Qualcomm earnings guidance misses as memory costs push chip prices higher

Qualcomm earnings guidance came in below Wall Street’s profit expectations, and the chipmaker said higher costs for memory and other components are starting to hit margins. For everyday investors, the key issue is whether Qualcomm can pass those costs to phone makers without adding more pressure to an already softer handset market.

Qualcomm reported fiscal third-quarter results Wednesday that were close to analyst estimates, according to LSEG figures cited by CNBC. Adjusted earnings per share, a profit measure that excludes certain items, were $2.21, compared with the $2.23 analysts expected. Revenue was $9.95 billion, above the $9.67 billion consensus estimate.

The weaker spot was the outlook. Qualcomm said it expects adjusted earnings per share of $2.05 to $2.25 in the current quarter on revenue of $9.7 billion to $10.5 billion. Analysts surveyed by LSEG had expected adjusted earnings of $2.36 per share on $10.02 billion in sales.

Why is Qualcomm raising prices?

CEO Cristiano Amon told CNBC that Qualcomm will raise chip prices across the board starting Sept. 1 as its own costs rise. “Cost went up, prices are going to go up,” Amon said.

Qualcomm said in its earnings release that the semiconductor industry is seeing broader increases in costs tied to wafer fabrication, assembly, testing, advanced packaging, memory and other materials. Management also said revenue remains healthy, according to the company.

The pricing move matters because Qualcomm’s largest chip business still depends heavily on smartphones. Its handset chip revenue was $5.1 billion, down 20% from a year earlier. Qualcomm said that figure reflected a bottoming in China’s market.

Amon told CNBC that affordability is weighing on low-end and mid-priced phones, while even premium Android buyers are showing more price sensitivity. He said some consumers in the premium category are shifting toward less expensive premium devices or buying last year’s phone because of memory price increases.

Amon described the margin pressure from supply costs as temporary and said Qualcomm is addressing it through price increases. A margin is the share of sales left after costs, so rising component prices can reduce profitability unless a company cuts expenses or charges customers more.

Where Qualcomm’s growth is coming from

Qualcomm is trying to reduce its reliance on smartphones under Amon. The company is targeting non-smartphone businesses, including autos, smart glasses and robots, to represent 60% of revenue next year.

Automotive was a stronger area in the quarter. Qualcomm reported $1.59 billion in automotive sales and said in June that it aims to reach $10 billion in annual automotive revenue by 2029. On Wednesday, the company also announced a chip supply agreement with BMW for digital cockpit chips.

Qualcomm is also pushing into AI data center infrastructure. Amon told CNBC the company remains on track to report $5 billion in data center revenue next year. Qualcomm said it completed its acquisition of Modular, a software company focused on AI programming technology, and plans to introduce its AI software platform at an August conference.

The company’s internet of things unit, which includes chips for low-power industrial uses and smart glasses, posted $1.83 billion in sales, up 9% from a year earlier. Qualcomm’s QTL licensing division, which sells rights to its cellular and chip intellectual property, reported $1.28 billion in revenue, above the $1.26 billion StreetAccount estimate.

Net income for the quarter was $2 billion, down from $2.66 billion a year earlier, according to Qualcomm.

This story draws on original reporting from CNBC.