Qualcomm forecasts solid quarter but smaller Samsung business hits shares

Qualcomm exceeded market expectations with its quarterly sales and profit forecast, projecting $12.2 billion in sales and $3.40 EPS for the current quarter, alongside better-than-expected Q4 results, driven by a rebound in premium smartphone sales and demand for AI applications. Despite this strong performance, shares declined 2.7% after hours due to concerns over a potential reduction in modem chip supply to Samsung's next-generation Galaxy S26 models, from 100% to 75%. The company is actively diversifying into automotive, data center, and AI chips, including discussions with a hyperscaler, to mitigate risks from key customer transitions like Apple's move to in-house modems.

Analysis

Qualcomm (QCOM) significantly surpassed market expectations, forecasting Q1 sales and adjusted EPS at $12.2 billion and $3.40 respectively, against analyst estimates of $11.62 billion and $3.31. This strong outlook follows better-than-expected Q4 results of $11.27 billion in sales and $3.00 EPS, driven by a robust rebound in premium smartphone demand fueled by AI application requirements. This trend is noted as a global phenomenon, particularly in key markets like China and India.

Despite the positive financial performance, QCOM shares declined 2.7% in after-hours trading, primarily due to concerns over a potential reduction in modem chip supply to Samsung. While Qualcomm supplied 100% for the Galaxy S25, CEO Cristiano Amon anticipates a 75% share for the upcoming Galaxy S26, signaling a material shift from a key customer. The ongoing transition of Apple (AAPL) to its own modems also remains a long-term risk, though Bernstein notes QCOM chips are still used in iPhone 17 models.

To mitigate these customer-specific risks, Qualcomm is actively diversifying its revenue streams, expanding into automotive, data center, and AI chips. The company reported 18% non-Apple revenue growth across all segments in fiscal year 2025 and is in discussions with a "hyperscaler" for AI chip supply, indicating promising new growth vectors beyond its traditional handset market.

Key Decisions for Investors

• Investors should closely monitor the actual impact of Samsung's anticipated modem share reduction and Apple's ongoing transition to in-house modems on Qualcomm's future handset revenue.
• Evaluate the progress and revenue contribution from Qualcomm's diversification into automotive, data center, and AI segments as key drivers for long-term growth.
• Assess the sustainability of premium smartphone demand, particularly in emerging markets, given its current role in driving Qualcomm's core business performance.