Qualcomm's handset chip sales fell 26% as AI took the memory; its data-center push brought $650 million

Qualcomm▼−2.31% — Qualcomm, down 2.31 percent today, the largest maker of smartphone processors, reported tonight↗ that handset chip revenue fell 26 percent to $5.14 billion in its September quarter, automotive chips rose 89 percent to a first $2 billion quarter, and total revenue fell 8 percent to $10.3 billion ^{1 2}. From the December quarter, the company's outlook includes data-center revenue for the first time, alongside a repeated target of $5 billion from data centers in fiscal 2027 ¹.

Both halves of tonight's report trace to the same buyers: the cloud companies building AI data centers took memory supply away from phone makers ⁴, and they are hiring Qualcomm to design chips for those data centers ⁸. Our October piece sized the climb: Qualcomm must grow data-center revenue sixteenfold in a year to replace Apple.

Investors had priced in doubt all year, leaving the stock up just 1.3 percent before tonight ². It rose about 4 percent on the release ², then dropped 5 percent once the profit forecast landed↗ ³. Both moves fit the report: the sales guide beat estimates, the profit guide missed↗ ^{2 3}.

AI builders took the memory, and the phones broke

The handset decline starts in the memory market. Samsung, SK hynix▼−4.57% — SK hynix, down 4.57 percent today and Micron▼−6.56% — Micron, down 6.56 percent today make the high-bandwidth memory AI accelerators need on the same DRAM lines that feed phones, under multiyear contracts with the cloud builders, and memory prices have more than quadrupled in a year↗ ⁴. Samsung has reportedly asked suppliers to cut phone production by up to 30 percent this quarter↗ ⁵. September-quarter smartphone shipments were the weakest for that season since 2012 ⁶.

Qualcomm raised its own chip prices in September ³; the handset line still fell harder than anything else it sells ¹. The chain ends with the buyer: phones cost more and the cheapest models are disappearing ⁴.

The AI side of the buildout is already under contract

The Amazon▲+6.00% — Amazon, up 6.00 percent today collaboration, announced in September↗, covers custom inference chips and optical interconnects, and its warrant vests only as Amazon places real orders, up to $60 billion of them through 2036 ^{7 8}. Meta▲+1.98% — Meta, up 1.98 percent today plans to use Qualcomm's C1000 server processor in its next-generation fleet ⁷. Earlier today, SpaceX▼−4.56% — SpaceX, down 4.56 percent today picked Qualcomm's Dragonwing radio platforms for the terrestrial half of a planned nationwide 5G network↗, tens of thousands of sites from 2027 ^{9 10}.

Data centers already produced about $650 million of revenue last quarter, mostly custom silicon and connectivity work ³. Chief Executive Cristiano Amon named the limit: "We don't have a demand issue; it's a supply issue" ³. Licensing revenue held flat for the year at $5.6 billion, after Qualcomm renewed long-term agreements with Apple▲+5.48% — Apple, up 5.48 percent today, Huawei and Transsion, three phone makers ^{1 3}.

Margins are the constraint now

The December-quarter revenue guide sat above the average analyst estimate; the profit guide sat below it ^{2 3}. Qualcomm says its price increases will not fully offset industry-wide input costs in its chip gross margins until the second half of fiscal 2027 ¹. It returned $11.7 billion to shareholders in the fiscal year just ended, more than its operations generated in cash ¹.

The December-quarter report will count data center inside Qualcomm's segment guidance for the first time ¹. That number, and the margin on it, will show whether the contracted buildout ships fast enough to replace the phones.