Qualcomm Inc. (NASDAQ:QCOM) reported third-quarter results that exceeded revenue expectations but fell slightly short on earnings, while weaker-than-expected profit guidance for the current quarter weighed on investor sentiment and pushed the stock lower in premarket trading.
Shares of the semiconductor company dropped more than 5% ahead of Thursday’s opening bell following the earnings release.
Revenue Beats Forecasts Despite Earnings Miss
For the third quarter ended June 28, Qualcomm posted adjusted earnings of $2.21 per share, missing analysts’ expectations of $2.23 per share by $0.02.
Revenue reached $9.95 billion, ahead of the consensus estimate of $9.67 billion, although it declined 4% from $10.37 billion recorded in the same period last year.
Adjusted gross margin was approximately 54%, below analysts’ expectations of 55.6%.
Profit Forecast Falls Short of Wall Street Expectations
Looking ahead, Qualcomm forecast adjusted fourth-quarter earnings per share of between $2.05 and $2.25. The midpoint of $2.15 came in below the analyst consensus of $2.35.
The company expects fourth-quarter revenue to range between $9.7 billion and $10.5 billion. The midpoint of $10.1 billion exceeded Wall Street’s estimate of $9.95 billion, although it was not enough to offset concerns over profitability.
Morgan Stanley analysts said Qualcomm’s share of Apple’s iPhone 18 business has fallen below the roughly 20% level previously expected because Apple is no longer using its mmWave SKU, describing the development as “a bit of an incremental headwind.”
Automotive and IoT Businesses Continue to Expand
Qualcomm’s QCT division, which includes its handset, automotive and Internet of Things chip businesses, generated revenue of $8.5 billion, down 5% from a year earlier.
Within the segment, handset revenue declined 20% year over year to $5.09 billion. In contrast, automotive revenue climbed 61% to $1.59 billion, marking the company’s 23rd consecutive quarter of double-digit annual growth.
IoT revenue increased 9% to $1.83 billion, while combined automotive and IoT revenue rose 28% compared with the prior year.
Meanwhile, Qualcomm’s QTL licensing business generated revenue of $1.28 billion, a 3% decline from the previous year.
Higher Costs Continue to Pressure Margins
“Qualcomm’s diversification is occurring faster than expected as Apple exits, but the transition is not seamless: near-term margin dilution is meaningful and execution risk remains,” Morgan Stanley analysts said. “We stay EW, as we see a balanced risk/reward.”
Chief Executive Cristiano Amon said, “Despite a challenging memory and supply environment, our third quarter results reflect solid execution of our growth strategy, with quarterly revenues at the high end of guidance.”
Qualcomm also noted that semiconductor manufacturing costs have increased across wafer fabrication, assembly, testing, advanced packaging, memory and other key inputs. The company said it is taking steps to pass higher production costs through to customers via product pricing.