Qualcomm has released a robust fiscal first-quarter earnings report, surpassing analyst expectations and marking a significant year-over-year increase. The company's earnings per share hit $3.41, a 24% rise from the prior year's figure, and its revenue totaled $11.67 billion, up 18% annually. However, despite these encouraging numbers, Qualcomm's stock experienced a sharp decline in after-hours trading, dropping by $7.98 or 4.54%.
The core segment responsible for designing and selling chips for mobile devices saw a substantial revenue increase of 13% year-over-year, reaching $7.57 billion, which was significantly above analyst estimates. Strong demand for Qualcomm's Snapdragon chipsets, particularly in premium smartphones, has been a focal point according to CEO Cristiano Amon. Furthermore, Samsung's choice to utilize Qualcomm's Snapdragon 8 Elite application processor in its Galaxy S25 series phones contributed an additional $2 billion in revenue for the company.
Despite these positive developments, Qualcomm's stock price was negatively impacted by a slight shortfall in expectations regarding its high-margin Intellectual Property licensing revenue, which totaled $1.54 billion against predictions of $1.56 billion. With the expectation that licensing revenue will decrease by 2% in 2025, this news has caused investors to react negatively.
While Qualcomm continues to thrive in mobile chip sales and is seeing growth in its automotive segment, which rose 61% in revenue to $961 million in Q1, the overall forecasted decline in licensing revenue has raised concerns about the company’s long-term growth prospects.
Qualcomm also benefited from Samsung's strategic decision to equip all of its flagship Galaxy S25 devices with its latest Snapdragon processor, marking a departure from the usual reliance on Samsung's own Exynos chips. This shift is largely due to production challenges within Samsung's foundries, enabling Qualcomm to capture additional market share. In total, it's estimated that the decision resulted in the sale of approximately 12 million extra Snapdragon chips, bolstering Qualcomm's sales significantly.
Further bolstering Qualcomm's position in the market is the recent launch of the DeepSeek R1 AI model, which the company anticipates will drive demand for its Snapdragon chips, thanks to their capability to process AI tasks on-device rather than relying on cloud services. Moreover, Qualcomm's chips are integral to Meta's Ray-Ban smart glasses and have begun to capture a notable slice of the laptop chip market as well.
Looking ahead, Qualcomm understands that its revenue from smartphone chips—which constitutes 75% of its chip revenue—will need to pivot towards high-end Android devices to maintain healthy profit margins, particularly as it braces for the loss of 5G modem chip sales to Apple with the launch of the iPhone SE 4 and the iPhone 17 series.
Despite the company's dynamic performance and promising segments, the unexpected dip in high-margin licensing revenue forecasts is raising fundamental questions about Qualcomm's growth trajectory going forward, setting the stage for caution among investors.
Samsung's Galaxy S25 AP decision added $2 billion to Qualcomm's coffers this year. | Image credit-Qualcomm
