The Chips Are Down: Qualcomm Falls on Lost Sales and Weak Guidance; Arm and GlobalFoundries do little better

Chipmakers Qualcomm Inc., Arm Holdings Ltd. and GlobalFoundries Ltd. struggled to move today after reporting financial results that clearly left investors wanting more.

Investors may have had heightened expectations following an impressive earnings rise from Advanced Micro Devices Inc. just 24 hours earlier. But if they did, on a day when the market soared on the results of the US election, they were clearly disappointed by the shaky performance of Qualcomm, which beat expectations on earnings but missed on revenue and gave weak guidance. The result was predictable: the stock fell more than 6% after hours.

Both Arm and GlobalFoundries performed better, but it wasn’t enough to satisfy investors who are increasingly concerned about the sustainability of the artificial intelligence industry, which has driven significant growth for all three chipmakers in recent years.

The biggest disappointment was Qualcomm, which reported fourth-quarter earnings before certain costs such as stock compensation of $2.17 per share on revenue of $10.44 billion, up just 8% year-over-year. Results were mixed: Wall Street expected earnings of $2.16 per share on revenue of $10.48 billion. For the current quarter, Qualcomm expects earnings of about $2.25 per share, midway through its guidance range, and revenue of $10.48 billion. This means the company falls short of its target of $2.27 per share in earnings and $10.48 billion in sales.

Qualcomm’s problems stem from the fact that the company is less affected by the rapid growth of the AI ​​industry than many other chipmakers. The majority of sales come from system-on-chips and modems for smartphones. But the market is currently reeling as the cost of components such as memory rises, which has forced cell phone makers to raise their prices, leading to a fall in demand. Qualcomm recently tried to weather the storm by raising prices for its own chips, but smartphone chip sales fell 26% to just $5.14 billion in the quarter, falling well short of its $5.21 billion target.

Under CEO Cristiano Amon (pictured), Qualcomm has sought to build and expand its position in alternative chip markets, particularly in the AI ​​data center industry. Revenue in this segment rose to $650 million during the quarter, but is still dwarfed by the smartphone business.

Still, Amon insisted the company would grow its data center business to more than $5 billion in revenue by the end of fiscal 2027. He said the company recently struck a deal with an unnamed global hyperscaler for optical connectivity chips. “We don’t have a demand problem; it’s a supply problem,” he told analysts on a conference call. “If I had more supplies, I would probably feel better.”

One bright spot was Qualcomm’s automotive business, whose revenue rose 89% to $1.99 billion in the quarter, above the Street’s consensus estimate of $1.66 billion. Internet of Things revenue was $1.88 billion, up 4% from a year ago and just above the Street estimate.

Finally, there’s Qualcomm’s QTL business, which generates revenue from licensing intellectual property for modems, 5G connectivity and other technologies. This segment increased revenue by $1.3 billion, down 7%, despite signing renewed licensing agreements with Apple Inc., Transsion Inc. and Huawei Technologies Co. Ltd.

arm

Chip design company Arm delivered significantly brighter results, but was somewhat cautious with its guidance for the current quarter and its shares fell 2% in late trading today. The company reported adjusted earnings of 52 cents per share, narrowly beating Wall’s target of 48 cents, while revenue rose 27% year over year to $1.44 billion, above analysts’ estimate of $1.38 billion.

Unlike Qualcomm, Arm does not make complete chips for its customers, but rather designs and licenses processor plans for customers such as Apple Inc., Samsung Electronics Co. Ltd. and Qualcomm to build their own custom chips. Where Arm is more similar to Qualcomm is in its strategy, where the company is also focused on chip designs for data centers and trying to tap demand for AI computing. Arm said its data center business was the main growth driver this year, with license fees there doubling year-over-year.

However, Arm’s forecast did little to excite investors. The company said it expected profit of 56 cents per share, give or take four cents, compared with Wall Street’s forecast of 55 cents per share. Revenue is targeted at $1.54 billion, give or take $50 million, just above the Street’s target of $1.52 billion.

GlobalFoundries

GlobalFoundries performed slightly better than its peers today, reporting latest results and guidance that exceeded expectations. However, the shares remained unchanged after trading.

The company reported third-quarter adjusted earnings of 53 cents per share on revenue of $1.9 billion, up 12% from a year earlier, with growth driven by strong demand from AI and data center customers, it said. The results were better than expected: Analysts were looking for a profit of 51 cents on revenue of $1.89 billion.

GlobalFoundries also differs from Qualcomm in that it is a pure contract manufacturer, building the processors developed by semiconductor companies rather than developing chips itself or selling them under its own brand. Qualcomm is actually one of its largest customers, along with Broadcom Inc., NXP Semiconductors NV and Infineon Technologies Inc. Therefore, its fate is largely identical to that of the chip designers it supplies.

For the current quarter, GlobalFoundries expects earnings of 59 cents per share, give or take five cents, on revenue of about $2 billion. Wall Street is aiming for a profit of 57 cents per share and has the same sales target.

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