Qualcomm expects fourth-quarter earnings below market estimates due to falling revenue from its largest customer, Apple. The company plans to increase prices to protect margins against rising supply chain costs while aiming to pivot toward the data center and automotive markets by 2027.
Qualcomm has provided a fourth-quarter earnings forecast that trails market expectations, as the chipmaker faces an accelerated decline in revenue from Apple. Following the announcement, the stock dropped more than 4% in after-hours trading. The company’s latest guidance reflects the challenges of shifting its business away from a heavy reliance on the smartphone market.
Supply Chain Pressure and Price Hikes
Qualcomm CEO Cristiano Amon highlighted that supply constraints are significantly reducing the company’s component share in the next iPhone model to well below 20%. To manage these headwinds and offset rising costs across its supply chain, Qualcomm plans to implement price increases starting September 1. Management indicated that these adjustments are essential to restore gross margins to historical levels. These changes will be negotiated on a case-by-case basis with individual customers, marking a direct attempt to pass on higher production costs.
Strategic Pivot to Data Centers and Automotive
Despite the immediate pressure from smartphone chip demand, Qualcomm is aggressively repositioning itself. The company projects that revenue from non-handset businesses, particularly in data centers and automotive sectors, will play a larger role in its future. CFO Akash Palkhiwala noted that the company expects growth in these divisions to fully replace revenue currently derived from Apple by fiscal year 2026. Qualcomm has set ambitious targets of generating $5 billion in revenue from the artificial intelligence data-center market by 2027, rising to $15 billion by 2029.
Production for custom chips designed for hyperscale customers is already underway, with revenue expected to start flowing by the December quarter. Additionally, the company has completed the development phase for its first-generation high-bandwidth compute chip, which is scheduled for a mid-2027 launch. These investments underscore a long-term transition as the company seeks to diversify away from its handset-dependent business model.
Quarterly Outlook and Market Context
For the fourth quarter, Qualcomm anticipates adjusted earnings per share between $2.05 and $2.25, missing the analyst consensus estimate of $2.36. While revenue is projected to be between $9.7 billion and $10.5 billion, the broader market remains cautious about the company's handset unit performance. In the third quarter, handset revenue fell 20% to $5.09 billion. Although Android-based phone sales are showing signs of recovery, Qualcomm faces persistent margin pressure as consumers increasingly favor lower-tier premium or older device models, which impacts the overall profitability of their high-end chip business. Investors will likely track the successful execution of these price increases and the ramp-up of new data center projects in the coming quarters.