark the beginning of Qualcomm’s non-handset revenue inflection, with the company projecting more than 60% growth in non-handset businesses.
Qualcomm’s licensing division, QTL, generated $1.30 billion of quarterly revenue, down 7%, while EBT declined 10% to $918 million.
Investor Takeaway
Automotive is now large enough to affect Qualcomm’s overall revenue mix rather than simply provide a high-growth side business. The challenge is that even an 89% quarterly increase added less revenue than the handset division lost year over year.
Why Does Fiscal 2027 Depend on Data Centers?
Qualcomm is maintaining its target for $5 billion of fiscal 2027 data center revenue as shipments begin ramping under agreements with large hyperscale customers.
The company announced a multi-generational collaboration with Amazon in September to develop customized silicon for AWS AI infrastructure, including inference products and optical-connectivity technology. Data center revenue will begin being included in QCT guidance from the first quarter of fiscal 2027.
The expansion is part of a wider diversification program. Qualcomm announced on Wednesday that SpaceX selected its Dragonwing infrastructure technology for Starlink Mobile’s planned U.S. terrestrial 5G network. SpaceX expects deployment to start in 2027 and eventually include tens of thousands of sites under the multi-year arrangement.
Qualcomm has not disclosed the Starlink contract’s value, meaning investors cannot yet determine how much it will contribute to the non-handset growth target.
The company is also working with Anduril on BlueChip, beginning with a U.S.-built laptop powered by Snapdragon X processors, with orders planned for 2027.
Why Is the Earnings Outlook Weaker Than Revenue Guidance?
Qualcomm said semiconductor input costs are rising across wafer fabrication, assembly, testing, advanced packaging, memory and other materials. The company is increasing product prices in response but expects the full margin benefit only in the second half of fiscal 2027.
Its annual filing also warned that memory shortages and higher prices could weaken demand from handset manufacturers, creating pressure from both lower unit demand and higher component costs.
That helps explain why the company’s Q1 revenue midpoint exceeded Wall Street estimates while the EPS midpoint fell short. Qualcomm expects QCT revenue of $9.0 billion to $9.6 billion and QTL revenue of $1.3 billion to $1.5 billion during the quarter.
Investor Takeaway
Fiscal 2027 is becoming a race between diversification and margin pressure. Automotive, AWS, Starlink and other programs provide new revenue sources, but handset weakness and semiconductor cost inflation are affecting earnings before many of those businesses reach their targeted scale.
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