Qualcomm Misses Q3 Earnings Estimates, Revenues Beat on Auto Growth

Handset Weakness Drags on QCT Results

QCT revenues declined 5% to $8.50 billion. Handset revenues plunged 20% to $5.09 billion as major OEMs reduced chipset purchases and worked down inventory amid memory supply constraints and higher memory prices.

The handset decline more than offset gains elsewhere in the product business. Management estimated that China OEM handset revenues reached a bottom in the quarter and expects double-digit sequential growth in the fourth quarter as channel inventory drawdowns ease.

Qualcomm Extends Automotive and IoT Momentum

Automotive revenues rose $604 million year over year, driven by a $381 million increase in revenue per unit from favorable mix and higher average selling prices. Another $223 million came from higher shipments tied to new vehicle launches using Snapdragon digital cockpit and ADAS and automated-driving products.

IoT revenues climbed 9% to $1.83 billion, led by favorable mix and growth in industrial networking and robotics. Combined QCT automotive and IoT revenues advanced 28%, and Qualcomm raised its fiscal 2026 exit-rate outlook for annualized automotive sales to approximately $7 billion from $6 billion.

Margins Narrow as Product Costs Rise

QCT EBT declined 18% to $2.19 billion, while its EBT margin contracted 4 percentage points to 26%. Higher product costs and lower revenues outweighed higher average selling prices, reflecting industrywide increases across wafers, assembly, testing, advanced packaging, memory and other materials.

QTL revenues decreased 3% to $1.28 billion, and EBT fell 6% to $881 million. Its EBT margin slipped to 69% from 71%, as lower estimated cellular-product sales and fewer prior-period royalty adjustments offset a favorable revenue-per-unit mix.

Qualcomm Invests in Data Center Expansion

GAAP research and development spending increased $381 million to $2.61 billion, primarily because of higher wireless and integrated-circuit development costs, lower engineering reimbursements and more share-based compensation. Selling, general and administrative expenses rose $205 million to $976 million, partly reflecting greater compensation and growth investments.

The spending supports a phased data center roadmap spanning connectivity, custom silicon, AI accelerators and server CPUs. Two custom-silicon wins are expected to begin generating revenues in the December quarter, while the company completed the $3.1 billion Modular acquisition to add an open, hardware-agnostic AI software platform.

Cash Flow & Liquidity

Qualcomm returned $2.3 billion to stockholders during the quarter, including $1.4 billion in repurchases and $973 million in dividends. At quarter-end, $20.6 billion remained under its repurchase authorization.

Cash, cash equivalents and marketable securities totaled $8.30 billion at June 28, down $4.17 billion from fiscal year-end, while debt was $15.27 billion. Nine-month operating cash flow fell $1.61 billion to $8.41 billion, partly as inventory increased amid memory-related customer demand shifts.

Guidance

For the fourth quarter of fiscal 2026, Qualcomm forecasts revenues of $9.7-$10.5 billion and non-GAAP earnings of $2.05-$2.25 per share. QCT revenues are projected at $8.4-$9.0 billion with a 23-25% EBT margin, while QTL revenues are expected between $1.2 billion and $1.4 billion.

QCT handset revenues are expected to be about $5.2 billion, with Android growth offset by lower Apple product sales. Qualcomm expects its modem share in the upcoming iPhone launch to be materially below the prior 20% estimate, while fourth-quarter automotive revenues are projected to rise approximately 60% year over year.

Zacks Rank

Qualcomm currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Arista Networks Inc. ANET is scheduled to release second-quarter 2026 earnings on Aug. 4. The Zacks Consensus Estimate for earnings is pegged at 89 cents per share, suggesting a growth of 21.9% from the year-ago reported figure.

Arista has a long-term earnings growth expectation of 19.9%. Arista delivered an average earnings surprise of 8.3% in the last four reported quarters.

Akamai Technologies, Inc. AKAM is slated to release second-quarter 2026 earnings on Aug. 6. The Zacks Consensus Estimate for earnings is pegged at $1.58 per share, indicating an 8.7% decline from the year-ago reported figure.

Akamai has a long-term earnings growth expectation of 8.1%. Akamai delivered an average earnings surprise of 7.5% in the last four reported quarters.

Pinterest, Inc. PINS is set to release second-quarter 2026 earnings on Aug. 4. The Zacks Consensus Estimate for earnings is pegged at 36 cents per share, implying a rise of 9.1% from the year-ago reported figure.

Pinterest has a long-term earnings growth expectation of 27%. Pinterest delivered an average negative earnings surprise of 4.1% in the last four reported quarters.

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