Qualcomm Inc. (QCOM) saw its stock tumble by over 5% despite delivering robust first-quarter earnings that surpassed expectations.
The San Diego-based semiconductor giant reported earnings per share of $3.41, significantly above the Wall Street consensus of $2.96, and revenue of $11.67 billion, up 18% year-over-year. However, investor sentiment soured as the company’s licensing revenue, a critical high-margin segment, missed projections, coming in at $1.54 billion against an expected $1.56 billion.
The company’s outlook for its licensing business, which is closely tied to global smartphone sales, added to investor unease. Qualcomm Chief Financial Officer Akash Palkhiwala stated that the smartphone market is expected to remain flat or grow only in the low single digits in 2025, aligning with forecasts from research firm IDC. The company also faces uncertainty regarding revenue from Chinese telecom giant Huawei, which is renegotiating its licensing agreement.
Adding to the pressure is Qualcomm’s looming loss of Apple’s (AAPL) business. Apple, which currently relies on Qualcomm’s 5G modems, is set to transition to in-house chip production, phasing out Qualcomm’s components by 2026. Analysts estimate this could impact over 10% of Qualcomm’s total revenue.
Arm Holdings Faces Post-Rally Setback
Arm Holdings Plc (ARM), the UK-based chip design company, also saw its shares decline by more than 4.5% despite reporting better-than-expected third-quarter earnings. The company posted an adjusted earnings per share of 39 cents, surpassing analyst expectations of 34 cents, while revenue climbed 19% to $983 million. However, investors reacted negatively as Arm failed to significantly expand the adoption of its latest Armv9 chip architecture, which generates higher royalty rates.
Despite its technological leadership in smartphone chip designs, Arm’s growth prospects have been tempered by a maturing smartphone market and a lack of immediate catalysts to drive further revenue acceleration. The company slightly narrowed its full-year revenue guidance to a range of $3.94 billion to $4.04 billion, below earlier bullish expectations. Investors had hoped for an upward revision, given Arm’s increasing role in AI-driven data center processors and cloud computing applications.
Adding to the uncertainty is Arm’s ongoing legal battle with Qualcomm over licensing terms. While Qualcomm confirmed that Arm had withdrawn a prior notice of license breach, the potential for future disputes remains a concern.
Arm Holdings Plc (ARM), the UK-based chip design company, also saw its shares decline by more than 4.5% despite reporting better-than-expected third-quarter earnings. The company posted an adjusted earnings per share of 39 cents, surpassing analyst expectations of 34 cents, while revenue climbed 19% to $983 million. However, investors reacted negatively as Arm failed to significantly expand the adoption of its latest Armv9 chip architecture, which generates higher royalty rates.
Despite its technological leadership in smartphone chip designs, Arm’s growth prospects have been tempered by a maturing smartphone market and a lack of immediate catalysts to drive further revenue acceleration. The company slightly narrowed its full-year revenue guidance to a range of $3.94 billion to $4.04 billion, below earlier bullish expectations. Investors had hoped for an upward revision, given Arm’s increasing role in AI-driven data center processors and cloud computing applications.
Adding to the uncertainty is Arm’s ongoing legal battle with Qualcomm over licensing terms. While Qualcomm confirmed that Arm had withdrawn a prior notice of license breach, the potential for future disputes remains a concern.
Broader Smartphone Industry Challenges Weigh on Semiconductor Stocks
The declining stock prices of Qualcomm and Arm reflect broader concerns about the smartphone industry’s trajectory. Global smartphone sales growth has slowed, with consumers extending replacement cycles from three to four years, and even flagship brands like Apple and Samsung seeing demand stagnate. Additionally, geopolitical tensions, particularly in China, pose risks to both companies, as Beijing pushes for domestic alternatives to reduce reliance on U.S. chip technology.
Qualcomm has been diversifying its revenue streams, with strong growth in automotive chips (up 61% to $961 million) and Internet-of-Things (IoT) solutions (up 36% to $1.55 billion). However, the company remains heavily reliant on smartphone chip sales, which still account for 75% of its semiconductor revenue.
For Arm, the challenge lies in driving adoption of its newer chip architectures and expanding beyond mobile devices. While the company has made strides in AI and data center applications, competition from Nvidia (NVDA), Intel (INTC), and AMD (AMD) remains fierce.
Despite the current volatility, both Qualcomm and Arm are well-positioned in the long term due to their technological prowess. However, until the smartphone market regains momentum or alternative revenue sources take center stage, investor skepticism is likely to persist.
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