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Qualcomm (QCOM) is trading lower today after a mixed Q3 (Jun) report last night. QCOM delivered a rare EPS miss, while revenue declined 4% yr/yr to $9.95 bln but came in better than expected. Although management confirmed that Chinese OEM handset revenue bottomed and provided firmer evidence of an approaching data-center ramp, the Q4 outlook reflects continued input-cost pressure, a faster decline in Apple product revenue, and higher investment ahead of that ramp. As a result, Q4 EPS guidance of $2.05-$2.25 fell below expectations, while revenue guidance of $9.7-$10.5 bln was roughly in line.

• QCT: Revenue declined 5% yr/yr to $8.50 bln as a 20% drop in handset revenue to $5.10 bln more than offset continued strength in Automotive and IoT. Automotive revenue surged 61% to a record $1.60 bln, exceeding management's prior outlook for approximately 50% growth, while IoT revenue increased 9% to $1.80 bln.
• Handsets: QCOM confirmed that handset revenue from Chinese OEMs bottomed in Q3 and expects double-digit sequential growth in Q4. However, total handset revenue is expected to increase only modestly sequentially to approximately $5.2 bln as Android growth is partly offset by a faster step-down in Apple product revenue. QCOM now expects its modem share in the upcoming iPhone launch to be materially below its prior 20% estimate.
• Data center: QCOM's two near-term custom-silicon engagements are expected to begin generating revenue in the December quarter, with wafer production already underway. QCOM also completed the tape-out of HBC Gen 1 and expects to demonstrate performance on silicon over the coming quarters ahead of its first HBC solution in mid-2027.
• Margins: QCT EBT margin contracted 400 bps yr/yr to 26%, and management expects a further decline to 23-25% in Q4. QCOM cited increases in wafer fabrication, assembly, testing, advanced packaging, memory, and other materials. QCOM is raising product prices to offset those pressures, although it expects the margin benefit to emerge gradually.
• Outlook: QCOM expects Automotive revenue to grow roughly 60% yr/yr in Q4, while IoT remains roughly flat as industrial strength offsets consumer weakness. Operating expenses are expected to increase to approximately $2.7 bln following the Modular acquisition and continued data-center investment. QCOM still expects overall revenue growth in FY27 as non-handset revenue growth accelerates from 24% to more than 60%.

Briefing.com Analyst Insight

QCOM shares are weaker today as the rare EPS miss, softer Q4 earnings outlook, continued margin pressure, and faster decline in Apple product revenue point to a more challenging near-term setup before its non-handset businesses scale further. However, there were certainly some positives. Automotive delivered another record quarter, prompting QCOM to raise its expected annualized revenue run rate exiting FY26 to approximately $7 bln, while data-center revenue is set to begin in December and ramp toward QCOM's $5 bln FY27 target. The main issue is how quickly pricing actions and non-handset growth can overcome higher input costs, increased investment, and lower Apple revenue. A return toward QCT's historical margin range alongside continued Automotive growth and a visible data-center ramp would strengthen confidence in management's FY27 growth outlook. Until then, investors may remain focused on the gap between improving strategic progress and weaker near-term earnings power.