QCOM Q3 Earnings Call Highlights AI Expansion

Qualcomm Incorporated QCOM used its third-quarter fiscal 2026 earnings call to outline a broader transformation beyond handsets, with management emphasizing artificial intelligence, automotive, industrial and data center opportunities. The company highlighted a plan to grow non-handset revenues while managing near-term semiconductor supply pressures.

Management also addressed pressure points around memory costs, Apple-related revenue changes and the ramp-up of new AI infrastructure products during analyst questioning. The discussion centered on execution against a longer-term diversification strategy.

Qualcomm Expands AI Road Map

Cristiano Amon, CEO, president & director of Qualcomm, said the company is entering a new phase built around data center expansion, agentic AI computing and software platforms. Management updated its fiscal 2029 target for non-handset revenues to $40 billion, including more than $24 billion from automotive and IoT and more than $15 billion from data center.

Amon highlighted Qualcomm’s phased data center product strategy, which includes connectivity products in fiscal 2026, custom silicon and AI accelerators in fiscal 2027, and server-class CPUs in fiscal 2028. The company said two custom silicon engagements are expected to begin generating revenue in the December quarter.

Qualcomm also completed its acquisition of Modular Inc., with management stating that the transaction strengthens its ability to provide an open software stack for AI deployments across data center and edge environments.

QCOM Targets Data Center Growth

QCOM management said data center expansion remains a key part of its future growth plan. CFO & COO Akash Palkhiwala said data center revenues are expected to reach $5 billion in fiscal 2027 and $15 billion in fiscal 2029 as the business scales across custom silicon, accelerators and CPUs.

During Q&A, a TD Cowen analyst asked about the timing of data center contributions. Palkhiwala said both custom chip engagements involve global-scale hyperscalers, have purchase orders in place and have already moved into wafer production.

Management noted that initial data center revenues will carry lower gross margins than Qualcomm’s existing business. Palkhiwala said the early custom chip revenues could reduce weighted average QCT gross margin by 1.5% to 2%.

Qualcomm Builds Non-Handset Scale

Qualcomm reported continued momentum in non-handset markets, with QCT automotive and IoT revenues increasing 28% year over year. Automotive revenues reached $1.6 billion, up 61%, while IoT revenues rose 9% to $1.8 billion.

Management raised its automotive annualized revenue outlook exiting fiscal 2026 to approximately $7 billion from a previous $6 billion target. Amon pointed to expanded relationships with automakers, including BMW and Stellantis, as drivers of future growth.

Qualcomm also highlighted industrial opportunities, noting a design win pipeline exceeding $7 billion and more than $3.5 billion in secured design wins during the fiscal year.

QCOM Navigates Supply Pressure

QCOM’s near-term results reflected industry-wide memory and supply constraints. Third-quarter revenues were $9.95 billion, down 4% year over year, but exceeded the Zacks Consensus Estimate of $9.71 billion. Meanwhile, non-GAAP EPS was $2.21, which missed the Zacks Consensus Estimate of $2.22.

QUALCOMM Incorporated Price, Consensus and EPS Surprise

QUALCOMM Incorporated price-consensus-eps-surprise-chart | QUALCOMM Incorporated Quote

Palkhiwala said higher costs across wafer fabrication, assembly, testing, advanced packaging and materials pressured margins. The company is implementing pricing actions across end markets, with changes expected to flow through gradually.

During Q&A, JPMorgan analysts questioned the pricing strategy and handset demand impact. Management said pricing actions are broad-based and designed to offset input cost increases rather than represent a change in product positioning.

Qualcomm Addresses Handset Transition

Qualcomm said handset conditions remain challenging due to memory market dynamics. QCT handset revenues declined 20% year over year to $5.086 billion in the quarter.

Management said Chinese OEM handset revenues reached a bottom in the third quarter and are expected to return to double-digit sequential growth in the fourth quarter. Palkhiwala attributed the improvement to channel inventory normalization.

A Bernstein analyst asked about reduced Apple-related revenue expectations. Palkhiwala said supply constraints resulted in materially lower share for upcoming launches, while growth in non-handset businesses is expected to offset the change.

Qualcomm Maintains Strategic Focus

Qualcomm’s leadership emphasized execution against its diversification strategy while balancing near-term cost and supply challenges. The company returned $2.3 billion to stockholders during the quarter through dividends and share repurchases.

Management guided fourth fiscal-quarter revenues to $9.7 billion-$10.5 billion and non-GAAP EPS to $2.05-$2.25. QCT revenues were projected at $8.4 billion to $9 billion.

The company’s commentary focused on expanding AI capabilities across devices, vehicles, industrial systems and infrastructure while continuing investment in future platforms.

QCOM’s Zacks Rank and Style Score Signals

QCOM carries a Zacks Rank #3 (Hold). The Zacks Rank is driven by earnings estimate revisions and is designed to help indicate the potential for stock performance over the next one to three months. The Rank can change as analysts update earnings expectations following new information. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Qualcomm’s Style Scores include a Value Score of C, Growth Score of C, Momentum Score of F and VGM Score of D. The Zacks Style Scores evaluate value, growth and momentum characteristics, with stronger scores representing more favorable attributes within each category.

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