Qualcomm's Outlook Dims as AI Boom Strains Memory Supply, Hits Smartphone Makers
Shares of Qualcomm Inc. (QCOM) fell sharply in premarket trading Thursday after the semiconductor giant warned that a tightening supply of memory chips, fueled by explosive demand from artificial intelligence data centers, is pressuring its core smartphone business in the near term. The company's fiscal second-quarter outlook fell short of Wall Street's expectations.
In its guidance issued late Wednesday, Qualcomm projected adjusted earnings per share of $2.45 to $2.65 for the current quarter, below the FactSet consensus estimate of $2.78. It sees revenue in a range of $10.2 billion to $11 billion, compared to analyst expectations of $10.91 billion. The stock was down approximately 11% following the announcement.
"We are seeing near-term uncertainty in memory supply and pricing for handset OEMs," Chief Financial Officer Akash Palkhiwala told analysts on an earnings call, according to a transcript. "As a result, the handset OEMs are taking a cautious approach in planning their business." He noted that several smartphone makers, particularly in China, have scaled back their production plans and reduced channel inventory, leading to lower chipset orders for Qualcomm.
The crunch highlights a pivotal shift in the semiconductor landscape. Memory suppliers are reallocating manufacturing capacity to produce high-bandwidth memory (HBM) for AI servers, creating a supply pinch and driving up prices for the memory used in smartphones. "This dynamic is likely to define the overall scale of the handset industry through the fiscal year," CEO Cristiano Amon stated on the call.
Despite the headwinds, Qualcomm's leadership struck a confident note about the long term. Amon pointed to sustained consumer demand for premium smartphones and reaffirmed the company's trajectory toward its fiscal 2029 revenue goals. Palkhiwala added that handset revenue is expected to return to its previous growth rate once supply conditions normalize.
For the first quarter ended Dec. 28, the company posted robust results, with adjusted EPS rising to $3.50 from $3.41 a year earlier, beating estimates. Revenue grew 5% to $12.25 billion, also ahead of forecasts. The CDMA Technologies segment saw handset revenue rise 3% to $7.82 billion, while automotive revenue surged 15% and IoT sales grew 9%.
Market Reaction & Analyst Views:
The guidance sparked immediate concern among investors about the broader smartphone supply chain's health. "This isn't just a Qualcomm problem; it's an industry-wide warning sign," said Marcus Chen, a technology portfolio manager at Horizon Capital. "The AI gold rush is creating unintended casualties, and the smartphone sector is directly in the crosshairs. It forces us to question the near-term valuation of the entire mobile ecosystem."
Others were more measured. Dr. Anya Sharma, a semiconductor analyst at TechInsight Partners, noted, "Qualcomm's fundamentals in automotive and IoT remain strong. This is a cyclical inventory adjustment exacerbated by a structural shift in memory allocation. Their diversified business model should provide a cushion once this transient phase passes."
A more critical perspective came from Leo Grant, an independent market commentator known for his blunt assessments. "It's a classic case of mismanaged expectations," he argued. "The leadership has been touting an 'AI everywhere' narrative, but now they're being blindsided by AI's most basic hardware demand. It exposes a lack of supply chain foresight and over-reliance on a smartphone market that's clearly hitting a air pocket."
Looking ahead, Qualcomm expects QCT (CDMA Technologies) segment revenue of $8.8 billion to $9.4 billion for the second quarter, with handset sales contributing roughly $6 billion. Its licensing division (QTL) is forecast to generate $1.2 billion to $1.4 billion.