Qualcomm beats on earnings, highlights growth in Meta smartglasses

Qualcomm reported fiscal Q3 earnings and Q4 guidance above Wall Street expectations, yet its shares slid in extended trading, likely due to its handset chip revenue slightly missing targets and the impending loss of Apple as a modem customer. The company is strategically diversifying, highlighting robust 24% growth in its IoT segment driven by Meta's "personal AI" devices, and announcing plans to enter the data center AI chip market with discussions underway with a leading hyperscaler, signaling a long-term pivot beyond smartphone reliance.

Analysis

Qualcomm reported fiscal third-quarter results that surpassed Wall Street estimates and offered a stronger-than-expected fourth-quarter forecast, yet its shares declined in extended trading. The company posted an adjusted EPS of $2.77 on $10.37 billion in revenue, narrowly beating consensus, and guided for $2.85 in EPS on $10.7 billion in revenue for the current quarter, exceeding analyst projections. The negative stock reaction likely stems from the performance of its core handset chip division, which at $6.33 billion in revenue, fell just short of the $6.44 billion expectation. This highlights the market's sensitivity to its primary business, which faces the long-term headwind of losing Apple as a modem customer. However, the company is demonstrating successful strategic diversification. The Internet of Things (IoT) division was a standout, growing 24% to $1.68 billion, fueled by stronger-than-expected chip consumption for Meta's personal AI devices like the Ray-Ban smart glasses. The automotive segment also posted solid 21% growth to $984 million. Management is actively pursuing new, long-term growth avenues, announcing advanced discussions with a major hyperscaler to enter the data center AI chip market, though revenue is not anticipated until fiscal 2028. To provide clarity on its transition, Qualcomm will now report its business growth excluding Apple, which stands at 15% this year. The company's financial health is further underscored by substantial capital returns, including $2.8 billion in share repurchases and nearly $1 billion in dividends during the quarter.

Key Decisions for Investors

• Investors should evaluate the near-term pressure on the core handset segment, evidenced by the slight revenue miss, against the company's successful diversification into high-growth areas like IoT and automotive.
• Consider the long-term potential of the newly announced data center AI chip initiative as a significant future catalyst, but temper expectations with the long revenue timeline of fiscal 2028.
• Monitor the growth rates of the IoT and automotive segments, as well as the newly provided 15% ex-Apple growth metric, as key indicators of the strategic pivot's success.
• The post-earnings share price dip, despite a strong Q4 forecast and robust capital return program, may present an opportunity for long-term investors who are confident in the company's ability to execute its diversification and AI strategy.