Qualcomm released its fiscal quarterly results, with its mobile chip business under significant pressure due to a sharp surge in memory prices, leading to a 25% year-over-year decline in net profit.

On July 29, after the U.S. stock market close, Qualcomm reported its third fiscal quarter results. Revenue fell 4% year-over-year to $9.95 billion, slightly exceeding Wall Street expectations, but net profit for the quarter dropped to $2 billion.

In its outlook for the current fourth fiscal quarter, the company expects adjusted earnings per share between $2.05 and $2.25, with a revenue guidance range of $9.7 billion to $10.5 billion.

Even at the upper end, the adjusted earnings per share remain below analysts' previous expectations of $2.36 to $2.38, disappointing investors. Following the announcement, Qualcomm's shares fell approximately 4% in after-hours trading.

The company subsequently officially announced a comprehensive price increase for its products effective September 1, aiming to pass on the rising supply chain costs. Qualcomm CEO Cristiano Amon stated directly:

As costs go up, prices must follow.

He described this price hike as a short-term measure to address high supply costs, which is expected to gradually improve the company's gross margin over time.

Memory Shortage Hits Mobile Business, Core Revenue Declines Sharply

The core trigger for Qualcomm's earnings pressure is the significant rise in global memory chip prices.

Reports indicate that memory chip costs surged approximately 300% year-over-year this quarter, substantially increasing the manufacturing cost of smartphones and suppressing end-consumer demand.

Revenue from mobile chips fell 20% year-over-year to $5.1 billion for the quarter. Amon noted that the price competitiveness of mid-to-low-end smartphones has notably declined due to higher memory costs. Furthermore, even in the high-end Android phone market where Qualcomm dominates, consumers are shifting towards lower-priced flagship models or purchasing previous-generation products.

Amon said:

Consumer preferences within the high-end category are changing, increasingly leaning towards the lower end of the premium segment, or simply opting for last year's models, driven by rising memory prices.

On an industry level, according to IDC data, global smartphone shipments fell 6.7% year-over-year in the second quarter, marking the second consecutive quarterly decline, with only Apple and Samsung achieving growth against the trend.

The broader semiconductor industry is also deeply entrenched in rising cost challenges. In its earnings report, Qualcomm pointed to widespread increases in input costs across areas such as wafer fabrication, packaging and testing, advanced packaging, memory, and other materials.

Strong Stance on Price Hikes, Gross Margin Recovery Pinned on Second Half

Facing cost pressure, Qualcomm has chosen to take the initiative.

The company announced a comprehensive price increase across its chip product lines effective September 1, covering various product categories currently sold primarily to smartphone manufacturers. Amon characterized this as a "temporary, short-term measure" and emphasized that the company is optimizing its supply chain through multiple methods.

As previously mentioned by financial media, the magnitude of Qualcomm's price increase is a double-digit percentage. In its earnings statement, Qualcomm said this move aims to "reflect higher costs in product pricing," and is expected to drive gross margins higher over time.

Notably, Qualcomm also warned that Apple is accelerating the switch to its in-house modem chips for iPhones, a process faster than previously anticipated.

Qualcomm expects revenue from phones using the Android operating system to decline by about 20% year-over-year in fiscal 2026, translating to a loss of over $1.50 per share in earnings, posing a substantial drag on its long-term profitability.

Automotive and IoT Businesses Become Growth Pillars

Against the backdrop of a weak mobile phone business, Qualcomm's diversification strategy provided crucial support to its performance.

Revenue from the automotive chip business reached $1.59 billion in the quarter, becoming a highlight. The company set a target in June to achieve $10 billion in automotive revenue by fiscal 2029, and announced on Wednesday a deal with BMW to supply digital cockpit chips.

The Internet of Things (IoT) business, which targets industrial low-power applications and smart glasses devices, saw revenue grow 9% year-over-year to $1.83 billion. Additionally, Qualcomm's licensing division, QTL, posted revenue of $1.28 billion for the quarter, slightly above the market expectation of $1.26 billion.

Amon stated that Qualcomm's non-smartphone revenue, encompassing automotive, data centers, and IoT, is expected to grow to $40 billion by fiscal 2029. He also plans for non-mobile phone businesses to account for 60% of total revenue by fiscal 2027.

Betting on Data Centers, AI Infrastructure Competition Intensifies

Qualcomm is actively expanding into the AI data center infrastructure market to reduce its dependence on the smartphone business.

Amon reiterated the company's target of achieving $5 billion in data center revenue next year. In June, Qualcomm announced that Meta has become the first hyperscale customer for its AI data center processors.

On Wednesday, Qualcomm also announced the completion of its acquisition of Modular, an AI programming technology software company, and stated it would officially launch an AI software platform at an industry conference in August.

However, Qualcomm's AI transformation path is not without obstacles. Nvidia's market capitalization has surged from around $400 billion to over $4.6 trillion, a space that has attracted numerous chip companies, including Qualcomm and Arm, to compete for positioning.

Meanwhile, the heavy investment in AI infrastructure is also intensifying the tight situation across the entire electronics supply chain, which in turn pushes up end-consumer costs, putting chip suppliers like Qualcomm in a difficult position.