Qualcomm Q1 Earnings Preview: AI, Auto Growth, and China Demand in Focus Amid Apple Headwinds

Qualcomm is set to report its fiscal first-quarter earnings on Wednesday, with Wall Street expecting EPS of $2.96 and revenue of $10.91 billion, reflecting year-over-year increases of 8% and 10%, respectively. Analysts anticipate upside in results and guidance, driven by Qualcomm’s dominant position in the Samsung Galaxy S25 chip supply and strong demand from Chinese smartphone OEMs, which are benefitting from newly introduced government subsidies. However, investor sentiment remains cautious due to concerns over the eventual loss of Apple’s 5G chip business and the lack of immediate catalysts in AI-driven smartphones and PCs.

The company’s diversification efforts continue to take center stage, with key growth areas in automotive, IoT, and AI-enabled PCs. Qualcomm’s auto chip business has been a standout performer, growing at an average rate of 45% annually over the past three years. Analysts forecast Q1 auto revenue to surge 49% year-over-year to $890 million, bringing it close to the $1 billion quarterly mark. Meanwhile, IoT revenue, which saw a long downturn, has rebounded due to strong demand for AI-powered devices and Qualcomm’s expansion into the PC market, with expected Q1 growth of 23% to $1.4 billion.

Despite Qualcomm’s efforts to expand into new markets, risks persist, including its heavy reliance on China, which accounted for 46% of its revenue in fiscal 2024. While Chinese smartphone makers have improved their in-house chip development, Qualcomm remains the go-to provider for high-end Android devices, helping to offset weakness in lower-end models. Additionally, the company’s intellectual property licensing segment, which delivered a surprise 21% year-over-year increase last quarter, is expected to see slower growth of 7% this quarter.

On a strategic level, Qualcomm continues to ramp up investments in AI and next-generation computing. The hiring of former Intel Fellow Sailesh Kottapalli as a senior VP signals potential moves into data center chips, furthering its diversification efforts. Moreover, the company is poised to benefit from Windows 11’s shift toward Arm-native compatibility, supporting long-term growth in AI-enabled PCs. Analysts expect management to provide updates on these initiatives during the earnings call, along with key insights into Qualcomm’s modem share at Apple and its roadmap for automotive and industrial IoT expansion.

ARM/QCOM Ruling Recap (December 23)

On December 23, Qualcomm (QCOM) secured a legal victory when a jury ruled that its license to use Arm Holdings' (ARM) chip architecture for PCs and laptops remains valid, allowing it to continue selling chips in that market without incurring higher royalty fees. The ruling alleviates concerns about margin pressure on QCOM’s emerging PC business, a crucial part of its revenue diversification strategy as AI-driven computing gains momentum. However, the legal battle isn’t over—while the jury found that QCOM did not breach its contract, it deadlocked on whether Nuvia, a CPU design firm QCOM acquired in 2021, violated its licensing agreement with ARM, leaving the door open for a retrial in 2025. Despite this uncertainty, QCOM remains bullish on its PC ambitions, projecting $4 billion in revenue from the segment by FY29 and citing strong momentum for its Snapdragon X chipset. While the ruling is a win for QCOM, lingering legal risks and competitive threats, including Apple’s (AAPL) expected entry into the modem chip market, continue to weigh on its long-term outlook.

Investor Day Recap (November 20)

Qualcomm held its Investor Day on November 20, providing updates on its long-term growth strategy, particularly in Auto, PCs, and Industrial IoT. The company reiterated its commitment to diversifying beyond handsets, forecasting that Auto and IoT revenue will grow at a 22% compound annual growth rate (CAGR) through fiscal 2029, reaching $22 billion. Qualcomm also projected annual PC chip sales of $4 billion by 2029, assuming an 11% market share, and expected total IoT revenue of $14 billion by the same year. The company emphasized its expanding role in edge AI, which it believes will drive access to a total addressable market (TAM) of $900 billion by 2030.

Despite these growth prospects, concerns remain regarding the impact of Apple’s transition to its own modem chips, which could weigh on Qualcomm’s revenue trajectory until at least 2027. Analysts acknowledged CEO Cristiano Amon’s success in broadening Qualcomm’s market scope but expressed caution about near-term headwinds. Following the event, some firms lowered their price targets, with Susquehanna cutting its estimate from $230 to $210.

Shares of Qualcomm fell 3.7% after the event, reflecting mixed investor sentiment. While the company’s diversification strategy appears promising, the loss of Apple’s modem business remains a key overhang on future growth.

Q3 Recap

Qualcomm delivered strong Q4 FY24 results, beating EPS and revenue expectations, driven by a recovering premium smartphone market and robust growth in its automotive segment. The company is also capitalizing on AI-driven demand, particularly in Gen-AI-enabled PCs and laptops powered by its Snapdragon 8 series chips. Handset revenue grew 12% year-over-year to $6.09 billion, with Android revenue rising over 20%, aided by premium-tier Snapdragon adoption, particularly in China, where revenue from Chinese OEMs jumped 40% sequentially. Qualcomm's IoT segment rebounded with 22% growth to $1.68 billion after three quarters of declines, benefiting from demand for AI-enabled PCs, while automotive revenue surged 68% to $899 million, with another 50% increase projected for Q1 FY25 as ADAS and self-driving technologies gain traction. Despite longer-term risks, such as the eventual loss of Apple as a modem customer, Qualcomm’s diversification into PCs, IoT, and automotive is proving effective, positioning the company well for sustained growth, particularly if a strong PC upgrade cycle materializes alongside new AI-driven innovations.