Qualcomm reports earnings, revenue beat and issues strong forecast
News Summary
Qualcomm reported fiscal fourth-quarter results, with adjusted earnings per share of $3.00 and revenue of $11.27 billion, both exceeding analyst estimates. Despite recording a net loss of $3.12 billion due to an income tax expense, the company's revenue increased 10% year-over-year. Qualcomm also issued a strong fiscal first-quarter forecast, expecting revenue between $11.8 billion and $12.6 billion, and adjusted EPS of $3.30 to $3.50, surpassing average analyst estimates. To diversify beyond its dominant mobile phone chip business and anticipated loss of Apple's modem business, Qualcomm is expanding into chips for Windows PCs, Meta's VR headsets, and notably, announcing new AI accelerator chips, the AI200 (2026) and AI250 (2027), to compete with Nvidia and AMD in the AI market. During the quarter, Qualcomm's handset business revenue rose 14% to $6.96 billion, automotive unit sales increased 17% to $1.05 billion, and IoT (including Meta) revenue grew 7% to $1.81 billion, all topping estimates. The licensing business saw revenue slide 7% to $1.41 billion but still beat analyst expectations.
Background
Qualcomm has historically been a dominant supplier of mobile phone chips, providing central processors and modems for high-end devices like Samsung's and modems for Apple iPhones. However, the company anticipates losing Apple as a modem customer in the coming years, which has spurred its efforts to diversify its business. In the current technological landscape (2025), artificial intelligence is a critical growth driver for the chip industry, with Nvidia dominating the processor market and AMD actively playing catch-up. Qualcomm's recent announcement of AI accelerator chips signals its commitment to entering and competing for market share in this high-growth sector.
In-Depth AI Insights
Can Qualcomm's AI strategy effectively mitigate the risk of losing Apple's modem business and challenge Nvidia and AMD's leadership in the AI sector? - Qualcomm's AI bet is central to its strategic transformation, aiming to offset potential revenue gaps from future loss of Apple's modem orders. The introduction of its AI accelerator chips, AI200 and AI250, particularly with their full liquid-cooled server rack solution, signals the company's ambition to enter the data center AI market, moving beyond its traditional mobile and edge AI strengths. - However, Nvidia and AMD have established robust ecosystems and significant market share in this domain. Qualcomm needs to prove its products are not only performant but also gain substantial software and developer community support, which is critical for AI chip success. The market might be underestimating the moats of existing giants in terms of ecosystem. Beyond AI and PC, is the growth potential in Qualcomm's automotive and IoT businesses sufficient to support its long-term valuation? - The automotive business showed strong performance in the latest quarter, with a 17% revenue increase, driven by smart and connected vehicle trends. The Internet of Things (IoT) business, including chips for Meta's VR/AR devices, also demonstrated growth. While these areas offer decent growth, their contribution to the company's overall revenue growth might be relatively limited compared to the potential scale and speed of the AI chip market. - Investors need to assess if these diversified businesses can provide sustained high-margin growth to offset potential pressures in the handset business, including licensing revenue. Especially with a backdrop of slowing global economic growth, volatility in consumer electronics and automotive markets remains a concern. Does the decline in Qualcomm's licensing business revenue signal deeper structural issues, and what are the implications for its profit margins? - The 7% year-over-year decline in licensing business revenue, despite beating expectations, is a trend worth monitoring. Qualcomm's patent licensing model has been a significant source of its high profit margins. Any sustained decline could erode its overall profitability. - This decline could stem from various factors, including slowing smartphone market growth, expiring patents, or competitors seeking solutions to bypass Qualcomm's patents. If the long-term trend is irreversible, Qualcomm will require other high-margin businesses to fill this gap, placing higher demands on the success of its AI and automotive ventures.