Qualcomm Shares Drop 10% as Rising Chip Costs and Handset Revenue Decline Pressure Margins

Qualcomm Inc. (NASDAQ:QCOM) shares fell approximately 10% in premarket trading on Thursday after the semiconductor company reported a decline in smartphone chip revenue and warned of increasing manufacturing costs, despite exceeding analysts’ fourth-quarter earnings and revenue forecasts.

The company posted adjusted earnings of $2.17 per share, slightly above the consensus estimate of $2.16. Adjusted revenue reached $10.44 billion, exceeding expectations of $10.12 billion but declining 7% from $11.27 billion a year earlier.

Handset revenue fell 26% year over year to $5.14 billion, below the $5.25 billion expected by analysts. The decline, combined with rising semiconductor production costs, contributed to concerns about Qualcomm’s near-term profitability.

Gross Margin Falls Below Expectations as Manufacturing Costs Increase

Qualcomm reported a fourth-quarter gross margin of 52.4%, compared with analysts’ expectations of 53.2%.

The company identified rising costs across several stages of semiconductor manufacturing, including wafer fabrication, assembly, testing, advanced packaging, memory and other materials.

These increases are affecting the broader semiconductor industry and adding pressure to production expenses.

Qualcomm said it is implementing pricing measures to address higher input costs, although the full financial benefit is not expected until the second half of fiscal 2027.

The timing of those measures has become a consideration for investors assessing the company’s profitability over the coming quarters.

Smartphone Chip Revenue Declines 26%

Revenue from Qualcomm’s handset business decreased to $5.14 billion in the fourth quarter, representing a 26% decline from the same period last year.

The result was below the analyst consensus of $5.25 billion.

The reduction in handset revenue contrasted with growth in Qualcomm’s automotive operations and its plans to expand its data centre business.

Smartphone-related revenue remains an important component of Qualcomm’s semiconductor operations, making changes in handset demand relevant to the company’s overall financial performance.

The decline also contributed to investor attention on the pace at which revenue from other business segments could offset reduced smartphone chip sales.

Automotive Revenue Rises 89% to Nearly $2 Billion

Qualcomm’s automotive business reported revenue of $1.99 billion, an increase of 89% year over year.

The figure exceeded analysts’ expectations of $1.69 billion and brought quarterly automotive revenue close to the $2 billion level for the first time.

Internet of Things (IoT) revenue increased 4% to $1.89 billion, also surpassing market forecasts.

Combined revenue growth in the automotive and IoT businesses contributed to the company’s performance outside its handset operations.

Qualcomm President and Chief Executive Officer Cristiano Amon commented on the results.

“We are pleased to deliver fourth quarter non-GAAP revenues at the high end of our guidance, along with 36% year-over-year growth in combined QCT Automotive and IoT revenues,” Amon said.

The company continues to develop its automotive and connected-device businesses as part of its broader revenue diversification strategy.

Semiconductor and Licensing Revenue Decline

Qualcomm’s QCT semiconductor division generated $9.02 billion in fourth-quarter revenue, down 8% from the previous year.

Despite the decline, the result exceeded the analyst consensus estimate of $8.8 billion.

The company’s QTL technology licensing business reported revenue of $1.30 billion, representing a 7% year-over-year decrease.

Licensing revenue was slightly above analysts’ expectations of $1.29 billion.

The results showed annual revenue declines in both divisions, although each performed above consensus forecasts for the quarter.

Qualcomm Forecasts First-Quarter Revenue Above Consensus

For the first quarter of fiscal 2027, Qualcomm projected revenue between $10.4 billion and $11.2 billion.

The midpoint of the guidance range, $10.8 billion, exceeded the analyst consensus of $10.55 billion.

However, the company’s adjusted earnings forecast of $2.15 to $2.35 per share had a midpoint of $2.25, below analysts’ expectations of $2.32.

The difference between revenue and earnings guidance reflected continued attention to manufacturing costs and profitability.

Qualcomm expects its pricing adjustments to provide their full benefit during the second half of fiscal 2027.

Data Centre Expansion Becomes a Focus for Analysts

Qualcomm’s plans to expand into data centre computing attracted attention from analysts following the earnings announcement.

Goldman Sachs said investors would likely seek additional information about the timing and scale of the company’s data centre revenue growth.

“Although we believe investor positioning was relatively balanced heading into the quarter, we think investors will want to see more evidence of the magnitude and timing of the Datacenter ramp through FY27 – especially in light of near-term smartphone weakness,” Goldman Sachs analysts said.

The analysts also identified gross margin performance as an important consideration.

“We also believe investors may look for more evidence of gross margin stabilization before getting more constructive on the stock,” they added.

Raymond James expressed similar views, highlighting manufacturing costs and the potential effects of custom semiconductor products for data centre customers.

“Elevated manufacturing costs continue to pressure margins, with expected pricing benefits largely offset by Data Center custom silicon dilution,” Raymond James analysts wrote.

“We believe the key investment debate has shifted toward execution of the Data Center roadmap and look for further evidence of customer ramps and margin recovery before becoming more constructive.”

The comments reflected analyst attention to the relationship between Qualcomm’s planned data centre expansion, revenue growth and profitability.

Fiscal 2026 Revenue and Earnings Decline

For fiscal 2026, Qualcomm reported adjusted revenue of $43.24 billion, a decrease of 2% from the previous year.

Adjusted earnings per share declined 12% to $10.54.

The annual results reflected the company’s performance across its handset, automotive, IoT and licensing businesses.

Qualcomm expects fiscal 2027 to mark a change in its revenue mix as its data centre operations begin contributing to growth outside the smartphone market.

“Fiscal 2027 marks the start of our non-handset revenue inflection, including the ramp of our Data Center business,” Amon said.

The company has identified the expansion of non-handset revenue as an important component of its financial outlook.

Qualcomm Outlook

Qualcomm’s fourth-quarter results exceeded consensus earnings and adjusted revenue estimates, but a 26% decline in handset revenue and lower-than-expected gross margin contributed to the premarket share price decline.

Automotive revenue increased 89%, while IoT revenue also grew, providing additional contributions from businesses outside smartphones.

The company’s first-quarter revenue guidance exceeded consensus at the midpoint, although its adjusted earnings forecast fell below expectations.

Investors and analysts will continue to monitor semiconductor manufacturing costs, the timing of pricing adjustments and the development of Qualcomm’s data centre business during fiscal 2027.

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