Should You Reconsider QCOM Stock Amid Downward Estimate Revisions?

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QCOM Plagued by Soft Demand

Qualcomm reported lackluster third-quarter fiscal 2026 results with non-GAAP earnings of $2.21 per share, down 20% year over year, while revenues fell 4% to $9.95 billion. Higher input costs and handset weakness pressured profitability as 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.

Waning Margins Hurt QCOM

Qualcomm's margins have declined over the years due to high operating expenses and R&D (research & development) costs. 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.

The company expects softness in the handset market and a weaker overall device mix to continue in the near future. The shift in the share among original equipment manufacturers at the premium tier has reduced the near-term opportunity to sell integrated chipsets from the Snapdragon platform. In addition, aggressive competition from low-cost chip manufacturers and established players in the mobile phone chipset market is also likely to hurt Qualcomm's profits.  

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Price Performance

Qualcomm’s shares are up 3.3% over the past year compared with the industry’s growth of 48.3%. It has lagged peers like Hewlett Packard Enterprise Company HPE and Broadcom Inc. AVGO. While Hewlett Packard has jumped 152.9%, Broadcom surged 33.9% over this period. 

One-Year QCOM Stock Price Performance

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QCOM’s Snapdragon & Automotive Business Hold Fort

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. 

Qualcomm envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio. Leveraging processors with multi-core CPUs with cutting-edge features, amazing graphics and worldwide network connectivity, Qualcomm Snapdragon mobile platforms are fast with superb power efficiency, brilliant camera capabilities and state-of-the-art security solutions.

End Note

Qualcomm is likely to benefit from robust automotive and Snapdragon traction. A strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers. 

However, with declining earnings estimates, the stock is witnessing negative investor sentiment. Stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. High R&D costs erode its profitability to a large extent. Qualcomm is facing a tough operating environment in China, raising questions about its long-term viability plans in the country. It also faces reduced chip orders and near-term uncertainty in memory supply. 

With a Zacks Rank #3 (Hold), Qualcomm appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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