Qualcomm forecasts fourth-quarter profit below estimates, citing Apple revenue decline and supply constraints, while signaling a pivot to AI data centers to offset smartphone losses by 2027.
Qualcomm Inc. (QCOM) warned that its fourth-quarter profit will fall short of analyst expectations, driven by declining revenue from Apple products and supply chain challenges, while pivoting toward AI data centers to counterbalance smartphone sector pressures. The chipmaker expects adjusted earnings of $2.05 to $2.25 per share, below the $2.36 average estimate, and revenue between $9.7 billion and $10.5 billion, missing analyst forecasts of $10.02 billion. CEO Cristiano Amon attributed the slowdown to supply constraints reducing Qualcomm’s component share in Apple’s next iPhone lineup to “well below” 20%, while CFO Akash Palkhiwala emphasized that growth in non-handset businesses will replace all Apple-related revenue by fiscal 2027.
Qualcomm’s Profit Forecast and Apple Revenue Decline
Qualcomm’s earnings outlook reflects a steepening slowdown in its smartphone business, particularly with Apple. The company reported third-quarter handset revenue of $5.09 billion, a 20% year-over-year decline, though it exceeded analyst estimates. Amon attributed the drop to a mix change versus what we expected,
as consumers shifted toward lower-priced premium smartphones and older models, squeezing margins. Apple’s revenue for Qualcomm is projected to fall faster than anticipated, with Amon noting that supply constraints will limit the company’s component share in the next iPhone launch to “well below” its earlier 20% estimate. It’s availability of supply,
Amon told Reuters, adding that Qualcomm plans to raise prices starting September 1 to offset rising costs.
The company’s broader financial outlook highlights a widening gap between cost pressures and pricing power. Amon acknowledged a temporary disconnect between cost and pricing
that will cause a slight decline temporarily in gross margin.
Qualcomm’s fourth-quarter revenue guidance of $9.7 billion to $10.5 billion lags behind the $10.02 billion analysts projected, with the chip segment expected to generate $8.4 billion to $9 billion—below the $8.49 billion analysts anticipated. Despite these challenges, the firm remains confident in its long-term strategy, citing record numbers in chips for the automotive industry
and upcoming data center products as key growth drivers.
Data Center Pivot and Strategic Shifts
Analysts noted the strategic shift as a critical move to diversify revenue streams. The good news longer term is the company is quickly pivoting to non-handset revenues with record numbers in chips for the automotive industry and the launch of their first major data center products later this year,
said Bob O’Donnell, chief analyst at TECHnalysis Research. The CFO, Palkhiwala, reiterated that non-handset businesses will fully replace Apple-related revenue by 2027, signaling a structural transformation. However, the immediate financial impact of this pivot remains uncertain, with data center revenue still in its early stages.
Market Reaction and Investor Concerns
Investors reacted sharply to Qualcomm’s forecast, sending shares down more than 4% in after-hours trading. The stock plunge followed a broader sell-off in semiconductor stocks, as concerns about smartphone demand and pricing pressures weighed on the sector. Bloomberg noted that even the upper end of Qualcomm’s profit range would miss analyst estimates, underscoring the challenges facing the chipmaker.
What Comes Next for Qualcomm?
Qualcomm’s immediate challenge is to stabilize its smartphone business while accelerating its data center initiatives. The company plans to raise prices in September to address cost pressures, but this move could further dampen demand if consumers continue shifting toward lower-priced devices. Meanwhile, the success of its AI chips will hinge on the timing of product launches and the pace of adoption by hyperscale customers.
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