Qualcomm Beats Revenue Estimates But Issues Cautious Outlook As Supply Costs Squeeze Margins

Qualcomm delivered fiscal third-quarter revenue that topped Wall Street expectations but issued weaker-than-expected earnings guidance for the current quarter, citing persistent supply chain pressures and rising component costs, sending the chipmaker's shares lower in after-hours trading.

Semiconductor companies have been facing challenges as surging demand for AI infrastructure, memory and advanced packaging continues to drive up production costs across the industry. While Qualcomm said customer demand remains healthy, higher input costs are weighing on profitability and prompting the company to raise chip prices.

Shares of Qualcomm fell in extended trading after the earnings release.

For its fiscal third quarter, Qualcomm reported adjusted earnings per share of $2.21, slightly below analysts' expectations of $2.23, according to LSEG. Revenue came in at $9.95 billion, comfortably ahead of the $9.67 billion analysts had expected.

However, investors focused on the company's outlook.

Qualcomm forecast adjusted earnings per share of $2.05 to $2.25 for the current quarter on revenue of $9.7 billion to $10.5 billion.

Analysts had expected adjusted earnings of $2.36 per share on revenue of $10.02 billion, making the profit outlook the main disappointment despite revenue guidance broadly matching market expectations.

Supply Crunch Drives Higher Costs

Chief Executive Officer Cristiano Amon attributed the cautious outlook to industry-wide increases in manufacturing costs, particularly for memory components.

"The semiconductor industry is experiencing a broad-based increase in input costs, across wafer fabrication, assembly, test, advanced packaging, memory and other materials," the company said.

Speaking after the results, Amon said Qualcomm will begin increasing prices for its chips from September 1 to offset rising production costs.

"Cost went up, prices are going to go up," he said.

The comments highlight how the AI boom is affecting the broader semiconductor ecosystem. Explosive demand for high-bandwidth memory (HBM), advanced chip packaging and foundry capacity has tightened supply across the industry, increasing costs even for companies that are not primarily focused on AI accelerators.

For smartphone chipmakers such as Qualcomm, higher memory prices are also affecting consumer purchasing decisions by raising the retail prices of handsets.

Smartphone Market Remains Challenging

Qualcomm's handset business, which remains its largest source of revenue, generated $5.1 billion in sales during the quarter, down 20% from a year earlier.

Management said the decline reflects a smartphone market that remains under pressure, particularly in China, although executives suggested conditions may be stabilizing. Amon said affordability concerns have weakened demand for low-end and mid-range smartphones, while even premium Android buyers are increasingly opting for lower-priced flagship models or previous-generation devices.

"Consumer preference within the premium category is changing towards a preference to the lower end of the premium, as well to last year's phone, because of the memory price increases," he said.

He added that higher supply costs have also compressed profit margins but described the pressure as temporary.

"There's also a change in gross margin because of the high supply cost that you're all hearing about. It's a temporary, short-term thing we are addressing with price increases."

While smartphones remain Qualcomm's core business, the company continues to broaden its revenue base into faster-growing markets.

Automotive revenue climbed to $1.59 billion, making it one of the strongest-performing segments.

On Wednesday, Qualcomm also announced a new agreement with BMW to supply digital cockpit chips, further strengthening its position in connected vehicle technology.

The company has previously said it expects automotive revenue to reach $10 billion annually by 2029, reflecting growing demand for advanced driver assistance systems, infotainment platforms and software-defined vehicles. Its Internet of Things (IoT) division, which includes industrial chips, wearables and smart glasses, generated $1.83 billion in revenue, an increase of 9% from a year earlier.

The expansion of these businesses is central to Qualcomm's long-term strategy.

Amon said the company expects non-smartphone businesses to account for 60% of total revenue next year, reducing its historical dependence on the cyclical handset market.

Qualcomm is also positioning itself to capture a larger share of the AI infrastructure market. The company reaffirmed its goal of generating $5 billion in data center revenue next year, as it seeks to compete in AI computing beyond mobile devices.

On Wednesday, Qualcomm also announced it had completed its acquisition of Modular, a startup known for developing AI programming technologies.

The acquisition strengthens Qualcomm's software capabilities and complements its effort to build a broader AI ecosystem spanning chips, software and developer tools.

The company said it plans to unveil its new AI software platform at a conference in August.

Licensing Business Remains Resilient

Qualcomm's high-margin licensing business continued to provide stable earnings. Revenue from Qualcomm Technology Licensing (QTL), which generates royalties from the company's extensive portfolio of wireless communications patents, reached $1.28 billion, slightly above analysts' expectations.

The licensing division remains one of Qualcomm's most profitable businesses and helps cushion fluctuations in semiconductor sales.

Net income declined 25% to $2 billion, from $2.66 billion a year earlier, indicating margin pressure from rising manufacturing costs.

Even so, Qualcomm's latest results suggest the company's long-term diversification strategy continues to gain momentum. Growth in automotive, IoT and AI infrastructure is helping offset weakness in smartphones, while its licensing business continues to generate stable cash flows.

The near-term challenge remains navigating elevated production costs driven by the AI supply chain. Demand for advanced memory, packaging and manufacturing capacity has pushed costs higher across the semiconductor industry, forcing companies such as Qualcomm to pass some of those increases on to customers.

Looking ahead, investors will be watching whether Qualcomm's planned price increases can restore margins without further dampening smartphone demand. The pace at which newer businesses such as automotive and AI data centers become larger contributors to earnings will also be monitored.