Qualcomm: Smartphone Risks Under the Surface; Can AI’s Pie-in-the-Sky Ever Fill the Gap?

Qualcomm (QCOM.O) released its Q3 FY2025 earnings report (ending June 2025) after the U.S. stock market closed on the morning of July 31, 2025, Beijing time. Key points are as follows:

1. Core Data: $Qualcomm(QCOM.US) reported revenue of $10.36 billion this quarter, up 10.3% year-on-year, in line with market expectations ($10.33 billion). The company's mobile business showed weak recovery, while IoT and automotive business growth exceeded 20%. The company's gross margin this quarter was 55.6%, flat year-on-year, slightly better than market expectations (55%). The company's gross margin is generally at a relative low point within the year, and it is expected to improve as the downstream enters the peak season.

2. Specific Business Conditions: Qualcomm's business is mainly divided into two parts: semiconductor chip business (QCT) and technology licensing business (QTL), with the semiconductor chip business being the largest source of revenue, accounting for nearly 90%.

In the semiconductor chip business: ① This quarter's mobile business was $6.33 billion, up 7.3% year-on-year. Combined with the low single-digit growth in mobile market shipments, it further indicates that demand in the mobile market remains weak; ② This quarter's automotive business was $984 million, up 21.3% year-on-year, driven by the growth in shipments of Snapdragon digital cockpits; ③ This quarter's IoT business was $1.68 billion, up 23.7% year-on-year, mainly driven by the Snapdragon AR1 chip (leading in the AI smart glasses field).

3. Operating Expenses: The company's operating expenses remained around $3 billion, with quarterly R&D expenses controlled at approximately $2.2 billion, and quarterly sales expenses at $700-800 million. In the absence of significant improvement on the revenue side, the company is controlling expenses on the operating side.

4. Next Quarter Guidance: Qualcomm expects Q4 FY2025 revenue to be $10.3-11.1 billion, with the midpoint representing a 3.2% quarter-on-quarter increase, and market expectations at $10.58 billion; the company expects next quarter's Non-GAAP EPS to be $2.75-2.95, with market expectations at $2.83. As the next quarter enters the year-end peak stocking period, the company's performance is expected to improve.

Dolphin Research's Overall View: Mediocre, still no highlights.

Qualcomm's performance this quarter was mediocre, basically in line with market expectations. The mobile business is still slowly recovering, and the automotive and IoT businesses have relatively high growth rates, but there are no overly impressive performances. As for the company's guidance for the next quarter, both figures fall within market expectations.

The company has always wanted to reduce its reliance on the "mobile business," hoping that the automotive, VR/AR, and AI PC products will scale up to reduce the proportion of the mobile business. However, VR/AR has not shown significant sustainability, the automotive business still accounts for less than 10%, and AI PC has not yet truly scaled up, resulting in the current mobile business still accounting for nearly 60%. As a hardware provider in a "mature" mobile market, the market is unlikely to have higher expectations.

In the absence of significant growth in AI PCs, the company is eager to enter the AI market to "get a share." At the Computex in Taipei this May, Qualcomm also announced plans to develop server CPUs and new AI inference accelerators. The company also announced this quarter the acquisition of the UK IP design company Alphawave for $2.4 billion in cash, intending to further enhance its data center strategy.

Although Qualcomm has outlined visions for "AI PCs and data centers," these two areas have not yet made significant contributions to current performance, and the market will not directly factor in related expectations. Considering the company's current market value ($174.6 billion), the PE ratio corresponding to FY2025 net profit is about 15.3 times (assuming revenue growth of 12.7% year-on-year, a gross margin of 55.4%, and a tax rate of 10.5%). Compared to the valuation of AI chip companies, Qualcomm's valuation reflects the market's perception of the company as a "mobile stock."

In the absence of significant progress in the AI PC and data center businesses depicted by the company, and with current performance still mainly derived from the mobile business, Qualcomm's performance in the next two years will be significantly pressured if Apple continues to advance its self-developed baseband (expected to gradually reduce Qualcomm's baseband share). If the company fails to establish a foothold in the AI market and the mobile market becomes sluggish again, the company's operations may even face the risk of decline. Given Qualcomm's current situation, if the earnings report does not show impressive performance, the stock price will continue to be under pressure.

The following are specific data and charts from Dolphin Research regarding Qualcomm's earnings report