Qualcomm's phone chip sales shrink as cars become a $2 billion quarter

Qualcomm (Nasdaq: QCOM) reported on Wednesday that fourth-quarter handset chip revenue fell 26% from a year earlier to $5,137 million, while automotive revenue grew 89% to $1,990 million, its first $2 billion quarter, according to its results release for the quarter ended September 27.

Phones fell, and cars and connected devices partly filled the gap

Total revenue was $10,322 million on a GAAP basis, 8% below a year earlier. Excluding items Qualcomm adjusts for, non-GAAP revenue was $10,442 million, 7% lower, and non-GAAP earnings per share were $2.17, down 28% from $3.00.

Inside its chip unit, QCT, the mix moved. Handsets were 57.0% of QCT revenue in the quarter against 70.9% a year earlier (computed). Automotive grew to $1,990 million from $1,053 million, and IoT, which covers connected devices, rose 4% to $1,888 million. Automotive and IoT together grew 35.6% (computed from those figures); Qualcomm put the combined growth at 36%.

For the full fiscal year, GAAP revenue was $43,120 million, 3% lower, and non-GAAP earnings per share were $10.54, 12% lower than $12.03. Handsets were $24,072 million for the year, down 13%.

Higher input costs are being passed on, with the margin benefit pushed to late 2027

The release says "the semiconductor industry is experiencing a broad-based increase in input costs across wafer fabrication, assembly, test, advanced packaging, memory and other materials," and that Qualcomm is "taking actions to reflect the higher input costs in our product pricing." It expects the full benefit to appear in QCT gross margins "in the second half of fiscal 2027." QCT's pre-tax profit was 24% of its revenue in the quarter, down from 29% a year earlier.

What the company expects next

For the first quarter of fiscal 2027 Qualcomm guided to revenue of $10.4 billion to $11.2 billion and non-GAAP earnings per share of $2.15 to $2.35. CEO Cristiano Amon said fiscal 2027 "marks the start of our non-handset revenue inflection, including the ramp of our Data Center business," with non-handset revenue projected to grow more than 60% and a Data Center revenue target of $5 billion reiterated. Guidance and targets are the company's own.

The company also returned $1,998 million to stockholders in the quarter through $1,011 million of repurchases and $987 million of dividends.

A phone business that shrinks while its replacement is still a target

Our reading is that the quarter shows the company's mix changing faster than its profit. Handsets lost $1,824 million of yearly revenue in the quarter (computed), automotive added $937 million (computed), and non-GAAP profit per share still fell 28%. The $5 billion Data Center figure is a target for fiscal 2027, not revenue the company has reported.

We weigh reported usage and customers over announcements. The threat is that phone demand keeps falling while input costs stay high before pricing catches up in the second half of fiscal 2027; the opportunity is that automotive already has paying customers at a $2 billion quarterly rate. We expect the next two quarters to show whether the gap narrows: if handset revenue stabilizes near this quarter's level and margins follow the company's schedule, the mix shift would be paying for itself. If handsets keep falling at about this pace, it would not, and the filings do not show how far pricing can offset that.

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