QUALCOMM Incorporated (QCOM) Earnings

Management highlights

### Long-Term Strategic Priorities - Expand into the data center market with four distinct product lines - Advance GenTech and enable AI physical compute across the entire compute continuum from edge to cloud - Expand beyond silicon to deliver full-stack software and integrated platform solutions Updated Long-Term Financial Targets - Raised total non-handset revenue target to $40 billion by fiscal 2029, up from the previous target of $22 billion - Non-handset revenue will break down to more than $24 billion from automotive and IoT, plus more than $15 billion from the data center segment ### Data Center Operational Updates - Two near-term custom silicon engagements with global hyperscalers will begin generating revenue in the December 2026 quarter, and wafer production has already started - Completed tape-out of HBC Gen 1 (high bandwidth compute solution), with performance demonstrations planned for coming quarters ahead of a mid-2027 commercial launch - Completed the acquisition of Modular Incorporated, which adds end-to-end AI software stack capabilities for data center and edge deployments, with a goal to shift the industry from closed to open AI software systems - Active partnership discussions are ongoing with nearly all leading data center operators for merchant platform offerings including HBC-based AI accelerators, service connectivity, and CPUs ### Automotive Operational Updates - Signed a landmark expanded strategic agreement with BMW to become the lead compute silicon provider for next-generation ADAS and digital cockpit systems, extending Qualcomm's partnership through the next decade - The existing Stellantis collaboration extends the automotive product pipeline well into the 2030s - Fifth-generation Snapdragon digital chassis will begin ramping in September 2026, expected to deliver significant increases in content per vehicle, with Qualcomm on track to become the largest automotive semiconductor company by revenue ### IoT & Industrial Operational Updates - The industrial design win pipeline now exceeds $7 billion, with over $3.5 billion in new design wins secured in fiscal 2026 to date, on track to hit the prior fiscal 2029 target of $8 billion in industrial networking and robotics revenue ### Handset & New Form Factor Updates - Despite overall industry contraction driven by memory cost dynamics, early signs of an emerging agentic AI smartphone cycle are appearing, with Chinese OEMs preparing to launch new on-device agent products - Qualcomm powers approximately 70% of Samsung's flagship devices, with collaboration expanding across the entire Galaxy ecosystem including foldables, wearables, and Google-backed intelligent eyewear - Growing design win share in AI-first PCs with Google (Gemini-powered laptops) and Microsoft (Project Solara agent-first enterprise chip-to-cloud platform) - Launched the Snapdragon Start program to provide a full reference platform for smart glasses, targeting the 600 million annual global eyewear unit market, with more details planned for the September 2026 Snapdragon Summit

Guidance

- **Fourth Fiscal Quarter 2026 Guidance**: Total revenue expected between $9.7 billion and $10.5 billion, with non-GAAP EPS between $2.05 and $2.25 - QTL revenue guidance: $1.2 billion to $1.4 billion, with EBIT margin between 68% and 72%, aligned with normal seasonal trends - QCT revenue guidance: $8.4 billion to $9 billion, with EBT margin between 23% and 25% - QCT handset revenue expected to be approximately $5.2 billion: sequential Android growth will be offset by materially lower Apple product revenue - QCT IoT revenue expected to be flat year-over-year, with double-digit growth in industrial networking and robotics offset by memory constraints impacting consumer IoT products like tablets - QCT Automotive expected to deliver another record quarter, with approximately 60% year-over-year revenue growth - Non-GAAP operating expenses expected to be approximately $2.7 billion, reflecting the Modular acquisition and continued pre-revenue investment in the data center product roadmap - **Interim & Long-Term Growth Guidance**: Annualized automotive revenue exit rate for fiscal 2026 raised to $7 billion, up from the prior target of $6 billion - Non-handset revenue will account for more than 50% of total QCT revenue by fiscal 2027, growing to approximately two-thirds of QCT revenue by fiscal 2029 - Non-handset year-over-year growth is expected to accelerate from 24% in fiscal 2026 to over 60% in fiscal 2027, which will fully replace lost Apple product revenue in the fiscal 2027 results - Data center revenue is targeted to reach $5 billion in fiscal 2027 and $15 billion in fiscal 2029 - **December 2026 Quarter (Fiscal Q1 2027) Qualitative Expectations**: Apple revenue will see a ~50% sequential decline from Q4 FY2026, accelerating the step-down of Apple revenue from Qualcomm's business. Android growth will largely offset the Apple decline, and early data center revenue will begin ramping. Total revenue is expected to be slightly up sequentially from Q4 FY2026, and the historical seasonality pattern of Q1 being the highest revenue quarter will no longer hold; Qualcomm now expects revenue to grow from the December quarter to the March 2027 quarter.

Segment performance

Total company revenue for Q3 FY2026 was $9.9 billion, with non-GAAP EPS of $2.21, which came in at the high end of prior guidance. - QTL (Qualcomm Technology Licensing): Revenue of $1.3 billion, with an EBT margin of 69%, which was in line with expectations. Revenue contribution: 13.1% of total company revenue. - QCT (Qualcomm CDMA Technologies): Revenue of $8.5 billion, at the high end of prior guidance, with an EBT margin of 26% which was in line with guidance. Revenue contribution: 85.9% of total company revenue. - QCT Handset: Revenue of $5.1 billion, impacted by industry-wide memory dynamics affecting the global smartphone market. Revenue contribution: 51.5% of total company revenue, 60% of QCT revenue. - QCT IoT: Revenue of $1.8 billion, up 9% year-over-year, driven by growth in the industrial, networking, and robotics product category. Revenue contribution: 18.2% of total company revenue, 21.2% of QCT revenue. - QCT Automotive: Revenue of $1.6 billion, a new quarterly record, with 61% year-over-year growth driven by rising demand and increasing compute content per vehicle. Revenue contribution: 16.2% of total company revenue, 18.8% of QCT revenue. Total non-handset revenue within QCT grew 28% year-over-year, highlighting the success of the company's diversification strategy. The company returned $2.3 billion to shareholders this quarter, split between $1.4 billion in share repurchases and $937 million in dividends.

Risks & headwinds

- Broad industry-wide headwinds: Unprecedented memory price increases, higher manufacturing and input costs, and supply chain shortages driven by strong overall data center demand have created short-term pressure on QCT gross margins, pushing them slightly below Qualcomm's historical range - Memory industry dynamics have caused contraction in the overall mobile handset market, leading to near-term handset revenue declines - Supply chain constraints are forcing an accelerated step-down of Apple product revenue starting in Q4 FY2026, with Qualcomm's share of upcoming iPhone launches expected to be materially lower than the prior 20% estimate - Initial data center revenue will have a significantly lower gross margin than Qualcomm's core baseline business, creating a 1.5 to 2 percentage point drag on QCT's overall weighted average gross margin as the business ramps - As a new entrant to the data center market, Qualcomm must deliver additional execution proof points to validate its growth strategy to investors - The entire semiconductor industry is currently operating at 100% utilization across all production segments, leading to widespread wafer, assembly, test, and packaging shortages and corresponding input price increases, though Qualcomm notes its scale helps secure sufficient supply to meet its plans - Potential U.S.-China regulatory restrictions on data center technology exports could impact future business, though current engagements are not restricted as of this call - Near-term handset market TAM is expected to decline by low double-digits year-over-year between FY2025 and FY2026, with QCT Android revenue down 20% year-over-year and a corresponding EPS impact of more than $1.50, though this is expected to reverse as market conditions stabilize

Analyst Q&A

• Q: How long will it take for QCT gross margins to return to historical levels after ASP increases offset rising input costs? /

  A: Two main factors are pressuring current gross margins: weaker premium handset product mix as OEMs use older generations to offset memory cost increases, and broad-based higher input costs across the supply chain. Qualcomm is implementing broad price increases to offset these costs, with benefits gradually phasing in over the next couple quarters as existing contracts and product cycles roll over. Once these price increases are fully implemented, management expects gross margins to return to the company's historical range.

• Q: How should we think about the accelerated step-down of Apple revenue? Is this a deliberate choice to reallocate silicon capacity to higher priority non-Apple businesses? /

  A: This is not a deliberate choice to starve Apple of capacity; supply constraints were a contributing factor, and the outcome of commercial discussions resulted in Qualcomm holding materially less than the prior 20% share target for new iPhone launches. Fiscal 2027 Apple revenue will be less than the prior guidance of just over $2 billion, and the 60%+ year-over-year growth in non-handset revenue will fully replace this lost revenue in fiscal 2027.

• Q: What is the magnitude and breadth of Qualcomm's price increases, and how will the company absorb these increases in weak consumer handset demand? /

  A: The price increases are broad-based across all end markets, and will phase in gradually as existing contracts expire and new product cycles launch. The size of the increase is double-digit, consistent with actions taken by other semiconductor industry peers. The increases only pass through the rise in input and memory costs, which has been far larger in magnitude than Qualcomm's price adjustment, so management does not expect significant demand headwinds from the pricing action.

• Q: What is the current customer reception for Qualcomm's data center initiative outside of the two initial hyperscaler custom engagements, and how will the business expand beyond these initial customers? /

  A: The $15 billion fiscal 2029 data center target already accounts for expansion beyond the two initial engagements, combining multi-generation custom ASIC growth with the ramp of merchant accelerators and CPUs. Most prospective customers want to evaluate actual working silicon before committing to partnerships, so the next key milestone is demonstrating working HBC silicon in the coming quarters. Qualcomm expects this demonstration to unlock significant new customer opportunities once complete.