Qualcomm Stock Drops Over 4% as Memory Costs and Weak Outlook Eclipse Revenue Beat

Key Takeaways

• Qualcomm stock fell more than 4% in extended trading after fiscal third-quarter adjusted earnings missed market expectations.
• Rising memory, manufacturing and packaging costs contributed to a 20% decline in handset revenue and weaker profit margins.
• Automotive and IoT revenue continued to grow strongly, but soft fourth-quarter earnings guidance kept attention on near-term pressure.
• Qualcomm stock moved lower in extended trading on Wednesday after the chipmaker reported weaker-than-expected fiscal third-quarter profit and issued cautious guidance for the current quarter.
• The company delivered better-than-forecast revenue, but investors focused on rising semiconductor input costs, falling handset sales and an expected acceleration in the decline of Apple-related revenue. These pressures overshadowed continued growth across Qualcomm’s automotive, Internet of Things and emerging data-centre businesses.

Qualcomm Revenue Beats Forecasts but Profit Disappoints

Qualcomm generated $9.95 billion in revenue during its fiscal third quarter ended June 28, down 4% from $10.37 billion one year earlier. The result nevertheless exceeded the market forecast of approximately $9.67 billion.

Adjusted earnings fell 20% year on year to $2.21 per share, narrowly missing the $2.23 estimate. GAAP net income declined 25% to $2.00 billion, while GAAP earnings dropped from $2.43 to $1.87 per share.

The company’s semiconductor division, Qualcomm CDMA Technologies, reported revenue of $8.50 billion, down 5% from the previous year. Its earnings-before-tax margin narrowed from 30% to 26%, showing how higher manufacturing expenses and weaker product mix affected profitability.

Qualcomm shares fell more than 4% after the announcement as the revenue beat failed to offset the earnings miss and cautious forward guidance. The results and segment figures are detailed in Qualcomm’s fiscal Q3 earnings release.

Memory Costs Weigh on Qualcomm’s Handset Business

The largest source of pressure came from Qualcomm’s handset division, where revenue fell 20% year on year to $5.09 billion.

The semiconductor industry is experiencing higher input costs across wafer fabrication, assembly, testing, advanced packaging, memory and other materials. Memory prices have become particularly important because rising demand from AI data centres has tightened supply and increased costs throughout the electronics sector.

Smartphone manufacturers have responded by raising device prices, changing component configurations or relying on older-generation processors. Consumers are also shifting towards less expensive premium models and previous-year devices rather than purchasing the most advanced configurations.

This change in buying behaviour has created an unfavourable product mix for Qualcomm. Even when smartphone unit demand remains relatively stable, the company may sell fewer of its highest-priced processors or receive smaller orders from manufacturers trying to control production costs.

Qualcomm plans to raise chip prices from September 1 to pass higher supply-chain costs on to customers. However, pricing changes will take time to flow through existing contracts and product cycles. This creates a temporary gap in which manufacturing costs rise before higher selling prices can restore margins.

Weak Q4 Guidance Deepens the Sell-Off

Qualcomm’s outlook for the fiscal fourth quarter added to the pressure on its shares.

The company expects adjusted earnings of between $2.05 and $2.25 per share, below the market estimate of approximately $2.36. Revenue is forecast to range from $9.7 billion to $10.5 billion, surrounding the $10.02 billion consensus estimate.

Semiconductor division revenue is projected at $8.4 billion to $9.0 billion. Handset revenue is expected to reach approximately $5.2 billion, supported by some recovery in Android demand but partly offset by weaker business from Apple.

Supply constraints are expected to reduce Qualcomm’s share of components used in the next iPhone launch to well below its earlier estimate of 20%. This could cause Apple-related revenue to decline faster than previously anticipated, adding another challenge to Qualcomm’s core smartphone operations.

Automotive and IoT Revenue Provide Support

Qualcomm’s non-handset businesses delivered considerably stronger results.

Automotive revenue increased 61% year on year to a record $1.59 billion, extending the division’s run of double-digit annual growth to 23 consecutive quarters. The company continues to expand its presence in digital cockpits, connectivity systems, driver assistance and in-vehicle computing platforms.

IoT revenue rose 9% to $1.83 billion. Combined automotive and IoT revenue grew 28%, partially offsetting the downturn in smartphones.

Qualcomm’s licensing division generated $1.28 billion in revenue, down 3% from the previous year. Its earnings-before-tax margin remained high at 69%, although this was two percentage points lower than a year earlier.

The contrasting segment performance highlights the central issue facing Qualcomm stock. The handset business remains its largest revenue source and therefore has an outsized effect on quarterly earnings, while faster-growing automotive and IoT operations are not yet large enough to eliminate short-term smartphone volatility.

Qualcomm Accelerates Its AI and Data-Centre Expansion

Qualcomm is attempting to reduce its dependence on smartphones by expanding into automotive systems, industrial technology, personal computers, edge AI and data-centre infrastructure.

The company completed its acquisition of Modular Inc during the quarter, adding an open software foundation for generative and agentic AI applications. It has also begun wafer production for two custom hyperscale computing projects, with initial data-centre revenue expected to arrive during the December quarter.

Qualcomm expects year-on-year growth in non-handset revenue, including data centres, to accelerate from 24% in fiscal 2026 to more than 60% in fiscal 2027. This refers to the expected growth rate of those businesses rather than their percentage of total company revenue.

Its longer-term targets include $40 billion in annual non-handset revenue by fiscal 2029. Within that total, Qualcomm is targeting $10 billion from automotive products, more than $14 billion from IoT and more than $15 billion from data centres. These targets form the core of the company’s diversification strategy.

Conclusion

Qualcomm’s fiscal third-quarter results presented two different pictures. Automotive and IoT revenue continued to expand rapidly, while the company made further progress in AI software and data-centre computing. These developments support its longer-term effort to become less dependent on smartphones.

However, the immediate earnings outlook remains dominated by rising semiconductor costs, weaker handset revenue and declining Apple exposure. The planned September price increases may eventually support margins, but investors will be watching how customers respond and how quickly those adjustments offset higher production expenses.

For Qualcomm stock, the next few quarters may therefore depend less on headline revenue growth and more on margin recovery, Android demand and evidence that newer businesses can scale quickly enough to counter weakness in the company’s traditional handset operations.