Beating Expectations, Yet Revenue and Profit Declined Year Over Year
On November 4, 2026, Qualcomm disclosed its fiscal fourth-quarter results, which concluded on September 27.
The company reported a non-GAAP earnings per share (EPS) and adjusted revenue that surpassed market forecasts, albeit with a retrogressive trend compared to the previous year.
The automotive sector witnessed a remarkable 89% year-over-year surge, generating $1.99 billion; however, the overall revenue from QCT, its semiconductor division, receded by 8%.
Notably, the combined gains from automotive and IoT sectors compensated for merely 56% of the decline attributed to smartphone sales.
The need for a significant revenue contribution from the data center sector becomes increasingly evident as Qualcomm seeks to mitigate its reliance on smartphones.
Automotive and IoT Growth Offsets Only 56% of the Smartphone Decline
To elucidate the extent to which Qualcomm has lessened its dependency on smartphones, a comparison of QCT revenue across various end markets is instructive. The year-over-year changes for the fourth quarter are as follows:
Automotive revenue increased by $937 million, while IoT revenue saw a boost of $81 million, yielding a collective gain of $1.018 billion.
Concurrently, handset revenue dropped by $1.824 billion. Thus, the offset ratio derived from the combined growth in automotive and IoT against the decline in handsets is approximately 55.8%, translating to about 56% of the smartphone revenue slump being countered.
It’s essential to note that this assessment does not incorporate revenue from the QTL licensing arm or the burgeoning data center segment.
Nonetheless, the revenue composition is undergoing considerable transformation. The contributions from automotive and IoT sectors ascended from 29% of QCT revenue a year prior to 43%, while handset contributions diminished from 71% to 57%.
This diversification is evident, yet growth in automotive and IoT alone is insufficient to fully offset the decline in smartphone revenue.
Examining the previous fiscal Q3 2026 reveals that the automotive gain of $604 million coupled with the IoT increment of $149 million, totaling $753 million, accounted for approximately 61% of the $1.242 billion reduction in handset revenue.
The fourth quarter saw this offset ratio decrease to 56%. Simultaneously, QTL revenue experienced a 7% year-over-year decline, registering $1.304 billion for the fourth quarter and $5.556 billion for the full year, a slight dip from $5.582 billion previously.
The forecast for fiscal Q1 2027 (October–December 2026) echoes this trend. Qualcomm anticipates QCT revenue to fall between $9.0 billion and $9.6 billion, with a midpoint of $9.3 billion—marking a 12.4% decline from the prior year’s $10.613 billion.
This projection includes the contribution from the data center business. The overall revenue guidance for the company is set between $10.4 billion and $11.2 billion, with a midpoint of $10.8 billion, approximately 12% below the $12.252 billion reported in the preceding year.
In this context, the data center sector is posited as a pivotal growth pillar. CEOs and executives expressed optimism, indicating that non-smartphone revenue could surge by more than 60% in fiscal 2027, along with a reiterated target of $5 billion in data center revenue.
At an exchange rate of 150 yen to the dollar, this $5 billion corresponds to roughly 750 billion yen, a figure that could substantially impact the overall financial outcome if realized.
Would this target sufficiently offset the downturn in smartphone sales? Extrapolating the fourth-quarter handset revenue of $5.137 billion over a year suggests an annualized total of approximately $20.5 billion, equating to a deficit of about $3.5 billion relative to the fiscal 2026 figure of $24.072 billion.
If the fourth-quarter performance persists throughout the year, achieving $5 billion in data center revenue could potentially compensate for this shortfall.
However, should the smartphone revenue decline exacerbate, the offset might diminish, and the results from this quarter offer no concrete assurance of attaining the $5 billion goal, including partnerships such as that with Amazon.
Smartphone Stabilization and Price Pass-Through Are Key to a Recovery
There are nascent indicators suggesting that the smartphone sector may be reaching a nadir. In the fourth quarter, handset revenue at $5.137 billion marked a modest increase of 1.0% from $5.086 billion in the preceding quarter.
While this slight stabilization is noteworthy, the year-over-year decline remains significant at 26%, prohibiting any definitive assertions regarding the onset of a genuine recovery.
Additionally, a critical aspect is the transmission of rising costs into product pricing. Qualcomm has indicated that input expenses are climbing throughout the industry, affecting everything from manufacturing to memory costs.
The company posits that the repercussions of these higher costs being reflected in product pricing are expected to manifest in QCT’s gross margin by the latter half of fiscal 2027. Hence, margins might experience improvement prior to a robust revenue rebound.
Yet, enhancing margins and reducing reliance on smartphone revenues present distinct challenges. Even if cost pass-through enhances profitability, the alteration in revenue dynamics cannot be deemed adequate should the increases in automotive and IoT sectors fail to palliate the smartphone downturn.
A pivotal figure to monitor will be the juxtaposition between the rise in non-smartphone revenues and the concurrent decline in smartphone revenues for the period of October–December 2026.
The offset ratio clocked in at 61% in the third quarter but slipped to 56% in the fourth. A ratio exceeding 80% in the next quarter would indicate that growth in the automotive and IoT sectors is beginning to counterbalance the smartphone decline.
Furthermore, determining whether QCT’s year-over-year revenue downturn is less severe than the approximate 9.5% suggested by the upper limit of the company’s guidance, specifically $9.6 billion, will serve as another vital indicator.
If data center revenue subsequently emerges transparently in quarterly reports, and its growth, when amalgamated with increases in automotive and IoT revenue, surpasses the smartphone decline, it would unmistakably delineate Qualcomm’s transformative journey reflected in its results.
The trajectory of Qualcomm’s growth will be significantly influenced by how swiftly the data center sector begins rendering revenue following the remarkable growth in automotive.
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