Qualcomm (QCOM.US) delivered stronger-than-expected revenue and profit guidance on Wednesday, benefiting from a recovery in smartphone demand. As the world's largest supplier of smartphone modem chips, the company maintained an optimistic outlook despite anticipating potential shipment declines to key clients like Samsung Electronics (SSNLF.US).
For the first quarter of the fiscal year, Qualcomm projected mid-range sales of $12.2 billion and adjusted earnings per share (EPS) of $3.40, surpassing analysts' estimates of $11.62 billion in revenue and $3.31 EPS. In the fourth quarter ending September 28, the company reported $11.27 billion in sales and adjusted EPS of $3.00, also exceeding Wall Street's expectations of $10.79 billion and $2.88, respectively.
Qualcomm has been diversifying into sectors like laptops and automotive, though it remains a long-time supplier to Apple (AAPL.US). Since 2021, the company has warned investors that Apple may eventually transition to in-house modem chips. Qualcomm shares dipped over 2% in after-hours trading Wednesday, despite a nearly 4% gain during regular trading, reflecting high pre-earnings expectations.
Summit Insights analyst Kinngai Chan noted that the post-earnings decline stemmed from lingering investor concerns over Apple's potential reduction in chip orders. Qualcomm CEO Cristiano Amon attributed the strong performance to consumers upgrading from mid-range to premium smartphones to support AI applications. He highlighted a growing market divide between low-end and high-margin premium devices, the latter being Qualcomm's primary profit driver.
"The mid-range market is nearly collapsing," Amon said. "This is a global phenomenon, evident in China and India. We’re seeing sustained expansion in the premium segment." Year-to-date, Qualcomm shares have risen about 12.5%, lagging behind the Nasdaq Composite's 20.9% gain. Investors have worried about tariff impacts on its smartphone chip business and its ability to capitalize on the AI boom.
However, Qualcomm recently unveiled a new line of AI chips for data centers, with initial shipments to Saudi-backed AI startup Humain expected next year. Apple's shift to in-house modems remains a key concern, though Bernstein analyst Stacy Rasgon suggested the transition may be gradual, with iPhone 17 models still relying on Qualcomm chips.
Qualcomm disclosed in filings that Apple, Samsung, and Xiaomi each contribute over 10% of total revenue. While its chips power 100% of Samsung's latest Galaxy S25 series, Amon acknowledged readiness for a reduced 75% share in the Galaxy S26. He also confirmed collaboration with Samsung Foundry for 2nm chip production but didn’t specify products.
Non-Apple customer revenue grew 18% across all segments in fiscal 2025, with smartphone-related chip revenue rising 14% to $6.96 billion, beating estimates of $6.64 billion. "Smartphone applications are becoming more powerful, driving demand for higher-performance devices—similar to post-pandemic trends," Amon explained.
For Q1, Qualcomm expects chip revenue between $10.3 billion and $10.9 billion, with the midpoint above the $10 billion consensus. Automotive revenue surpassed $1 billion for the first time in Q4, hitting $1.05 billion (up 17% YoY), while IoT revenue reached $1.81 billion (up 7%).
The company reported a $5.7 billion non-cash charge (about $5.29 per share) due to U.S. tax reforms, resulting in a $3.12 billion net loss. However, adjusted metrics were unaffected, and Qualcomm emphasized long-term tax benefits, with future rates stabilizing at 13%-14% under the corporate alternative minimum tax.