Qualcomm and Arm earnings show AI demand but handset weakness hits stocks

Qualcomm and Arm earnings gave investors two versions of the same semiconductor problem: AI demand is expanding, but smartphones remain a drag on revenue quality and near-term expectations. Shares of Qualcomm fell just over 3% after hours, while Arm was down more than 4%, after both companies pointed to weaker handset conditions and higher component costs.

Qualcomm reported fiscal third-quarter adjusted earnings of $2.21 per share, below analysts’ estimate of $2.23. Revenue was $9.95 billion, ahead of the $9.67 billion expected. The company guided for current-quarter adjusted earnings of $2.05 to $2.25 per share on revenue of $9.7 billion to $10.5 billion. Analysts had expected $2.36 per share on $10.02 billion in revenue.

Qualcomm Chief Executive Cristiano Amon told analysts that the company plans to raise prices from Sept. 1 because its own costs have increased. In its earnings release, Qualcomm cited higher costs across wafer fabrication, assembly, testing, advanced packaging, memory and other materials, while saying revenue remains healthy. Management did not quantify how much prices will rise or how much margin protection it expects from the move.

Why did Qualcomm and Arm stocks fall after earnings?

The common issue was handset exposure. Qualcomm’s handset chip revenue was $5.1 billion in the quarter, down 21% from a year earlier. Amon described China as a market that is bottoming, and said higher memory prices are pushing some consumers toward cheaper premium phones or last year’s models.

That mix matters because Qualcomm is still a handset-heavy company despite years of work to broaden its business. The company said it still aims for non-handset chip sales to reach 60% of total revenue by the end of next year. Its automotive unit generated $1.59 billion in sales, while its Internet of Things segment, which includes industrial, smart glasses and robotics chips, posted $1.83 billion, up 9% year over year. Qualcomm’s licensing business, QTL, produced $1.28 billion, slightly above the $1.26 billion analysts expected.

Qualcomm is also trying to attach itself more directly to AI infrastructure spending. Amon said the company remains on track for $5 billion in data center chip revenue next year. Qualcomm also said it plans to introduce an AI software platform next month based on technology from Modular Inc., the software company it recently acquired. The acquisition price was not disclosed in the earnings discussion.

Arm’s report was cleaner on headline numbers. The British chip design company posted fiscal 2027 first-quarter adjusted earnings of 45 cents per share on revenue of $1.29 billion, up 22% from a year earlier. Analysts expected 40 cents per share and $1.26 billion in revenue. For the current quarter, Arm projected revenue of $1.38 billion, plus or minus $50 million, and adjusted earnings of 43 cents to 51 cents per share. Analysts were looking for $1.35 billion in revenue and 45 cents per share.

The selloff centered on royalties. Arm said mobile royalty revenue is expected to decline sequentially, and its current-period royalty growth outlook moved to a low-to-middle-teens percentage range. Investors had previously expected growth around 20%.

Arm licenses chip designs and collects royalties when customers ship products based on its intellectual property. The company is now building its own data center central processing unit as AI customers seek more power-efficient compute. Chief Executive Rene Haas said demand for Arm’s AGI CPU has surpassed $2 billion across fiscal 2027 and 2028, and that initial chips have been delivered to multiple customers, including Oracle.

Haas also said Arm has secured supply for more than $1 billion worth of chips. Jefferies analysts have forecast Arm data center chip sales could reach $18 billion by fiscal 2031, though production capacity remains the open question if demand scales that far.

This story draws on original reporting from SiliconANGLE.