Qualcomm Inc (QCOM) — Q3 2025 Earnings Call Transcript

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon.

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q3, we delivered revenues of $10.4 billion and non-GAAP earnings per share of $2.77, which was near the high end of our guidance range. Our chipset business delivered revenues of $9 billion, reflecting strength in automotive and IoT and ongoing growth in handsets. Automotive and IoT revenues increased 21% and 24% year-over-year, respectively. Our licensing business revenues were $1.3 billion. Our momentum in automotive and IoT is the result of strong execution of our growth and diversification strategy. We remain on track to meet our fiscal '29 target for combined automotive and IoT revenues of $22 billion. We're forecasting fiscal '25 to be the second consecutive year of greater than 15% year-over-year growth in total QCT non-Apple revenues. I will now share some key highlights from the business. In handsets, we extended our Xiaomi collaboration with a multiyear agreement. Snapdragon 8 Series platforms will power multiple generations of Xiaomi's flagship devices for China and global markets with volume increasing each year of the agreement. The Snapdragon 8 Elite continues to set the pace of innovation in mobile processors and is leading the transition to AI smartphones with 124 designs shipped or announced to date. AI usage in smartphones is increasing. For example, Samsung noted that 70% of Galaxy S25 users are utilizing Galaxy AI and usage of Google Gemini AI has nearly tripled among S25 users compared to the S24. Looking ahead, we expect the range of own device and agentic AI use cases will continue to expand and reshape the mobile industry. We are optimistic about the Android ecosystem's leadership in AI. As we reach the one-year mark of our entry into AI PCs, we are encouraged by the steady progress we're seeing with our Snapdragon X Series platforms. Multiple new devices launched during the quarter from leading OEMs, such as Acer, Dell, HP, Lenovo, Microsoft, and Samsung, and we remain on track for more than 100 designs to be commercialized through 2026. Snapdragon is transforming personal computing experiences and the design traction we're seeing from major customers reflects confidence in our technology road map, product portfolio, and long-term commitment to PCs. In the second calendar quarter of 2025, according to third-party sources, Snapdragon-based PCs continue to make up approximately 9% of Windows laptops sold above the $600 price tier in retail U.S. and the top five European countries. While we are at the beginning of our journey into PCs, we remain excited about the long-term opportunity and continue to work toward our target of achieving $4 billion in revenue by fiscal '29. In XR, Snapdragon continues to be the platform of choice for smart glasses and mixed reality devices. We now have 19 designs from our global partners. Demand for Meta's AI smart glasses continues to exceed expectations, and they recently expanded their portfolio with the launch of the new Meta Oakley smart glasses and introduction of new Ray-Ban styles. Xiaomi's new AI glasses launched in the quarter were also well received. All three are powered by the Snapdragon AR1 Gen 1 platform. At the Augmented World Expo USA, we conducted the world's first demonstration of a 1 billion parameter model running locally on smart glasses powered by our next-generation Snapdragon AR platform. We also introduced a smart ring controller reference design as a new input device for discrete and intuitive interactions. Our Snapdragon Digital Chassis solutions continue to see strong traction across the automotive ecosystem with 12 new designs during the quarter and a total of 50 vehicle launches this fiscal year. We're incredibly excited about BMW's upcoming Neue Klasse vehicles, which will launch globally with our new ISO safety-certified ADAS stack later this year. This will include our Snapdragon Ride platforms and our jointly developed Driving Stack, which meets safety standards in the U.S. and Europe. More details about the deployment, certifications, and capabilities will be shared at the IAA MOBILITY Show in September. Our Snapdragon Ride platforms and Driving Stack are also gaining momentum more broadly with 20 OEMs programmed for various highway and urban Navigate on Autopilot solutions. The majority of these programs will launch in the next 18 months across all global regions. In industrial IoT, we continue to expand our ecosystem of partners, and we're pleased with the traction of our Dragonwing platforms. At COMPUTEX, we announced new collaborations with DigiWin and Aetina to utilize our AI On-Prem Appliance Solution and AI Inference Suite for enterprise automation. We also expanded our work with IBM on their Maximo AI assistant powered by watsonx AI. Our broad range of OEMs and partners now includes companies such as ASUS IoT, Dell, EverFocus, iBase Lenovo, Deloitte, e&, HUMAIN, Palantir, and many others. We're also gaining traction with our industrial-grade Dragonwing IQ series with up to 100 TOPs of AI inference performance as well as the Dragonwing Intelligent Video Suite, a platform designed to extract intelligence from any video frame and create intelligent reasoning workflows for enterprises across many verticals. We've also seen continued strength in edge networking driven by strong demand for Wi-Fi 7 gateway platforms across retail and carrier customers, and for 5G-enabled fixed wireless access platforms for our carrier customers. Now I would like to provide an update on our expansion into the data center. This represents a new growth opportunity for Qualcomm and is a logical extension of our diversification strategy as we continue to demonstrate leadership in CPU performance and NPU efficiency. As inference gains scale, cloud service providers are building dedicated inferencing clusters focused not only on performance but also efficiency, specifically tokens per dollar and tokens per watt. These factors, combined with the shift from merchant x86 CPUs to custom ARM-compatible CPUs for both cloud computing and AI head nodes, create an entry point for Qualcomm. We're currently building NPU-based AI inference accelerator cards as well as custom SoCs for general purpose and AI head node compute solutions utilizing our Oryon CPU. We also reached an agreement to acquire Alphawave IP Group plc, a global leader in high-speed wire connectivity and compute technologies for data centers, AI, data networking, and data storage. The acquisition is expected to close during the first calendar quarter of 2026, subject to customary closing conditions. Alphawave's leading IP and data center design capabilities are key assets that will complement our Oryon CPU and Hexagon NPU processors and help accelerate our roadmap. While we are in the early stages of this expansion, we are engaged with multiple potential customers and are currently in advanced discussions with a leading hyperscaler. If successful, we expect revenues to begin in the fiscal '28 time frame. Additionally, we signed an MOU with HUMAIN to develop AI data centers in Saudi Arabia and deliver highly efficient and scalable cloud-to-edge hybrid AI inferencing solutions for local and international customers. We also announced that our Oryon CPUs can be integrated with NVIDIA GPUs for high-performance NVIDIA AI factories using the NVIDIA NVLink Fusion architecture. We will provide further updates as we make progress. Over the past 12 months, we have continued to see AI and generative AI advance at an accelerated rate, and we're both excited and confident in the opportunities this is creating for Qualcomm across all our businesses. As Gen AI changes the human-computer interface and agentic AI experiences continue to evolve, the mobile industry is being redefined and a new generation of personal AI devices are emerging. Smart glasses and wearables, such as smartwatches, earbuds, and other form factors are being transformed into personal AI devices as they connect the user directly to the AI agent and model. These devices are quickly transitioning from simply extending smartphone experiences to now provide a new and unique personalized AI and agentic use cases. These devices will evolve independently of the smartphone ecosystem and become a significant opportunity. Given our technology leadership in mobile, XR, and wearables and the breadth of our IP and product portfolio, we expect to be the industry's preferred solution provider in this new category. Specifically, personal AI devices will require Snapdragon's always-on cloud connectivity, 5G and micro-power Wi-Fi, power-efficient processing, on-device AI, best-in-class imaging, audio, video sensors, and context capabilities. Meta AI smart glasses are currently the best example of personal AI. We're very optimistic about the trends we see in this area with major AI players, application developers, and device makers investing in this space. Physical AI is another technology that is reshaping industries and creating new opportunities, particularly in robotics. Robotics require high-performance computing including powerful on-device AI, extended battery life, reliable connectivity, a higher level of silicon integration, and advanced computer vision and sensor fusion to interpret and understand real-world information in real-time and make decisions locally. These requirements are perfectly aligned with our strengths in our technology and product portfolio. Our right to play in this new segment is similar to our expansion into automotive. Furthermore, our experience in industrial and safety-grade silicon, perception and sensing technologies, and ADAS and autonomy provide a very competitive foundation to develop highly differentiated solutions for autonomous robots, next-generation industrial automation, and humanoid robotics. We're incredibly excited about this opportunity for which third-party estimates indicate a potential TAM of $1 trillion in the next decade. I would now like to turn the call over to Akash.

Thank you, Cristiano. Good afternoon, everyone. Let me begin with our third fiscal quarter results. We delivered revenues of $10.4 billion and non-GAAP EPS of $2.77, which was near the high end of our guidance range. QTL revenues of $1.3 billion and EBT margin of 71% were above the midpoint of our guidance. QCT delivered revenues of $9 billion and EBT of $2.7 billion with year-over-year growth of 11% and 22%, respectively. QCT EBT margin of 30% was at the high end of our guidance range. QCT handset revenues increased 7% year-over-year to $6.3 billion, reflecting strong demand for premium tier handsets, enabled by our Snapdragon 8 Elite platform. QCT IoT revenues grew 24% year-over-year to $1.7 billion. The outperformance relative to expectations was driven by increased demand for our Snapdragon AR1 chipset, the clear industry leader in the emerging AI smart glasses category. We delivered another record quarter in QCT automotive with revenues of $984 million, an increase of 21% year-over-year, driven by content growth in new vehicle launches with our Snapdragon Digital Chassis platform. Lastly, we returned $3.8 billion to stockholders, including $2.8 billion in stock repurchases and $967 million in dividends, aligned with our commitment to return 100% of our free cash flow in the fiscal year. Before turning to guidance, a quick reminder that our fourth quarter and fiscal '25 includes 13 weeks relative to a 14-week quarter in the year-ago period. For the fourth quarter, we are forecasting revenues of $10.3 billion to $11.1 billion and non-GAAP EPS of $2.75 to $2.95. In QTL, we estimate revenues of $1.25 billion to $1.45 billion and EBT margins of 69% to 73%. In QCT, we expect revenues of $9 billion to $9.6 billion and EBT margins of 27% to 29%. We anticipate QCT handset revenues to grow approximately 5% sequentially, consistent with typical historical trends despite lower Apple revenues. We estimate QCT IoT revenues to be flat sequentially and QCT automotive revenues to reach $1 billion in the fourth fiscal quarter. Lastly, we estimate non-GAAP operating expenses to be approximately $2.35 billion in the quarter. In closing, we are very pleased with our performance in fiscal '25 as we continue to execute on the financial metrics we outlined at our Investor Day last year. Based on the midpoint of our guidance, we are positioned to deliver revenue and non-GAAP EPS growth of 12% and 16%, respectively, relative to fiscal '24. We are forecasting fiscal '25 to be the second consecutive year of greater than 15% year-over-year growth in total QCT non-Apple revenues. We anticipate QCT IoT and automotive revenues to grow by approximately 20% and 35%, respectively, reinforcing our confidence in achieving our fiscal '29 target of $22 billion in combined automotive and IoT revenues. We are pleased to see our customer relationships strengthening during the time of global trade volatility, including the upcoming global ADAS launch with BMW and the recently signed strategic agreement with Xiaomi. We remain focused on maximizing shareholder returns by executing across a broad range of growth and diversification opportunities while maintaining operating discipline. Lastly, I'd like to invite you to tune into our upcoming Snapdragon Summit event taking place on September 23 to 25 to learn more about our technology leadership and new product launches. This concludes our prepared remarks. Back to you, Mauricio.

Thank you, Akash. Operator, we are now ready for questions.

I wanted to start with the handset market. You mentioned 5% growth in the September quarter despite the lower share you’ve indicated at Apple. Can you discuss the factors contributing to that? I believe Xiaomi had significant growth in the quarter, which typically happens in the June quarter. However, I think investors are concerned about potential pull-ins. Are you noticing any signs of that specifically tied to China?

Josh, it's Akash. We're not seeing any evidence of pull-in. I think the upside that we guided in the September quarter in handset revenue stream is really driven by our new product launch. As I mentioned in my prepared remarks, we're going to announce our new chip at the end of September. And we're already working with several OEMs for the launch of new devices based on tremendous interest in it. And what you're seeing is really people getting ready for the launch of new devices.

Got it. And a follow-up, I wanted to ask about the data center business and the hyperscaler engagement you mentioned specifically. Any details you can give us on the scope of that engagement? Is that for an ARM-based CPU? Is it an accelerator? And you mentioned fiscal 2028 as potential if that converts. Is that the right time frame to think about contribution from your data center business more broadly at other customers as well? Congrats on the results.

Thank you, Joshua. This is Cristiano. We can't really disclose more other than what we said in the script. We are in advanced discussions. We have been executing on a product. As we said before, we always felt that we had IP that were very relevant to the data center. I think the Alphawave provides complementary IP, allowing us to build custom SoC products. And we're pleased with the way we're developing this. I'm sure we'll be able to share more as we probably conclude some of those discussions.

Cristiano, can you elaborate on the data center roadmap and the strategy behind it? Specifically, how do you see Alphawave fitting into your current portfolio? Also, when it comes to selecting customers, what factors influence your approach? I’m interested in your thoughts on balancing customization with the standardization of chipsets and what deal sizes you foresee being viable for long-term growth in this area. Additionally, I have a follow-up question.

Very good. Thank you for your question. I know there's a lot of topics in that question. I'll try to probably give an overview. As we said before and we mentioned in the script, we have been focused on building two products. One is the ability to leverage our CPU asset. And that happens in two situations. One, of course, is the general-purpose CPU. We've been very focused on hyperscalers. They have first-party workloads for ARM-compatible CPUs. The other one is the head unit for inferencing clusters as AI starts to get scale, and we really look at how we're starting to see inference taking over training. There is a new dynamic in the marketplace, which is about the ability to be efficient with tokens per dollar as well as energy. That creates an opportunity for us. We have been building accelerator cards, and we will be building a rack as well. And those are the two areas that we're building product roadmap. We're very focused on customers who have the ability to put first-party workloads or inferencing clusters. The Alphawave IP is important. It provides us the ability to scale out and provide connectivity. We believe it's leading connectivity in the industry. And that should inform you of the type of customers that we've been focusing on. We think there's a very large TAM. As you know, there is an opportunity for Qualcomm to play if you have leading IP. Of course, as this is a new market for us, and we have been planning for it, we're going to be very careful about making disclosures. We're going to wait until they become factual, and we're excited about the engagement we have today. We are in advanced negotiations with one significant customer, and hopefully, that creates a halo effect that could validate our platform and create other opportunities down the road.

For my follow-up, in the handset business for fiscal Q3, you reported a 7% year-over-year revenue growth, which seems to have slightly missed your guidance of about 10% growth from the previous quarter. Can you provide insights on any specific parts of the market that were weaker than expected this quarter? Additionally, regarding your guidance for fiscal Q4, it appears you're projecting high single-digit growth despite the impact from Apple. Could you explain where this strength is coming from, as that seems like a strong figure for fiscal Q4 even with the loss of Apple revenues?

Yes, Samik, it's Akash. In the third quarter, we experienced a slightly weaker product mix than anticipated. As you know, this quarter is typically slower for us due to the absence of flagship product launches. However, this weaker mix is more than compensated for by the strong performance in the September quarter. As I mentioned earlier in response to Josh's question, we are set to launch the new chip, and we have flagship launches scheduled for the end of the quarter, which is driving an increase in demand.

Given the guidance into September and the situation with Apple and other factors, how would you define the typical seasonal trends for the December quarter? What are the key drivers you see impacting those trends? Are there any unusual circumstances in December that we should be aware of that could affect results compared to what is normally expected?

Yes. Stacy, it's Akash. Assuming you're asking about the December quarter, note, we expect normal revenue seasonality for all businesses, of course, adjusted for the lower share in Apple phone launches that we've previously discussed, but nothing else to highlight in all other businesses.

I mean what would you consider normal seasonal then?

Well, we're not specifically guiding the quarter at this point, but I think you've seen a trend in the last several years, and you would expect the same quarterly trend just adjusted for the lower Apple volume for the share we've provided.

I would like to elaborate on some of the comments regarding the December quarter. Last year, it appears that Chinese OEMs moved up the launch of some flagship devices. Additionally, there was an extra week in the quarter last year. Given that context, can you provide more detail on the factors affecting December and how significant the impact is for that quarter? Furthermore, will this influence be more of a challenge as we move into the March quarter?

Yes. I think, Chris, the business remains very strong. So whether you look at the Android business, automotive, IoT, all the trends continue with the growth rates that we have previously outlined for the business. So there's nothing significant or unique that I want to point out there. I think we've talked about the Apple share dynamic. So that is a factor. But outside of that, I think you should think of this as a very strong quarter for us. Seasonally, the strongest quarter for us is December, and that will still be true regardless of the lower Apple share. Yes. So from a spend perspective, Chris, the way we've managed OpEx over the last several years, you've seen us, a very small growth in OpEx over the last four years. And the way we've managed it is really kind of absorbing the salary increases and reallocating existing spend towards diversification and growth. And really, the hiring as we go forward is really going to be focused on new skills that are required to execute on our plan. And so to the extent that there are new skills required to execute on the data center diversification assets, we will invest in that. But outside of that, we plan to be pretty careful managing OpEx going forward.

I may ask a couple of questions. Just want to get into the OEM side. Akash, you've been very clear about what's happening on the Apple side of things. But recently, you've seen Samsung launch a couple of models with its own processor. I just wondered, how do you compare and contrast that against the x85 that you guys are rightly excited about going forward? Do you think you will maintain the 100% share on the Galaxy S generation? Or is that decision not quite made yet? Any color on that would be helpful.

Thank you for the question. We have been discussing our partnership with Samsung and are currently implementing a long-term agreement with them. We have established a baseline share of 75%, and anything above that represents potential growth. This is our planning assumption. When we exceed expectations, you can see the results, as demonstrated by the Galaxy S25. Competing with Samsung's own platform is not new for us, as we have been doing it for many years. Historically, our relationship with Samsung has progressed towards a greater share, and we maintain that our baseline is 75%, which serves as the contracted share, with any additional share counted as upside.

I guess as a follow-up, and it probably would align to that also within handsets. You've talked about at least the premium tier, flagship tier of having roughly double-digit ASP or content increases going forward with all the capabilities that you're offering. Does that still hold true? Does it accelerate, decelerate with the x85? Just any update on that would be great.

Yes. So if you think about our Android business in fiscal '25, it grew over fiscal '24 by approximately 10%. So that is higher than the target we had set at Investor Day. And it's a reflection of the strength of our roadmap, our competitive positioning, and the fact that this is a market where the volume is moving up to higher tiers where Qualcomm has a very strong position. The other thing I just want to highlight is we did give a metric, both in mine and Cristiano's prepared remarks, is over the last two years, kind of our non-Apple revenue stream in QCT has grown annually at more than 15%. So that should give you a key benchmark as you think about how the company is positioned to grow going forward as well. And this aligns with the fiscal '29 targets we set at Investor Day.

I wanted to ask about China handsets. The proportion from China is increasing. You mentioned that you're working with an assumption of 75% for Samsung, which indicates Samsung's share will decrease from 100 to 75. Consequently, China's percentage of QCT revenues will rise. How do you view the growth trends in China regarding the domestic and international markets? What is your outlook? Also, what risks do you see from competition in the Chinese market? I have a follow-up question on margins, which I'll address separately.

Tal, our position in China continues to be very strong. I think the evidence of that is the agreement that we announced with Xiaomi during the quarter. This is a multiyear agreement for premium phones with increasing volumes every year, and they're going to use our chip for launches within China and globally as well. In addition, they will also be the first OEM to launch with our next Snapdragon 8 Elite chip, which comes out over the next couple of months. And the relationship really has expanded over the last couple of years. We've gone from phones to automotive, they introduced smart glasses with our chips, wearables, tablets, so it's a very broad relationship, and it's just an example of relationships we have with other Chinese OEMs as well. So you should consider this as a very well-positioned sustained business for us.

Let me provide a different perspective. Tal, I agree with Akash, but I'd like to touch on some questions we usually don’t address. We have been operating in China for 30 years, starting with 3G. Through our experience, we have learned to adapt to the pace of the Chinese market. Qualcomm's position in China has continuously improved over the years. As Akash mentioned, we are not only well established in the phone sector but also with some of the fastest-growing OEMs in the automotive industry. This is now extending into industrial applications, robotics, and beyond. Another way to view this is that Qualcomm has become a highly competitive player and has learned to effectively compete in China while providing excellent service. We anticipate that this trend will continue.

Got it. Maybe just a question on margins, a quick one. I see that when I look at gross margin, operating margin, I see that there is kind of you managed to maintain a very healthy operating margin despite the fluctuations in Apple revenues. So I just want to ask you a question I'm getting from investors quite often. What are the implications of the decline in Apple? What are the implications on margins? Are they positive or negative?

Yes. I think we're very happy with the margin profile of the business. I mean, we will be at close to 30% margin this year, which is the target we have set for the long term. As you look forward, the growth opportunity that we have in auto, IoT far exceeds the scale of the Apple revenue. So I think we have the ability to continue to grow revenue and manage the margin profile as a result of it. And so no change to our long-term target margin versus what we've said in the past.

I wanted to ask about the data center. You're acquiring Alphawave for $2.4 billion, and it sounds like you have significant ambitions for fiscal year '28. What are your thoughts on adopting a tuck-in acquisition strategy or possibly pursuing larger acquisitions to accelerate your growth and attract customers, especially with your strong intellectual property? Could you elaborate on your strategy? Are you expecting more acquisitions like Alphawave, or would you consider a larger acquisition?

Thank you for the question. At this point, we are very focused on finalizing the Alphawave acquisition and developing our product roadmap. We believe it provides complementary intellectual property that can help us establish a competitive position. This initiative is new for Qualcomm, as I mentioned earlier. Just like we have done with the rest of our business, we will always look for ways to enhance our roadmap as opportunities arise. Right now, our primary focus is on completing the Alphawave acquisition.

Can I ask for more details about your comments regarding the use of Gemini and Galaxy AI in Android? There's a perception that Apple products are lagging in AI, and I'm curious about how you view this in the long term. Are you optimistic about the situation, possibly beyond your fiscal first quarter? Any additional insights would be appreciated.

Yes. Consistent with what we have been saying, we're starting to see AI use cases on phones gain traction. And there's also another interesting data point. I think if you look at the overall share of AI models, you see Gemini actually increasing dramatically over other models. We have seen, I think, the advantage of the Android ecosystem in terms of majority of AI as more and more use cases become agentic where you started to see AI as part of the applications. I expect that it creates excitement about the Android ecosystem, expand its SAM and it drives upgrade cycles. Those are all positive things from the mobile business. So I would think that what AI is doing is making connectivity more relevant again, especially because of voice utilization, is driving more computing, and more capable devices and exactly changing the use cases. And the rate of utilization, it's very encouraging. What I said in the call about 3x between Galaxy S24 and Galaxy S25, and I think I expect that to continue to accelerate.

Thank you all for attending the call. I would like to thank our employees, our partners, and we appreciate your following Qualcomm. We'll continue to execute on our strategy. We feel that the company is on the right trajectory, especially as we look for growth and diversification beyond handsets, and AI continues to be a great opportunity for us. Thank you very much.