On July 29, Qualcomm delivered a report card that left the market unsure how to grade it.
Earnings showed that for the third fiscal quarter of fiscal 2026 (ending June 28, 2026), Qualcomm posted revenue of $9.95 billion, down 4% year-over-year, slightly exceeding Wall Street's expectations of $9.62 billion. Non-GAAP earnings per share were $2.21, down 20% year-over-year and one cent below estimates. After-hours trading saw an initial decline before narrowing, with shares still down over 4%.
The contradiction in this earnings report lies in: Looking at phones, revenue plunged 20% year-over-year, hovering just above $5 billion, marking the worst quarter in recent years; in automotive, revenue surged 61% to a record high; in data centers, the company confirmed that custom chips will begin shipping later this year.
Three completely different report cards from the same company. Which one should the market believe?
Phones: Qualcomm's Old Foundation is Cracking, But Not Collapsed
Phone chip revenue came in at $5.086 billion, down 20% year-over-year. From the peak of $7.6 billion in FY25Q1, it has dropped by a third over three quarters.
The root cause isn't demand. Global smartphone shipments are indeed declining—IDC data shows a 6.7% year-over-year drop in Q2, marking two consecutive quarters of decline—but it's not a cliff-like fall. What's truly squeezing Qualcomm is memory chips.
This quarter, memory chip costs surged about 300% year-over-year. AI data centers have absorbed HBM and DRAM production capacity, leaving phone OEMs unable to secure volume or afford prices. The result is production cuts and inventory clearing, leading to reduced Qualcomm chip orders.
Qualcomm CEO Cristiano stated bluntly on the earnings call: Consumers are starting to buy lower-tier models within the high-end segment, or simply opting for last year's older models. Even Qualcomm's most stable high-end Android base is showing signs of loosening.
But it's not a linear trend. Management made it clear that Chinese OEM orders hit bottom in Q3 and will return to double-digit sequential growth in Q4. The Samsung Galaxy S26 series will still feature Qualcomm's custom Snapdragon 8 Elite Gen 5. The high-end phone foundation hasn't collapsed; it's just temporarily suppressed by memory price increases.
Phone revenue as a percentage of QCT dropped from 67% a year ago to 60%. According to the company's investor day roadmap, this figure is expected to fall to one-third by fiscal 2029. Phones won't disappear, but their weight within Qualcomm is being systematically diluted.
Automotive: Not a Proof of Concept, Actually Making Money
Earnings showed automotive chip revenue of $1.588 billion, up 61% year-over-year, setting records for several consecutive quarters.
Annualized revenue is already running at $6.35 billion. Three months ago, the company set an annual target of $7 billion, which many analysts privately considered optimistic. Now, it appears Amon's numbers are likely within reach.
The logic isn't complicated. A traditional fuel vehicle carries about $100 worth of chips, while a smart EV with digital cockpit and ADAS solutions can push that to $500 to $1,500 per vehicle. Qualcomm's Snapdragon Digital Cockpit and Snapdragon Ride platforms are precisely positioned at the throat of this transition.
This quarter, Qualcomm signed new deals with BMW and Stellantis. Previously mass-produced clients include Mercedes-Benz, GM, Ford, Honda, Hyundai, and BYD. The design-win pipeline has swelled to $65 billion. Revenue visibility is high.
The only slightly concerning factor is gross margin. Automotive chips have higher customization, longer verification cycles, and gross margins 5 to 10 percentage points lower than phone chips. As automotive revenue share continues to rise from 17%, it will drag down QCT's overall gross margin. This isn't a major issue but requires ongoing monitoring.
Management has raised the fiscal 2029 automotive revenue target from $8 billion to $10 billion. Given the current growth rate and design-win conversion pace, this doesn't seem exaggerated.
Data Centers: Big Vision, But the Breakthrough Hasn't Come Yet
During the June 24 investor day, Qualcomm directly raised its non-phone revenue target for fiscal 2029 from $22 billion to $40 billion, with data centers accounting for $15 billion. Breaking this down involves three steps:
First, custom chips. Multi-generation orders from two hyperscale cloud providers have been signed, with the first product shipping before year-end. Management calls this a "multi-year partnership," not a one-off deal.
Second, standard chips. The Dragonfly C1000 server CPU was unveiled at investor day, featuring a self-developed Oryon architecture focused on energy efficiency. Meta is the first customer, but mass production won't begin until 2028.
Third, software. Qualcomm acquired Modular (valued at $3.9 billion), whose MAX inference platform and Mojo language aim to compete with Nvidia's CUDA. The late last year acquisition of Alphawave Semi ($2.4 billion) filled the high-speed interconnect gap.
The scope is ambitious, but timing is an issue. Connectivity chips will contribute revenue this year, custom chips start next year, general-purpose AI accelerators won't arrive until the second half of next year, and server CPUs won't come until the second half of the year after that.
Goldman Sachs gave Qualcomm a "neutral" rating after investor day, with a 12-month price target of $145, below the current share price. Its assessment: There's still a long distance between early-stage collaboration and large-scale revenue.
Frankly, this judgment isn't conservative. The market's valuation of the data center business is betting on 2028 to 2029, with a two-year execution window in between. Any hiccup in any link will lead to a discount.
Apple: This Negative Is Coming Faster Than Expected
Among all the things worrying Qualcomm, the progress of Apple's self-developed modem is the most underestimated by the market.
In this earnings report, Qualcomm issued its first clear warning: Apple product revenue is accelerating its decline. Management stated on the call that Qualcomm's share of modems in the upcoming iPhone will be "far below the previous 20% expectation," and Apple-related revenue could halve quarter-over-quarter in Q4.
For the past five years, discussions about "when Apple will kick out Qualcomm's modem" have never stopped, but each time it was stalled by technical difficulties. Now, this process is materially accelerating.
Let's do the math: Apple contributes $1.5 to $2 billion in chip revenue to Qualcomm each quarter (modems plus RF front-end). As the share drops from about 20% to below 10%, that's $6 to $8 billion in high-margin revenue disappearing annually.
Amon's response: Non-phone QCT revenue growth will exceed 60% by FY2027, directly covering the impact of Apple's loss. Automotive, IoT, and data centers must all run simultaneously. Whether you believe this depends on your judgment of these three businesses' growth rates. Personally, I find automotive the most stable and data centers the most variable.
Price Hikes: A Test with Little Room for Retreat
Qualcomm announced a company-wide price increase effective September 1, with a double-digit percentage hike. Amon's phrasing: "Costs are up, so prices have to follow."
This isn't Qualcomm's first price hike, but it's different this time. Previous price increases were driven by process node upgrades, making higher prices for new products logical. This time, it's across-the-board cost increases in wafers, packaging, memory, and materials—internal absorption has become unsustainable.
Qualcomm does have pricing power in Android flagship chips. Samsung, Xiaomi, OPPO, vivo, and Honor have almost no alternative to Snapdragon for their flagship phones. These clients will likely accept the price hike and pass it on to consumers.
But there's a reflexive issue. Memory up 300%, chips up double digits, and then another round of terminal price increases—mid-to-low-end phones could rise by 300 to 500 RMB. The mid-to-low-end market is already price-sensitive; could volumes shrink further?
Volume and price are pulling against each other.
Earnings showed Q3 FY26 gross margin at 53.77%, down from 55.56% a year ago. The effect of price hikes won't be clear until two quarters later, with the earliest answer coming in FY27Q1.
Qualcomm now has a market cap of roughly $180 billion. Phones support the lower bound, automotive and IoT provide mid-term certainty, and data centers determine how high the valuation can go.
These three businesses are at completely different stages, but they all converge on verification milestones between year-end and early next year. In the December quarter, will phone revenue bottom out and rebound as management says? Can custom chips ship on time? The answers to these two questions carry more weight than any target number from investor day.
