Qualcomm reported fiscal third-quarter results after the close on July 29. Set against the three guidance ranges it published in April, the quarter landed in three different places:
| Guided in April | Reported | ||
|---|---|---|---|
| Revenue | $9.2B – $10.0B | $9,947M | High end |
| GAAP diluted EPS | $1.26 – $1.46 | $1.87 | $0.41 above the ceiling |
| Non-GAAP diluted EPS | $2.10 – $2.30 | $2.21 | Middle |
We wrote yesterday that eighty-four cents separated the two EPS numbers Qualcomm guided for this quarter and that the published consensus of $1.54 was on a third basis again. The reported figures make the point more sharply than the guidance did: on the company's operating measure the quarter was unremarkable, and on the GAAP measure it beat management's own ceiling by 28%.
The reconciliation says where the difference came from, in one line.
The $0.57 is QSI
Qualcomm's own GAAP-to-non-GAAP bridge for the quarter:
| GAAP | Less QSI | Less SBC | Less other | Non-GAAP | |
|---|---|---|---|---|---|
| Operating income | $1,626M | $(3)M | $(827)M | $(320)M | $2,776M |
| Earnings before taxes | $2,462M | $768M | $(827)M | $(172)M | $2,693M |
| Net income | $2,002M | $607M | $(728)M | $(233)M | $2,356M |
| Diluted EPS | $1.87 | $0.57 | $(0.68) | $(0.22) | $2.21 |
QSI is Qualcomm Strategic Initiatives — the venture portfolio. It contributed $3 million of operating loss and $768 million of pre-tax income, because the gains are below the operating line: investment and other income was $1,014 million this quarter against $358 million a year ago.
That is the whole story of the GAAP overshoot. Take QSI out and GAAP EPS is $1.30, which sits inside the $1.26–1.46 range management guided in April. The company's guidance was accurate about the business; the portfolio was the surprise, and Qualcomm excludes it from its own headline measure precisely because it expects to exit those positions and views the marks as unrelated to operations.
The operating quarter was worse than a 4% revenue decline sounds
| ($M) | Q3 FY25 | Q3 FY26 | Change |
|---|---|---|---|
| Revenues | 10,365 | 9,947 | −4% |
| Cost of revenues | 4,606 | 4,670 | +1% |
| Gross margin (derived) | 55.6% | 53.1% | −2.5 pts |
| Research and development | 2,226 | 2,607 | +17% |
| Selling, general and administrative | 771 | 976 | +27% |
| Operating income | 2,762 | 1,626 | −41% |
| Operating margin (derived) | 26.6% | 16.3% | −10.3 pts |
Revenue fell 4%. Operating income fell 41%. Cost of revenue rose in absolute terms on lower revenue, and both operating expense lines grew at double digits. Management named the cause without hedging:
The semiconductor industry is experiencing a broad-based increase in input costs, across wafer fabrication, assembly, test, advanced packaging, memory and other materials. We are taking concrete actions to reflect the higher input costs in our product pricing and expect these actions to benefit our gross margins over time as the pricing changes gradually come into effect.
"Over time" and "gradually" are the operative words. The cost increase is in this quarter's numbers; the pricing response is not.
Handsets fell by more than the entire licensing segment earns
| QCT revenue stream | Q3 FY25 | Q3 FY26 | Change |
|---|---|---|---|
| Handsets | $6,328M | $5,086M | −20%, −$1,242M |
| Automotive | $984M | $1,588M | +61% |
| IoT | $1,681M | $1,830M | +9% |
| Total QCT | $8,993M | $8,504M | −5% |
The handset line lost $1.24 billion year over year. QTL — the entire patent licensing business, and the most profitable thing Qualcomm owns at a 69% margin — earned $1.28 billion of revenue in the same quarter. The hole in handsets is very nearly the size of the whole licensing segment.
Against that, automotive grew 61% to $1.59 billion and has now grown at double digits year over year for 23 consecutive quarters. Automotive and IoT together were $3.42 billion, up 28% — the number the release put in its subheadline, and fairly so: $753 million of combined growth against a $1,242 million handset decline. The diversification is working and it is still losing the race by about half a billion dollars a quarter.
QCT's EBT margin fell to 26% from 30%; QTL's to 69% from 71%.
The cash statement is the part that gets least attention and deserves more
Over the first nine months of fiscal 2026:
- Operating cash flow $8,405M, down from $10,016M.
- Capital expenditure $1,578M, up from $785M — doubled.
- Free cash flow therefore $6,827M, against $9,231M a year earlier.
- Repurchases $6,806M and dividends $2,868M — $9,674M returned, against $6,827M generated.
- Acquisitions $1,573M, including Modular Inc, which closed in the quarter.
- Cash and equivalents fell from $7,843M to $4,533M.
For the June quarter alone, free cash flow was $495 million while $2.3 billion went out to shareholders. Qualcomm is funding capital return and acquisitions from the balance sheet in a year when operating cash flow is falling and capex is doubling. None of that is precarious at this size. It is also not a pattern that runs indefinitely, and the cash balance has fallen 42% since the start of the fiscal year.
One more thing about the GAAP figures: the nine-month net income of $12,377 million is larger than nine-month pre-tax income of $8,241 million, because the tax line is a $4,136 million benefit. That is the March quarter's valuation-allowance release. It is non-cash — the same cash-flow statement shows $5,550 million of income tax payments in excess of the provision — and it will make every fiscal-2026 GAAP comparison misleading until it laps.
What management put on the record
We are well positioned to execute on the vision we outlined at our recent Investor Day, with total non-handset revenues growing to $40 billion by fiscal 2029 – nearly double the target we shared in November 2024. In the near term, we expect year-over-year growth in non-handset revenues, including Data Center, to accelerate from 24% in fiscal 2026 to greater than 60% in fiscal 2027.
Two numbers to hold them to: $40 billion of non-handset revenue by fiscal 2029, and more than 60% growth in non-handset revenue in fiscal 2027, up from 24% this year. Against a company whose total revenue is running near $40 billion a year today, the 2029 target is a claim that the shape of Qualcomm changes completely inside three years.
The fourth-quarter guide does not start that yet: $9.7–10.5 billion of revenue, midpoint $10.1 billion, which is about 10% below the $11.27 billion of the year-ago quarter. Non-GAAP EPS is guided to $2.05–2.25, against the $2.21 just delivered.
What to watch next quarter
- Whether Chinese handset revenue turned. In April management said it would bottom in this quarter and return to sequential growth in the next. This release did not repeat the claim in those words. The September quarter is where it is settled.
- Gross margin against 53.1%. Management said pricing actions benefit margins "gradually." The first quarter with any of that in it is the next one.
- R&D against $2,607M. Up 17% on falling revenue. Either revenue recovers to meet it or the operating margin stays near 16%.
- Free cash flow against $495 million. A second quarter near that level, with $2.3 billion a quarter going out to shareholders, makes the capital return the question.
- The first non-handset number reported against the $40 billion path. A target that needs growth to more than double from 24% to over 60% in one fiscal year should be visible in the very next print.
All figures are as Qualcomm reported them for the fiscal quarter ended June 28, 2026, in its earnings release of July 29, 2026, and are captured on our June-quarter page; the April guidance ranges and prior-year comparatives are from its second-quarter fiscal 2026 release of April 29, 2026. Gross and operating margins, the $1.30 ex-QSI GAAP EPS, nine-month free cash flow, the June-quarter capital expenditure figure and the growth comparisons are our arithmetic on those disclosed figures. The prior-year fourth-quarter revenue of $11.27 billion used in the guidance comparison is Qualcomm's own reported figure for the quarter ended September 28, 2025. The published EPS consensus of $1.54 referenced above is press-reported from a third-party estimate feed this site does not store or verify, and is set on that feed's basis rather than on either of Qualcomm's. No price, valuation or rating figure appears above.
