Qualcomm delivered impressive fiscal first-quarter results, surpassing market expectations with significant revenue growth. However, despite strong earnings, Qualcomm’s stock took a hit in after-hours trading, leaving investors questioning the dip.
Revenue and Earnings Performance: A Strong Start to 2025
In Q1 2025, Qualcomm reported earnings of $3.41 per share, marking a 24% year-over-year (YoY) increase. The figure significantly outperformed Wall Street’s estimate of $2.96 per share.
Revenue rose 18% annually, reaching $11.67 billion, demonstrating the company’s robust growth trajectory. The semiconductor giant’s core business—designing and selling chips for mobile devices—generated $7.57 billion, reflecting a 13% YoY increase. Analysts had projected mobile chip sales of $7.04 billion, but Qualcomm exceeded expectations by more than double the forecasted growth rate.
Key Drivers of Qualcomm’s Revenue Growth
1. Snapdragon 8 Elite Boosts Mobile Chip Sales
Qualcomm benefited from Samsung’s decision to exclusively use the Snapdragon 8 Elite for Galaxy processor in its latest Galaxy S25 series. Initially, Samsung planned to equip devices outside the U.S., China, and Canada with its Exynos 2500 processor. However, due to poor 3nm chip yields, Samsung opted to use Qualcomm’s Snapdragon 8 Elite for all Galaxy S25 devices. This shift resulted in an additional 12 million chipset sales and an estimated $2 billion in extra revenue.
2. Growing AI Integration in Snapdragon Chips
The launch of China’s DeepSeek R1 AI model further bolstered Qualcomm’s earnings. Snapdragon chipsets now offer on-device AI processing, reducing reliance on cloud computing. Additionally, Qualcomm’s chips power Meta’s Ray-Ban smart glasses, enhancing its position in the AI-powered consumer electronics space.
3. Expansion in the Laptop Market
The first Snapdragon Elite chips for laptops launched last year, helping Qualcomm secure 10% market share in premium laptops priced above $800. This move marks the company’s strategic expansion beyond smartphones.
Why Did Qualcomm’s Stock Drop?
Despite these strong fundamentals, Qualcomm’s stock declined by 4.54% ($7.98) in after-hours trading. Analysts attribute this to a slight miss in the company’s Intellectual Property (IP) licensing revenue, which reported $1.54 billion versus an expected $1.56 billion. Since licensing revenue enjoys a 75% profit margin (compared to 32% for chip sales), even a minor shortfall had a disproportionate impact on investor sentiment.
Adding to concerns, Qualcomm’s 2025 licensing revenue is projected to decline by 2%, raising questions about long-term growth sustainability.
Challenges and Market Risks
1. Apple’s Shift Away from Qualcomm Modems
Apple plans to phase out Qualcomm’s 5G modem chips, beginning with the iPhone SE 4 in Spring 2025 and expanding to the iPhone 17 series later this year. This transition poses a long-term risk to Qualcomm’s revenue from smartphone chip sales.
2. Slower Growth in the Smartphone Market
Currently, 75% of Qualcomm’s chip revenue comes from smartphones. However, the smartphone industry is maturing, leading Qualcomm to target high-end Android handsets that offer better margins.
Qualcomm’s Fastest-Growing Business: Automotive Chips
One bright spot is Qualcomm’s automotive segment, which saw a remarkable 61% YoY revenue increase, reaching $961 million. This division is rapidly expanding, positioning Qualcomm as a key player in the growing automotive semiconductor industry.
Stock Market Movers Following Qualcomm’s Earnings Report
Other major companies experienced notable stock movements after Qualcomm’s earnings release:
- Ford Motor (NYSE:F) declined 4.7% despite exceeding EPS and revenue expectations. Investors reacted negatively to its 2025 EBIT forecast, which fell short of estimates.
- Align Technology (NASDAQ:ALGN) dropped 5% after missing EPS estimates and providing lower-than-expected guidance.
- Skyworks Solutions (NASDAQ:SWKS) plunged 25% following a leadership transition and in-line earnings guidance.
- Becton Dickinson (NYSE:BDX) gained 2% after announcing plans to separate its Biosciences and Diagnostic Solutions business.
- Coherent Inc. (NYSE:COHR) surged 9% after reporting strong quarterly earnings and raising revenue guidance.
Final Thoughts: What’s Next for Qualcomm?
Qualcomm’s Q1 2025 performance demonstrated resilience and growth despite concerns over licensing revenue and market risks. The company continues to benefit from strong demand for its Snapdragon chipsets, AI integration, and an expanding footprint in automotive and laptop markets.
However, challenges remain, particularly with Apple phasing out Qualcomm’s 5G modems and slower smartphone market growth. Investors will closely watch how Qualcomm diversifies its revenue streams and navigates these headwinds in the coming quarters.
For the latest updates on Qualcomm and tech industry trends, stay tuned!