Detailed Narrative
Data Center Strategy and Progress
Qualcomm is strategically entering the data center market, leveraging its power-efficient compute leadership for agentic AI workloads. The company is developing connectivity (FY26), custom silicon and AI accelerators (FY27), and server-class CPUs (FY28). Two near-term custom silicon wins are expected to generate revenue in the December quarter, with wafer production already initiated. The tape-out of HBC Gen 1, a high-bandwidth compute solution, has been completed, with silicon performance demonstrations expected in coming quarters and launch in mid-2027.
Automotive Momentum and Expansion
The automotive segment continues its strong growth trajectory, achieving record revenues of $1.6 billion in Q3 FY26, a 61% YoY increase. Qualcomm secured a landmark expanded agreement with BMW to be the lead compute silicon provider for next-generation ADAS and digital cockpit, extending into the next decade. A collaboration with Stellantis also supports the automotive pipeline into the 2030s. The company raised its annualized automotive revenue run rate outlook to approximately $7 billion exiting fiscal 2026.
IoT and Industrial Diversification
QCT IoT revenues grew 9% YoY to $1.8 billion, driven by industrial networking and robotics. The industrial design win pipeline now exceeds $7 billion, with over $3.5 billion secured this fiscal year, reflecting strong customer demand for AI at the edge. Qualcomm's broad portfolio and channel presence, including partnerships with Arduino and Edge Impulse, are expanding its reach to over 30 million users.
Handset Market Dynamics and AI Transformation
The handset market is experiencing contraction due to memory prices and input costs, with QCT handset revenues at $5.1 billion. However, Qualcomm sees early signs of an agentic smartphone cycle, particularly in China, with OEMs preparing new on-device AI agents. Snapdragon powers approximately 70% of Samsung's flagship devices, and collaborations with Google and Microsoft are expanding AI experiences to PCs, smart glasses, and other personal AI form factors.
Gross Margin Pressures and Mitigation
QCT gross margins are currently below the historical range due to unprecedented🌐 memory prices, higher manufacturing costs, and supply chain shortages. Qualcomm is implementing double-digit price increases across different end markets to pass through these higher input costs. These actions are expected to gradually benefit gross margins over the next couple of quarters, aiming to realign them to the historical 48%-50% range, though data center revenue will be dilutive.
Apple Revenue Step-Down and Non-Handset Growth
Qualcomm anticipates a significant step-down in Apple product revenues, with materially lower share for upcoming iPhone launches, leading to an approximate 50% decline from the September to December quarter. This accelerated exit of Apple revenue is expected to be fully replaced by the accelerated growth in non-handset revenues, which are projected to grow greater than 60% year-over-year in fiscal 2027.