Qualcomm beats earnings but guidance weighed by memory shortage
Chipmaker posts record $12.3B Q1 revenue while warning of handset market headwinds from supply constraints
Qualcomm exceeded analyst expectations in its fiscal first quarter but delivered a tempered outlook, warning that memory supply constraints are limiting demand for smartphones and weighing on near-term growth prospects.
The San Diego-based chipmaker reported non-GAAP earnings per share of $3.50, surpassing the $3.40 consensus estimate, while revenue reached $12.3 billion, a 0.6% beat on Wall Street projections. However, shares moved little in after-hours trading as investors focused on the company's weaker-than-anticipated guidance for the current quarter.
For the fiscal second quarter, Qualcomm projected revenue of $10.2 billion to $11.0 billion and adjusted earnings per share of $2.45 to $2.65, reflecting what executives described as ongoing supply chain pressures in the memory market that are affecting handset manufacturers.
"We're starting to see that memory is going to define the size of the mobile market," Qualcomm CEO Cristiano Amon said in an interview following the results. "The supply constraints are real and they're impacting our customers' ability to build phones."
The semiconductor giant, which derives the bulk of its revenue from smartphone chips, highlighted a bright spot in its automotive business. Qualcomm's automotive segment delivered record revenue of $1.1 billion, representing 15% year-over-year growth as the company continues to diversify beyond its traditional handset business.
Qualcomm returned $3.6 billion to stockholders during the quarter through a combination of dividends and share repurchases, continuing its strategy of returning cash to investors amid mixed market conditions. The company maintains a dividend yield of 2.3% and has a forward price-to-earnings ratio of 12.50, reflecting cautious investor sentiment about near-term growth prospects.
The mixed results come as Qualcomm navigates a challenging transition in its core handset business. The company faces the looming loss of Apple as a modem customer as the iPhone maker shifts to in-house components, a development that analysts estimate could cost Qualcomm billions in annual revenue. This headwind has already prompted several analyst downgrades, with Mizuho Securities cutting its rating from "Outperform" to "Neutral" in January, reducing its price target from $200 to $175.
Despite these challenges, analysts maintain a cautiously optimistic outlook on the stock. The consensus rating remains a "Moderate Buy" with an average target price of $188.27, suggesting potential upside from current levels around $149. Among 36 analysts covering the company, 15 rate it a buy while 20 recommend hold positions, according to market data.
Qualcomm has consistently beaten earnings estimates over the past two years, setting a high bar for performance even as broader market conditions have become more challenging. The stock has underperformed the broader market over the past 12 months, declining 13.9%, though it trades below its 52-week high of $204.90.
Looking ahead, investors are focusing on Qualcomm's diversification efforts beyond smartphones. The company is expanding into data center applications with new AI accelerator chips, including the AI200 launching this year and the AI250 slated for 2027. Analysts expect revenue from the data center segment to become material in fiscal 2027, potentially offsetting some of the expected losses from the Apple modem business.
The memory shortage affecting the handset market is part of broader supply chain challenges in the semiconductor industry. Industry executives have indicated that while overall chip capacity has improved from the severe shortages of 2021-2022, specific segments like memory chips remain constrained, creating bottlenecks for smartphone manufacturers.
Qualcomm's forward guidance suggests these constraints will persist through at least the first half of 2026, though executives indicated they expect conditions to improve later in the year. The company's ability to maintain growth in its automotive and IoT businesses while navigating handset market pressures will be crucial to delivering on its long-term strategic objectives.