Qualcomm's latest report card had a little bit of good and a little bit of not-so-good. But here is where things get sticky for the chipmaker. The culprit? A supply crunch for computer memory components that is driving up costs across the semiconductor industry.
CEO Cristiano Amon put it bluntly: "Cost went up, prices are going to go up."
Across the semiconductor industry, companies are contending with elevated costs for production, assembly, and memory components. Those costs are eating into Qualcomm's margins, and the pain is showing up most clearly in the company's bread-and-butter business.
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That shift is hitting Qualcomm where it lives.
Not every division is hurting. Qualcomm's QTL licensing division, which collects royalties on its patents, also did slightly better than expected at $1.28 billion.
The catch: The current quarter forecast looks even worse. Qualcomm expects adjusted earnings per share between $2.05 and $2.25, well below the $2.36 analysts were hoping for. Revenue is expected to land somewhere between $9.7 billion and $10.5 billion.
The memory component shortage, in particular, has tightened profit margins across Qualcomm's handset business, which remains its largest revenue driver. This segment has been further pressured by consumers trading down to cheaper phones, amplifying the urgency for the company to diversify beyond smartphones. While automotive and IoT revenues are growing, they still represent a small portion of total sales, making the price hike a necessary near-term measure.
But raising prices alone is not the whole strategy. Qualcomm is working hard to stop depending so much on smartphone sales. The company wants 60% of its revenue to come from non-handset businesses next year. That is a big shift for a company that built its name on phone chips.
The auto business is a key piece of that plan. Qualcomm has already inked a partnership with BMW to provide chips for its digital cockpit systems, aiming to achieve $10 billion in automotive sales by 2029. Data center chips are another growth area, with a $5 billion revenue target for next year. The company also recently acquired Modular, a software firm, and intends to unveil a fresh artificial intelligence software platform during an event in August.
Qualcomm's diversification push builds on years of investment in automotive and IoT, but the current slump in its core handset business has given it added urgency. The targets for automotive and data center revenue, along with the Modular acquisition and the upcoming AI platform, reflect a bet that its chip designs can succeed well beyond smartphones and into software-defined vehicles and edge computing.
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