Qualcomm's Handset Revenue Falls 26 Percent to $5.14 Billion While Data Center Ramps Toward a $7 Billion Run Rate

Qualcomm closed its fiscal fourth quarter with the clearest picture yet of a chip company changing shape. Revenue for the quarter ended September 27 came in at $10.32 billion on a GAAP basis, down 8 percent from a year earlier, while non-GAAP revenue of $10.44 billion just edged past estimates. Non-GAAP earnings per share of $2.17 also beat, but the composition of the quarter mattered more than the beat: the handset chip business, still the company's core, fell 26 percent year over year to $5.14 billion.

The decline reflects several forces arriving at once. Smartphone demand remains soft, memory and other semiconductor costs are rising through the supply chain, and Apple continues to shift toward its own in-house modems. Qualcomm has renewed its patent licensing agreement with Apple, along with new long-term QTL deals covering Huawei and Transsion, but the modem revenue trajectory is structurally lower than it was two years ago. Bernstein analyst Stacy Rasgon had warned before the print that the handset environment was "clearly deteriorating" on memory dynamics, and the quarter bore that out.

Automotive is now the brightest spot. Chip revenue from carmakers rose 89 percent year over year to $1.99 billion, the first quarter at that scale, as digital cockpit and driver-assistance designs ramp across global OEMs. The Internet of Things segment grew 4 percent to $1.89 billion. Overall QCT chip revenue fell 8 percent to $9.02 billion, while the licensing segment QTL brought in $1.30 billion, down 7 percent.

The data center story finally has revenue attached to it. Qualcomm said it has signed a multi-generation product agreement with Amazon focused on AI inference workloads, covering custom silicon and optical interconnect solutions with speeds up to 1.6 terabits. The deal includes a warrant structure tied to potential Amazon purchases of up to $60 billion over ten years, with 15 percent of the warrant vesting immediately on initial commitments. A second, unnamed global hyperscaler has also signed on, and Meta previously committed to the Dragonfly C1000 server processor announced at Qualcomm's investor day.

Chief financial officer Akash Palkhiwala said first-quarter guidance already includes initial data center revenue from shipments to the two hyperscalers. Qualcomm expects data center revenue above $650 million in the December quarter, about $5 billion for fiscal 2027, and a $7 billion annualized run rate by the end of fiscal 2027, with a longer-term target of more than $15 billion by fiscal 2029. From fiscal 2027 the company will break data center out as a separate reporting line inside QCT, alongside handsets, automotive and IoT. CEO Cristiano Amon framed the constraint as supply, not demand: "We don't have a demand problem, we have a supply problem. If I had more supply, the results could have been better."

Wall Street focused on the near term. Guidance for the fiscal first quarter calls for revenue of $10.4 billion to $11.2 billion and non-GAAP EPS of $2.15 to $2.35, a midpoint below the $2.32 analysts expected. Qualcomm also guided QCT pretax margin to 20 to 22 percent, down from 24 percent, as data center research and development spending ramps. The stock fell roughly 7 percent in after-hours trading. Management noted that pricing actions will not lift gross margins fully until the second half of fiscal 2027.

For the full fiscal year, GAAP revenue was $43.12 billion, down 3 percent, though GAAP net income of $13.63 billion more than doubled, boosted by a $5.7 billion tax benefit recognized in the quarter. Amon told analysts that China Android handset shipments are showing signs of bottoming quarter over quarter, but he expects the global handset market to stay flat in 2027, which keeps the pressure on the diversification thesis.

The quarter effectively marks the moment Qualcomm's data center ambitions stop being a slide and start being a line item. The transition is expensive, the margins are thinner while the business scales, and handset revenue may keep falling before the new engines are big enough to offset it. But with two hyperscalers shipping, a warrant structure that ties Qualcomm's upside to a decade of Amazon purchases, and supply, not demand, as the stated bottleneck, the pivot has moved from promise to execution.