Qualcomm Shares Drop as Higher Costs and Apple Weakness Impact Profit Outlook
Qualcomm Faces Margin Pressure Amid Rising Costs and Declining Apple Revenue
July 30 (Reuters) - Qualcomm shares fell about 5% in premarket trading on Thursday after the chipmaker's warning about higher memory costs and a steeper decline in Apple revenue raised concerns about near-term profit growth.
Rising Costs and Supply Chain Challenges
A surge in AI infrastructure spending has tightened semiconductor supply chains, driving up costs for memory, wafers, packaging and testing. Qualcomm plans to pass on those increases to customers through double-digit price hikes.
Impact on Margins and Pricing Strategies
"Cost increases and higher spending are significantly impacting margins, and while the company is trying to raise prices to compensate, the forthcoming data-center ramp seems likely to more than offset that pricing action," Bernstein analysts said.
Gradual Benefits and Near-Term Outlook
Qualcomm said on Wednesday the benefits from price increases would emerge gradually over the next couple of quarters, and margins will be under pressure in the near term as existing contracts expire and new product cycles begin.
Profit Forecast and Apple Revenue Decline
For the current quarter, Qualcomm forecast adjusted profit per share in the range of $2.05 to $2.25, well below LSEG-compiled analysts' average estimate of $2.36.
The company said its modem share in the upcoming iPhone would be materially lower than its prior 20% estimate, indicating the Apple business will shrink faster than anticipated.
AI and Data Center Expansion
The chipmaker remained optimistic about its AI and data center expansion, saying growth in non-handset revenue is expected to accelerate to more than 60% in fiscal 2027 from 24% in fiscal 2026.
Analyst Perspectives and Stock Valuation
Still, analysts at TD Cowen cautioned that the diversification story would take time to play out, noting that initial data center programs carry lower margins.
At least six analysts cut their price targets on the stock, with the mean target now at $208.68.
Qualcomm trades at 14.31 times its expected earnings over the next 12 months, compared with 43.85 times for Intel and 17.49 times for Nvidia.
(Reporting by Harshita Mary Varghese in Bengaluru; Editing by Joyjeet Das and Leroy Leo)
