QUALCOMM Incorporated (QCOM) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals strong growth in non-handset segments, robust shareholder returns, and optimistic guidance for upcoming quarters. The Q&A highlights potential growth drivers such as a new chip launch and strategic engagements in the data center business. Despite some missed guidance and lack of clarity on certain topics, the overall sentiment is positive, supported by strong licensing performance and strategic partnerships. The positive outlook on automotive and IoT revenues, alongside a commitment to shareholder returns, suggests a likely stock price increase in the short term.

Key Financial Performance

Revenue $10.4 billion, a 12% year-over-year growth. This increase was driven by strong demand in premium tier handsets, IoT, and automotive sectors.

Non-GAAP EPS $2.77, a 16% year-over-year growth. This was near the high end of the guidance range, reflecting strong operational performance.

QCT Revenue $9 billion, an 11% year-over-year growth. This was supported by growth in handsets, IoT, and automotive sectors.

QCT EBT $2.7 billion, a 22% year-over-year growth. This reflects strong demand for Snapdragon platforms and operational efficiency.

QCT Handset Revenue $6.3 billion, a 7% year-over-year growth. This was driven by strong demand for premium tier handsets enabled by the Snapdragon 8 Elite platform.

QCT IoT Revenue $1.7 billion, a 24% year-over-year growth. This was driven by increased demand for Snapdragon AR1 chipset, particularly in the AI smart glasses category.

QCT Automotive Revenue $984 million, a 21% year-over-year growth. This was driven by content growth in new vehicle launches with the Snapdragon Digital Chassis platform.

QTL Revenue $1.3 billion, with an EBT margin of 71%. This was above the midpoint of the guidance range, reflecting strong licensing performance.

Shareholder Returns $3.8 billion returned to stockholders, including $2.8 billion in stock repurchases and $967 million in dividends, aligned with the commitment to return 100% of free cash flow in the fiscal year.

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Operating Highlights

Snapdragon 8 Series: Extended collaboration with Xiaomi for flagship devices, increasing volume annually. Snapdragon 8 Elite is leading AI smartphone innovation with 124 designs shipped or announced.

AI PCs: Steady progress with Snapdragon X Series platforms, with over 100 designs expected by 2026. Snapdragon-based PCs hold 9% of Windows laptops sold above $600 in key markets. Snapdragon-based PCs hold 9% market share in Windows laptops above $600 in the U.S. and Europe.

XR and Smart Glasses: Snapdragon powers 19 designs, including Meta's AI smart glasses and Xiaomi's AI glasses. Demonstrated 1 billion parameter model on smart glasses.

Snapdragon Digital Chassis: Strong traction with 12 new designs and 50 vehicle launches this fiscal year. BMW's Neue Klasse vehicles to feature Snapdragon Ride platforms.

Industrial IoT: Expanded partnerships with companies like IBM and ASUS IoT. Introduced Dragonwing platforms for enterprise automation and video intelligence.

Data Center Expansion: Developing NPU-based AI inference accelerator cards and custom SoCs. Acquired Alphawave IP Group to enhance data center capabilities.

Automotive and IoT: Revenues increased 21% and 24% year-over-year, respectively. On track to achieve $22 billion in combined revenues by fiscal 2029.

Data Center: Signed MOU with HUMAIN for AI data centers in Saudi Arabia. Engaged with potential customers for AI inference solutions.

Revenue and Earnings: Delivered $10.4 billion in revenue and $2.77 non-GAAP EPS, near high end of guidance.

Stockholder Returns: Returned $3.8 billion to stockholders through stock repurchases and dividends.

QCT Performance: QCT revenues grew 11% year-over-year to $9 billion, with strong demand in handsets, IoT, and automotive.

Diversification Strategy: Focused on growth in automotive, IoT, and data center markets. Expanding into AI PCs and personal AI devices.

Acquisition of Alphawave IP Group: Enhances capabilities in high-speed connectivity and compute technologies for data centers.

AI and Robotics: Positioning Snapdragon for personal AI devices and robotics, targeting a $1 trillion TAM in the next decade.

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Risk or Challenges

Market Conditions: Global trade volatility poses risks to customer relationships and supply chain stability.

Regulatory Hurdles: The acquisition of Alphawave IP Group is subject to customary closing conditions, which could delay or complicate the process.

Competitive Pressures: The company faces competition in the AI and generative AI space, particularly in the development of personal AI devices and robotics.

Economic Uncertainties: Potential economic downturns could impact demand for premium-tier handsets and other high-value products.

Strategic Execution Risks: The expansion into data centers and the development of AI inference accelerator cards and custom SoCs are in early stages, with revenues expected only by fiscal '28, creating long-term execution risks.

Supply Chain Disruptions: Dependence on global supply chains for Snapdragon platforms and other products could lead to disruptions, especially in volatile trade environments.

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Guidance & Outlook

Fiscal 2025 Q4 Revenue and EPS Guidance: Forecasting revenues of $10.3 billion to $11.1 billion and non-GAAP EPS of $2.75 to $2.95.

QTL Revenue and EBT Margin Guidance for Q4: Estimated revenues of $1.25 billion to $1.45 billion and EBT margins of 69% to 73%.

QCT Revenue and EBT Margin Guidance for Q4: Expected revenues of $9 billion to $9.6 billion and EBT margins of 27% to 29%.

QCT Handset Revenue Growth for Q4: Anticipated to grow approximately 5% sequentially despite lower Apple revenues.

QCT IoT Revenue for Q4: Estimated to remain flat sequentially.

QCT Automotive Revenue for Q4: Expected to reach $1 billion.

Non-GAAP Operating Expenses for Q4: Estimated to be approximately $2.35 billion.

Fiscal 2025 Full-Year Revenue and EPS Growth: Positioned to deliver revenue and non-GAAP EPS growth of 12% and 16%, respectively, relative to fiscal '24.

Fiscal 2025 QCT Non-Apple Revenue Growth: Forecasting greater than 15% year-over-year growth for the second consecutive year.

Fiscal 2025 QCT IoT and Automotive Revenue Growth: Anticipated to grow by approximately 20% and 35%, respectively.

Fiscal 2029 Automotive and IoT Revenue Target: Targeting $22 billion in combined automotive and IoT revenues.

Snapdragon X Series PC Designs: On track for more than 100 designs to be commercialized through 2026.

Data Center Expansion Revenue Timeline: If successful, revenues expected to begin in the fiscal '28 time frame.

Alphawave IP Group Acquisition: Expected to close during the first calendar quarter of 2026, subject to customary closing conditions.

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Shareholder Return Plan

Dividends: $967 million in dividends were returned to stockholders in the fiscal year.

Stock Repurchases: $2.8 billion in stock repurchases were conducted in the fiscal year.

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Key Q&A

Q:Can you speak to the drivers of 5% growth in the handset market for the September quarter despite lower share at Apple?

A:The growth is driven by a new product launch, specifically a new chip to be announced at the end of September. Several OEMs are preparing for new device launches based on this chip, and there is significant interest in it.

Q:Can you provide details on the scope of the hyperscaler engagement in the data center business?

A:Management stated they are in advanced discussions and executing on a product but did not disclose specifics. They mentioned leveraging IP for custom SoC products and are optimistic about the engagement's potential.

Q:How do you envision Alphawave integrating into your data center portfolio and strategy?

A:Alphawave provides leading connectivity IP, enabling scalability and efficiency in data center products. Qualcomm is focused on building products for general-purpose CPUs and inferencing clusters, targeting hyperscalers with first-party workloads. They are cautious about disclosures until discussions are finalized.

Q:Why did the handset business revenue growth for fiscal Q3 miss the 10% guidance, and what is driving the high single-digit growth guidance for fiscal Q4?

A:The Q3 miss was due to a slightly weaker mix in a seasonally weaker quarter. The Q4 guidance is driven by the launch of a new chip and flagship devices, which are expected to increase demand.

Q:What would you consider normal seasonal trends for the December quarter, and are there any unique factors influencing it?

A:Normal seasonal trends are expected, adjusted for lower Apple share. No other unique factors were highlighted.

Q:How do you view the impact of Chinese OEMs pulling forward flagship device launches on the December and March quarters?

A:The December quarter remains strong, with seasonal strength despite lower Apple share. No significant or unique factors were highlighted for the March quarter.

Q:What is the impact of entering the data center business on spending, and how will Alphawave affect revenue, expenses, and EPS?

A:Spending will focus on new skills required for data center diversification, with careful OpEx management. Alphawave's impact on revenue, expenses, and EPS was not detailed.

Q:What is the outlook for Qualcomm's share in Samsung's Galaxy S series and the competitive landscape?

A:Qualcomm's baseline share is 75%, with anything above that as upside. Competing with Samsung's own processors is not new, and the relationship has historically improved over time.

Q:Does Qualcomm expect double-digit ASP or content increases in the premium tier of the handset market?

A:Yes, Qualcomm expects approximately 10% growth in the Android business for fiscal '25, driven by a strong roadmap and competitive positioning.

Q:What is the outlook for China handset growth trends and competition within the Chinese market?

A:Qualcomm has strong relationships with Chinese OEMs, exemplified by a multiyear agreement with Xiaomi. The company is well-positioned in China across phones, automotive, and other areas.

Q:What are the implications of the decline in Apple revenues on margins?

A:The growth opportunities in auto and IoT far exceed the scale of Apple revenue, allowing Qualcomm to maintain a healthy margin profile close to 30%.

Q:What is Qualcomm's strategy for the data center business, and are more acquisitions like Alphawave planned?

A:The focus is on closing the Alphawave acquisition and building a competitive product roadmap. Future acquisitions will be considered as opportunities arise.

Q:What is the impact of AI on the Android ecosystem and Qualcomm's business?

A:AI is driving more capable devices, expanding the Android ecosystem's SAM, and encouraging upgrade cycles. Utilization rates are increasing, and AI is making connectivity more relevant.

Q:Review of Unclear Management Responses

A:Management avoided providing direct answers or lacked clarity on the following: 1) Specific details on the hyperscaler engagement in the data center business. 2) The exact impact of Alphawave on revenue, expenses, and EPS. 3) Whether more acquisitions like Alphawave are planned.

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Earnings Word Cloud

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