QUALCOMM Incorporated · Q3 FY2026 call

We also updated our fiscal 2029 financial targets, which now include more than $24 billion in revenue across automotive and IoT plus more than $15 billion in data center, bringing our total non-handset revenue outlook to $40 billion by fiscal 2029, up from our previous target of $22 billion.

In the short term, the entire industry continues to be impacted by unprecedented memory prices, higher manufacturing and input costs as well as supply chain shortages driven by overall data center demand. […] this is creating short-term pressure on QCT gross margins which will be slightly below our historical range. We're implementing price increases and as they take effect, we expect to see gross margins realign to our operating model.

We are developing a differentiated set of product lines, including connectivity in fiscal '26, custom silicon and AI accelerators in fiscal '27 and server-class CPUs in fiscal '28.

I'm pleased to report that we have completed the tape-out of HBC Gen 1, an engineering milestone that moves us into the next phase of customer engagements. We expect to demonstrate HBC performance on silicon in the coming quarters ahead of the launch of our first HBC solution in mid-2027.

Our vision and objective with Modular goes far beyond augmenting our AI software capabilities. We have the ambition to change the current industry approach to AI software from closed to open systems to promote enhanced competition, innovation and resilience.

Last quarter, we said we were targeting an annualized revenue run rate of $6 billion as we exit fiscal 2026. Today, we're raising that outlook and now expect annualized sales of approximately $7 billion exiting fiscal '26.

Our data center business is just at the beginning of its journey, and we recognize that investors want to see more proof points that we can successfully execute on our plans as a new entrant. We welcome the challenge ahead and are confident we will prove as we have many times before, that Qualcomm can execute and win in new growth areas, including data center.

Finally, as a result of our supply constraints, we now expect an acceleration in the step-down of Apple product revenues starting in the fourth fiscal quarter as our share for upcoming iPhone launch is expected to be materially lower than our prior estimate of 20%.

In the short term, we anticipate growth in non-handset revenues relative to prior year to accelerate from 24% in fiscal '26 to greater than 60% in fiscal '27, a significant inflection point in the execution of our growth strategy. We expect this growth from non-handset revenues in fiscal '27 to replace total Apple product revenues in '26.

I think the first is a little bit of a weaker mix within premium tier. As you know, we have multiple chips within premium and you're seeing operator -- OEMs making a choice on which chip to use and also using prior generation as a response to kind of the memory cost increase environment. And then the second factor is the higher input cost across the supply chain.

So the way you should think about it is this is a pricing action that we are taking broadly across different end markets. […] you should expect something that the scale of the increase that we're looking at is double digit and consistent with some of the actions from other players.

I think the market is actually down because of the magnitude of increases in the bill materials with memory. So even a double-digit price increase, which is just a pass-through of the input cost increase and wafer price increases, it's actually small when you compare it to the order of magnitude of the memory bill of materials.

As I mentioned in my prepared remarks, we expect materially lower share in new launches versus our previous estimate of 20%. And as a result of that, we are forecasting approximately 50% decline from September to December quarter. This obviously accelerates, kind of, the exit of Apple revenue out of our model.

When you look at the full year, you should not think of previous seasonality where first quarter was the high quarter for us. The profile obviously changes with Apple having a very strong December quarter, not in our model anymore. So we actually expect revenues to grow when we go from the December to the March quarter now.

I mean I don't want to be too dramatic, but are you basically starving Apple, getting them out quicker than you could have and using that silicon to send it elsewhere? I mean is that what's going on?

So you should think of it as our baseline business has a certain gross margin range, which has been in the 48% to 50% range. […] And really, the data center revenue coming in since the first revenue is mostly from custom chip engagements. We do expect that to be significantly lower than our ongoing, kind of, baseline gross margin percentage. And so that will be a drag of 1.5% to 2% on the weighted average gross margin for QCT.

Look, I think the industry now is probably operating very similar to what was in the pandemic. Everything is at 100% utilization, everything. So we're seeing a shortage in price increases across wafers, across assembly, across testing -- testers, everything. […] It's good to have scale. It's good to have significant volume across different nodes. This is actually helping us.

I know everybody will live in an era of everybody wants instant gratification. But the reality is there's a lot of customers that want to see silicon. And that's both true on the accelerator on our HBC plus the accelerator as well on the CPU.

I think, what we've seen in China is, first of all, our revenue was the lowest in the June quarter, and we are forecasting double-digit increase in revenue in the September quarter, which is the quarter we are in, obviously, very high confidence. […] earlier in the year, the OEMs were buying based on the size of the market, but they were also drawing down on channel inventory. And where we are at now is the channel inventory has thinned down so that they can't draw down anymore.

The net impact on QCT Android revenue is -- the revenue is down 20% year-over-year and the EPS impact of it is greater than $1.50. […] So you should think of this greater than $1.50 of EPS as a potential tailwind for us as we go forward and the markets normalize.