Qualcomm Inc (NASDAQ: QCOM) reported its fiscal third-quarter 2026 results for the period ending June 28, with revenue and profit both declining year-over-year. The company posted quarterly revenue of $9.95 billion, down 4% from the same period last year, but this figure exceeded the market consensus of $9.62 billion.

Adjusted earnings per share dropped 20% to $2.21, aligning with analyst expectations. Breaking down the business segments, the handset business revenue fell sharply by 20% to $5.086 billion, reflecting the broader smartphone market downturn. In contrast, the automotive segment surged 61% to $1.588 billion, and the Internet of Things (IoT) business grew 9% to $1.83 billion.

Looking ahead, Qualcomm forecasted fiscal fourth-quarter revenue to range between $9.7 billion and $10.5 billion, with a midpoint of $10.1 billion, which is above the market's expectation of $9.95 billion. However, the company expects adjusted earnings per share to be between $2.05 and $2.25, falling short of the consensus estimate of $2.35. The world's largest smartphone chipmaker provided a weaker-than-expected profit outlook, indicating that parts shortages and rising costs are heavily impacting its primary market. Following the earnings release, Qualcomm shares fell approximately 4% in after-hours trading.


Handset Business Headwinds Intensify as Apple Order Losses Accelerate Beyond Expectations

The downturn in the smartphone market has hit Qualcomm harder than anticipated. The company stated it is passing some of the rising costs to customers, asserting this move will gradually help restore profit margins. ARM Holdings Plc (NASDAQ: ARM), another chip company deeply tied to the smartphone sector, also reported earnings on Wednesday evening. ARM management acknowledged that they have significantly lowered their expectations for smartphone market growth, particularly in the near term.

Like many of its peers, Qualcomm has been forced to raise product prices due to tight supply chain constraints. The San Diego-based company relies on Taiwan Semiconductor Manufacturing Co (TSMC) to produce its chips, and this core foundry is struggling to meet the overwhelming demand from customers across the electronics industry. The surge in demand for artificial intelligence (AI) servers has tightened memory chip supply, forcing Qualcomm's customers to reduce their handset production. As Qualcomm's chips serve as the core processors in smartphones, and the company collects licensing fees based on phone shipments, the contraction in production volume directly drags down its core handset business revenue.

Qualcomm predicts that revenue from its Android-related handset business will drop by about 20% in fiscal 2026, corresponding to a loss of more than $1.50 in earnings per share. The company also warned that the loss of orders from Apple Inc (NASDAQ: AAPL) is accelerating faster than expected. The iPhone maker is gradually moving away from Qualcomm chips in favor of its own in-house processors. Qualcomm stated, "Due to supply constraints, we expect the decline in revenue from Apple products to accelerate starting in the fourth fiscal quarter, as the modem share we are expected to provide for the upcoming iPhone launch is likely to be significantly lower than the prior expectation of 20%." On a positive note, Qualcomm mentioned that revenue from Chinese handset makers "bottomed out in the third fiscal quarter and will return to double-digit sequential growth in the fourth quarter."


Expanding into the Data Center Market, Non-Phone Business Poised to Become a Core Growth Engine

Qualcomm has committed to new initiatives in the data center market, which it says will help reduce its reliance on the handset business and generate tens of billions of dollars in revenue. However, this transition will take time. Earlier this year, Qualcomm's stock price climbed on news of its data center plans, but over the past month, the global chip sector has experienced a broad correction, pulling Qualcomm shares lower. Investor concerns are growing that the massive investments in AI may not yield the expected returns.

Commenting on the latest results, Qualcomm CEO Cristiano Amon said, "Despite a challenging memory and supply chain environment, our third-quarter results reflect solid execution of our growth strategy, with quarterly revenue reaching the top end of our guidance range. We are well-positioned to deliver on the vision we outlined at our recent Investor Day, projecting non-handset revenue to grow to $40 billion by fiscal 2029, nearly double the target we announced in November 2024. In the near term, we expect the year-over-year revenue growth rate for our non-handset business, including the data center, to accelerate from 24% in fiscal 2026 to over 60% in fiscal 2027, marking a significant inflection point in the execution of our growth strategy."