U.S. earnings season continues to deliver negative surprises. Shares of American chip giant Qualcomm plummeted in Thursday's pre-market trading, plunging more than 12% at one point, following disappointing performance guidance. During the earnings call, Qualcomm executives warned that handset manufacturers are being forced to cut orders due to severe shortages and price increases in memory chips, leading the company to lower its Q2 fiscal 2026 handset chip revenue guidance to $6 billion.
Simultaneously, shares of British chip design leader ARM Holdings also fell sharply, dropping over 8% in pre-market trading. Analysts noted that the smartphone market, a key revenue source for ARM, is facing dual pressures from memory chip shortages and slowing growth.
Qualcomm's Sharp Decline On February 5, Beijing time, Qualcomm's stock tumbled in pre-market trading, at one point falling more than 12%. As of the latest update, the decline remained at 11.18%.
The drop followed Qualcomm's latest earnings report, which indicated that performance guidance fell short of market expectations due to global memory supply constraints.
Specifically, Qualcomm's Q1 fiscal 2026 revenue reached $12.25 billion, up 5% year-over-year, slightly exceeding the consensus estimate of $12.21 billion. Adjusted net profit was $3.781 billion, down 1% year-over-year. Adjusted earnings per share were $3.50, up 3% year-over-year, beating the expected $3.41.
By business segment, Qualcomm's handset business contributed $7.82 billion in revenue, a 3% increase year-over-year. IoT revenue grew 9% to $1.69 billion, while automotive revenue surged 15% to $1.1 billion.
For Q2 fiscal 2026, Qualcomm expects revenue between $10.2 billion and $11.0 billion, and adjusted EPS between $2.45 and $2.65. This compares to analyst consensus estimates of $11.11 billion in revenue and $2.89 EPS.
Explaining the weaker guidance, Qualcomm executives cited tight global memory chip supply and rising prices. Increased demand for memory from AI data centers is squeezing supply and raising costs for handset OEMs, leading some customers to reduce inventory and channel stock, which is negatively impacting short-term chip orders.
During the earnings call, Qualcomm CEO Cristiano Amon stated plainly that despite strong end-demand, the handset industry is facing significant memory shortages.
Qualcomm management noted that several manufacturers have already begun cutting handset production plans and reducing channel inventory. This reduction in chip orders is expected to directly impact Qualcomm's next-quarter performance. Management warned that this industry-wide adjustment, driven by memory shortages and price hikes, is likely to persist for the remainder of the fiscal year.
Amon commented, "Although our near-term handset chip outlook is impacted by industry-wide memory supply constraints, we remain optimistic about demand for premium smartphones."
Warning Signs As one of the world's largest smartphone chip suppliers, with customers including major Android manufacturers and Apple, Qualcomm's financial results are seen as a key indicator of supply and demand dynamics in the personal electronics semiconductor industry.
Similarly, shares of ARM Holdings fell sharply, dropping over 8% in pre-market trading.
ARM's latest earnings report showed that for Q3 ended December 31, 2025, revenue increased 26% year-over-year to $1.24 billion, slightly above the analyst consensus of $1.23 billion. The company's Q4 revenue guidance midpoint was $1.47 billion, also above the average analyst expectation of $1.44 billion.
However, licensing revenue, a key metric for future design adoption, unexpectedly missed expectations in Q3, triggering the sell-off.
Regarding potential impacts from memory chip shortages and price increases on the handset supply chain, ARM management suggested constraints are more likely to affect low-end models first. Since low-end products generate lower royalty rates, the impact on the company should be manageable.
But Qualcomm warned that as memory suppliers shift manufacturing capacity toward HBM to meet AI data center demand, resulting memory chip shortages and price increases could define the overall scale of the handset industry for the entire fiscal year.
Counterpoint Research predicts that rising DRAM prices will continue to increase handset BoM costs, with low-end, mid-range, and high-end models seeing increases of approximately 25%, 15%, and 10%, respectively. Costs could rise another 10% to 15% by Q2 2026.
In this environment, low-end and mid-range handset manufacturers will inevitably face tough choices to manage costs, including raising prices, reducing memory configurations, or accepting lower margins.
A UBS analysis model indicates that to fully offset the impact of memory price increases, the average selling price of low-end and mid-range phones would need to rise by 17%, while flagship and premium phones would require a 7% increase.
In lower price segments, there is limited room for price increases. If costs cannot be fully passed on to consumers, OEMs may adjust product strategies. Some reductions in shipments of lower-SKU models have already been observed.
Memory chip manufacturers are attempting to increase capacity, but expansion cycles are lengthy, typically taking over a year to build new facilities and complete equipment installation and testing.