The smartphone upgrade cycle that Qualcomm has counted on for years still has not arrived. The company’s fiscal third-quarter results, reported Wednesday, showed a business treading water in its biggest market while growth comes from the edges: cars, headsets and the industrial internet.
Revenue fell 4% from a year earlier to $9.95 billion, though the figure beat the $9.62 billion analysts had expected. Adjusted earnings of $2.21 a share were down 20%. For the current quarter, Qualcomm forecast revenue of $9.7 billion to $10.5 billion and adjusted earnings of $2.05 to $2.25 a share, roughly in line with Wall Street’s expectations.
The handset business, which still accounts for more than half of Qualcomm’s revenue, remains the weak spot. Phone makers have ordered cautiously all year, holding inventory low and waiting for a demand rebound that has yet to materialize. Sales in China, the world’s largest phone market, have been uneven, and consumers in developed markets are holding on to their devices longer, analysts said.
Qualcomm’s answer has been to diversify. Revenue from automotive chips grew strongly, as carmakers adopt the company’s Snapdragon platforms for in-car entertainment and driver-assistance systems. The internet-of-things segment also grew, helped by industrial equipment, computing devices and the company’s push into chips for PCs running Microsoft’s Copilot software.
The automotive business is now Qualcomm’s fastest-growing line and one executives describe as a multiyear pipeline rather than a quarterly business. Design wins signed years ago are converting into production volumes, and the company has said its automotive order backlog stretches well beyond this year. Every new car with advanced driver assistance is a potential Qualcomm sale, and the company has positioned itself as the neutral supplier to an industry wary of handing its cockpit software to a single giant.
The other pillar of the diversification strategy is the PC market. Qualcomm has spent the past two years trying to break Intel’s near-monopoly on laptop processors, and its latest chip generation has won slots in devices from major PC makers. Sales so far remain modest, but executives argue the architecture will gain ground as software compatibility improves and as enterprises refresh machines for AI features.
The cloud hangs over the handset business. Apple, Qualcomm’s largest customer, is building its own modem chips and has signaled it will reduce its dependence on Qualcomm over time. Qualcomm executives have long acknowledged the transition and have said other customers, particularly Chinese phone makers and Android flagship lines, will fill the gap. The transition is expected to happen gradually, which gives Qualcomm time, but the direction is not in doubt.
Analysts remain split on that math. Qualcomm’s patents and modem technology still give it negotiating power over most of the industry, and its royalty business throws off cash even when chip sales disappoint. The company’s licensing segment collects fees on nearly every phone sold globally, a stream that has proved resilient through two decades of handset ups and downs.
The share price has reflected the mixed picture. Qualcomm stock has drifted this year, lagging the broader chip rally, as investors weigh the Apple transition against the growth in auto and IoT. The valuation, around 14 times forward earnings, sits below the sector average, a discount some analysts see as too steep and others as fair for a company whose largest market is shrinking.
Qualcomm has also moved into the AI trade, but from an angle most investors ignore. Its mobile processors carry the neural engines that run AI models on the device, and the company argues that on-device AI will eventually reduce the cost and latency of AI workloads. That story is harder to sell than a data-center narrative, but it gives Qualcomm a position in every AI phone sold.
In a sector dominated by AI narratives, Qualcomm is an outlier: a chip company whose largest market is soft and whose growth bets are still years from paying off at scale. The quarter did nothing to change that story. What it did show is that the bets are working, slowly, and that Qualcomm’s diversified base is enough to keep the company growing even as its flagship market stalls.
Qualcomm’s licensing business deserves its own accounting. The company collects royalties on essentially every phone sold that uses a cellular standard, a stream that has continued to grow even as chip revenue stalls. The business is high-margin, and it funds the research that keeps Qualcomm’s modem technology ahead of rivals. Analysts said the licensing arm gives the company a floor that pure chip vendors do not have.
The edge-AI story is the company’s quiet bet. Qualcomm’s processors include the neural engines that run AI models directly on devices, and the company argues that on-device AI will grow faster than cloud AI once businesses weigh the cost of moving every query to a data center. That thesis is hard to prove in a quarterly report, but it is the reason Qualcomm has invested in AI research out of proportion to its current AI revenue.
The next test comes in the current quarter. Qualcomm’s guidance implies a return to modest growth, and executives said the December holiday quarter should bring the first meaningful handset restocking of the year. Investors who have waited through two years of false dawns will be watching to see whether phone demand finally shows up, or whether Qualcomm’s future stays in the car, the factory and the laptop.
