Do not fear Apple Inc. and Samsung's "going Qualcomm" trend! The trend of AI phone upgrades is driving demand for high-end smartphones. Qualcomm (QCOM.US) delivers better-than-expected performance.

Thanks to the recovery in demand for smartphones, Qualcomm (QCOM.US) announced on Wednesday revenue and profit guidance that exceeded expectations. As the world's largest supplier of smartphone modem chips, Qualcomm is preparing to deal with a potential decline in chip shipments to core customers such as Samsung Electronics (SSNLF.US), but the company still gave this optimistic outlook. According to the financial report, Qualcomm expects revenue of $12.2 billion and adjusted earnings per share of $3.40 for the first quarter of this fiscal year, both higher than analysts' expectations of $11.62 billion in revenue and $3.31 in earnings per share. For the fourth quarter ending September 28, Qualcomm recorded revenue of $11.27 billion and adjusted earnings per share of $3, both surpassing Wall Street's expectations of $10.79 billion in revenue and $2.88 in adjusted earnings per share. It is understood that Qualcomm has been expanding into other business areas such as laptops and automotive in recent years. The company has long been a supplier to Apple Inc. (AAPL.US), but as of 2021, it has informed investors that it expects Apple Inc. to eventually transition to using self-developed modem chips. Qualcomm's stock price fell over 2% in after-hours trading on Wednesday. During regular trading hours, the stock had risen nearly 4%, indicating high expectations from the market before the news was announced. Summit Insights analyst Kinngai Chan pointed out that the post-earnings drop in the stock price was due to ongoing concerns among investors about the potential decrease in chip purchases by their major customer Apple Inc. in the future. Qualcomm's CEO Cristiano Amon stated that the current performance has been better than expected mainly because consumers are upgrading mid-range smartphones to high-end devices in order to run AI applications. The market is clearly dividing into basic low-end models and high-margin high-end models, with the latter being Qualcomm's main source of profit. "The mid-range market is almost disappearing," Amon said. "This is a global phenomenon, happening in China and India. We see the market share in the high-end market continuously expanding." So far this year, Qualcomm's stock has risen by about 12.5%, but it still lags behind the 20.9% increase in the Nasdaq Composite Index. Investors have been concerned about the impact of tariffs on the company's smartphone chip business and whether it can fully benefit from the AI trend. However, Qualcomm released a new series of AI chips for data centers last month, with the initial chips expected to be shipped next year to the initial customer Humain, an AI start-up supported by the Saudi Arabian government. The impact of Apple Inc. transitioning to self-developed modem chips is still a focus of investor attention. Bernstein analyst Stacy Rasgon stated in a report to clients that Apple Inc. may use self-developed chips in the iPhone Air and iPhone 16e models, but the iPhone 17 series will still use Qualcomm chips, which to some extent mitigates the impact. Qualcomm disclosed in securities filings on Wednesday that revenue contributions from Apple Inc., Samsung, and Xiaomi each accounted for more than 10% of the company's total revenue. In the latest Samsung Galaxy S25 series, Qualcomm chips accounted for 100% of the share, but Amon stated that the company is prepared for its share to decrease to 75% in the next generation Galaxy S26. Amon also confirmed that Qualcomm is collaborating with Samsung's foundry department to produce some Qualcomm chips using 2-nanometer technology, but did not disclose the specific corresponding products. "We are discussing with Samsung to incorporate their foundry services into our product roadmap," Amon said. In the just-ended fiscal year 2025, Qualcomm's revenue from non-Apple Inc. customers grew by 18% in all business segments. The revenue from the chip business segment related to smartphones grew by 14% to $6.96 billion, higher than the market's expected $6.64 billion. "The applications on smartphones are becoming more powerful, prompting people to purchase devices with stronger performance, similar to what we saw after the pandemic," Amon explained. Qualcomm expects chip revenue in the first quarter to be between $10.3 billion and $10.9 billion, with the midpoint of the forecast range higher than the market's estimate of $10 billion. In other business areas, Qualcomm's automotive business segment revenue surpassed $1 billion for the first time in the fourth quarter, reaching $1.05 billion, a 17% year-on-year growth, exceeding analysts' expectations of $1.01 billion. The revenue from the Internet of Things business reached $1.81 billion, a 7% year-on-year increase. Additionally, Qualcomm disclosed that the new U.S. tax law resulted in a $5.7 billion non-cash expense ($5.29 per share) in the fourth quarter, leading to a net loss of $3.12 billion. However, the company emphasized that this change did not affect the adjusted performance data. Qualcomm stated that in the long run, this tax change will be beneficial. The company will apply the U.S. Corporate Alternative Minimum Tax in the next fiscal year, stabilizing the tax rate at 13% to 14%. The company said that if this change is not made, the tax rate would have increased.