Qualcomm (QCOM.US) Q4 Earnings Call: CFO Responds to Memory Price Increases Weighing on Gross Margin, Expects Handset Revenue Share to Drop Below 50%

QUALCOMM Incorporated (QCOM.US) held its fiscal 2026 fourth-quarter (ended September) earnings call after the U.S. market close on November 4, Eastern Time. Non-GAAP revenue for the quarter was $10.44 billion, above analysts' expectation of $10.11 billion; adjusted earnings per share (EPS) was $2.17, slightly beating the expected $2.16. However, core handset chip revenue was $5.14 billion, down 26% year-over-year and below the expected $5.25 billion, and the company's guidance midpoint for fiscal 2027 first-quarter EPS ($2.25) was below the market consensus of $2.27. After the results were released, the stock fell as much as more than 6% in after-hours trading. The focus of the call was on the impact of memory chip price increases on the handset business and gross margin, as well as the ramp cadence and profitability impact of the data center business. CFO Akash Palkhiwala responded that the company is raising prices across its product lines to reflect rising semiconductor costs across the industry, and "the full benefit will show up in QCT gross margin in the second half of fiscal 2027, at which point underlying gross margin will return to the historical range of 48% to 50%"; the data center business "accretes operating margin but dilutes gross margin." Management also judged that, with uncertainties such as license renewals and the loss of Apple Inc.'s modem business now settled, Qualcomm will enter fiscal 2027 in a "broader, more diversified" posture, and expects non-handset revenue to grow more than 60% year-over-year this fiscal year, with handset revenue share falling below 50% for the first time. Focus and Responses The core tension of the call was the tug-of-war between "data center ramping" and "gross margin under pressure": the custom silicon business will be folded into the QCT segment starting in fiscal 2027 and begin to ramp, and combined with memory price increases across the industry, the company's EPS guidance midpoint for the December quarter fell short of expectations, becoming the main reason for the after-hours stock decline. Several analysts pressed on the gross margin trajectory and handset market outlook. CFO Palkhiwala responded that the full benefit of price increases will be reflected in the second half of fiscal 2027, at which point underlying gross margin will return to the lower end of the historical 48%-50% range; the data center business accretes operating margin but dilutes gross margin, and the segment change itself drags on QCT pre-tax margin (EBT margin) by about 3 percentage points. CEO Cristiano Amon added that the price increases mainly target new platforms and new models and are less affected by prebuy. Market views were divided: media outlets such as Cailianshe interpreted the weak guidance as cost pressure becoming explicit, while others focused more on the room implied by management's statement that "data center upside is limited by supply rather than demand." Uncertainties Settled, Entering the New Fiscal Year "Broader and More Diversified" Amon characterized fiscal 2026 as a year in which uncertainties were concentrated and settled: QTL license renewals were completed, Apple Inc.'s modem orders were lost, and the impact of memory price increases on the handset industry had all been incorporated into business planning. Full-year Non-GAAP revenue was $43.2 billion, of which QCT revenue was $37.2 billion, and combined automotive and Internet of Things (IoT) revenue grew 24% year-over-year. The company returned $2 billion to shareholders in the quarter, with $1 billion each in buybacks and dividends. Data Center: Reiterates $5 Billion Target, Upside "Limited by Supply Rather Than Demand" Data center was the biggest incremental information from the call. The company reiterated its $5 billion revenue target for fiscal 2027, expects sequential ramping and to exit the fiscal year at a $7 billion annualized run rate, with a fiscal 2029 target of $15 billion. Most of the $5 billion comes from custom silicon projects with two hyperscalers, one of which is Amazon.com, Inc. AWSwith a potential revenue opportunity of up to $60 billion over ten years. Amon said upside beyond $5 billion "will be limited by supply rather than demand"; High Bandwidth Compute (HBC) lab measurements showed energy efficiency of about 0.3 picojoules per bit, better than the 0.5 design target, with yields exceeding expectations. Automotive: First Quarter Above $2 Billion Automotive quarterly revenue exceeded $2 billion for the first time, up 89% year-over-year, exiting fiscal 2026 at an annualized run rate of about $8 billion, above the prior $7 billion expectation. The fifth-generation Snapdragon Digital Chassis began commercial shipments in the September quarter, with silicon content per vehicle 8 times higher than the third-generation platform. Management expects Qualcomm to rank among the world's largest automotive semiconductor suppliers by revenue in fiscal 2027. Handsets and Memory Price Increases: Full Benefit of Price Increases to Show in Second Half Handset chip revenue was $5.1 billion, squeezed by memory price increases across the industry. Management expects the global handset market to decline low-to-mid teens in calendar 2026 and to be flat to slightly down in 2027; China Android revenue bottomed in the June quarter and has risen sequentially for two consecutive quarters since. Qualcomm's share baseline in Samsung's high-end models has moved up from 50% to more than 70%. Responding to questions about whether price increases would trigger prebuy, Amon said the increases mainly target new platforms and new models, with limited impact, and channel inventory remains lean. Licensing Business: Three Major Renewals Settled, Run Rate Unchanged QTL completed a landmark finish this quarter: long-term license agreements with Apple Inc., Huawei, and Transsion have all been renewed, with no renewals with major handset makers scheduled for the next several years. The CFO made clear that "the revenue run rate remains unchanged" should be understood as the renewals preserving the original royalty rates; the next renewal cycle begins in fiscal 2030 and runs through fiscal 2033. Management said the licensing business provides a durable, high-margin foundation for Qualcomm as it moves toward the 6G era. SpaceX and Infrastructure: Major Starlink 5G Deal Qualcomm reached a multi-year agreement with SpaceX to provide the Dragonwing infrastructure platform for Starlink Mobile's nationwide U.S. terrestrial 5G network, covering massive MIMO radio silicon, digital unit accelerators, and Layer 1 software. Deployment will begin in 2027 and may be one of the largest 5G network builds in the U.S.; financially, related revenue will begin to appear at the end of fiscal 2027 and be mainly reflected in fiscal 2028. Arm Litigation: Jury Finds Arm in Breach Amon addressed the litigation with Arm at the call: the jury found that Arm breached the long-standing Architecture License Agreement (ALA), failed to fulfill its commitments, willfully interfered with Qualcomm's business, and engaged in unfair competition. "This outcome is a victory for innovation and competition." He said the litigation outcome does not affect the CPU roadmap, and Qualcomm will continue to deliver Oryon CPUs from mobile to data center, with new CPU customers all representing upside to existing revenue targets. Next-Quarter Guidance and Segment Change The company expects fiscal 2027 first-quarter revenue of $10.4 billion to $11.2 billion and Non-GAAP EPS of $2.15 to $2.35 (midpoint below LSEG's $2.27 expectation); QCT revenue of $9.0 billion to $9.6 billion (pre-tax margin 20%-22%, including a 3-percentage-point impact from folding data center into the segment), QTL revenue of $1.3 billion to $1.5 billion (pre-tax margin 72%-76%), data center revenue above $650 million, and Non-GAAP operating expenses of about $2.8 billion. In fiscal 2027, non-handset revenue will grow more than 60% year-over-year and account for more than 50% of QCT revenue. The full contents of Qualcomm's fiscal 2026 fourth-quarter earnings call are as follows: Management Remarks Brett Simpson (Senior Vice President of Investor Relations, Qualcomm): Welcome to Qualcomm's fiscal 2026 fourth-quarter earnings call. Today, Amon and Palkhiwala will make prepared remarks, and Rogers Corporation will join for Q&A. This call will use Non-GAAP financial measures as defined by Regulation G, and reconciliations to GAAP have been posted on the company's website; the call contains forward-looking statements, and actual results may differ materially, so please refer to the company's latest 10-K filing. Amon (President and CEO, Qualcomm): Thank you, Brett, and good afternoon, everyone. In the fourth fiscal quarter, we delivered Non-GAAP revenue of $10.4 billion and Non-GAAP EPS of $2.17. QCT revenue was $9.0 billion, up 6% sequentially and at the high end of our guidance range. QTL revenue was $1.3 billion. For full fiscal 2026, we reported Non-GAAP revenue of $43.2 billion and QCT revenue of $37.2 billion, with combined automotive and IoT revenue up 24% year-over-year. We close fiscal 2026 with many of the uncertainties that have weighed on the business now settled, specifically the QTL license renewals, the loss of Apple Inc. as a customer, and the negative impact of memory pricing on the size of the mobile industry. On the latter, the June quarter marked the low point for our China Android business, and we saw sequential growth this quarter. Looking ahead, our planning assumes global handset shipments flat to down in calendar 2027. The timing and shape of the Apple Inc. modem transition are fully incorporated into our business planning and well understood by all parties. We also renewed important QTL license agreements, including with Apple Inc. and Huawei. We now enter fiscal 2027 as a broader, more diversified Qualcomm with strong momentum and significant opportunities. First, QCT non-handset revenue will grow more than 60% year-over-year this fiscal year. Second, the data center business is beginning to ramp, with December-quarter revenue expected above $650 million. Third, the automotive business exits fiscal 2026 at an $8 billion annualized revenue run rate, $1 billion above expectations. Fourth, we have laid a solid foundation in the agentic AI shift at the edge, creating entirely new product categories. Finally, we reached a landmark agreement with SpaceX to support its nationwide U.S. terrestrial 5G network. Our technology investments are aligned with where the industry is heading. We made several key acquisitions to strengthen our hardware and software capabilities, evolving into a full-stack semiconductor company. We announced strategic partnerships with industry leaders such as Meta, Amazon.com, Inc., BMW, and Stellantis, with more to come; our overall design win pipeline grew 70% year-over-year. This is the foundation for our confidence in delivering our fiscal 2029 targets$40 billion in non-handset revenue, of which more than $15 billion comes from data center. Now focusing on the issues investors care about most. First, the licensing business, where we reached a milestone this quarter. We are extremely pleased with the renewals with Apple Inc., Huawei, and Transsion. These agreements provide stability for Qualcomm's QTL business as it moves toward the 6G era and demonstrate the enduring value of our intellectual property and patent portfolio. As with every prior technology generation, we expect our inventions to again be foundational to 6G. Importantly, our QTL revenue run rate remains unchanged. The next renewal cycle begins in fiscal 2030 and runs through fiscal 2033. The licensing business provides a durable, high-margin foundation for us to scale the next set of growth opportunities. Data center is another area where we made significant progress this quarter. It is one of our highest strategic priorities and something I personally spend a great deal of time on; we are building this business around long-term customer relationships, a broad product portfolio, and an open software ecosystem. AWS is a great example: our agreement spans multiple product generations and covers custom silicon for AI inference and optical interconnect. Custom accelerators began shipping in October, and the optical interconnect solution with AWS will ramp later this month. We also secured a second optical interconnect customer. With Qualcomm's High Bandwidth Compute (HBC) technology, our AI250 chip exceeded expectations on energy efficiency and bandwidth, with early yields in line with plan. These results are attracting strong interest from AI customers and memory partners, and we added two important potential customers this quarter. Our Dragonfly C1000 CPU remains on track to ship to Meta, and we have engaged a new large potential customer. We are optimistic about the commercial opportunity for existing high-speed interconnect solutions such as optical DSPs, and we are investing to deploy optical devices directly alongside our XPUs and custom silicon, as we demonstrated with Lumentum and Corning Inc (Corning) at ECOC 2026. On software, our full-stack integration with Modular is progressing well. Modular, as an open multi-vendor stack, already runs on NVIDIA and AMD GPUs, Amazon.com, Inc. Trainium, and Alphabet Inc. Class C TPU with impressive performance; optimization for Qualcomm accelerators is also underway. Last month, Modular open-sourced the full MAX source code, building on the August open-sourcing of the Mojo language. We are also pleased that Modular Cloud launched in the September quarter and now processes tens of trillions of tokens per month. We will share more details later on ecosystem partners using Modular Cloud. The data center business is off to a strong start. We reiterate our $5 billion revenue target for fiscal 2027, with good order coverage supporting continued revenue growth in fiscal 2028. In automotive, we exit fiscal 2026 at an annualized revenue run rate of about $8 billion, well above the $7 billion expectation provided last quarter. In addition, fourth-quarter automotive revenue grew nearly 90% year-over-year. The fifth-generation Snapdragon Digital Chassis began commercial shipments in the September quarter and will continue to ramp in fiscal 2027. As a reminder, this is Qualcomm's most advanced platform to date, with significant performance gains, represents our largest generational increase in content per vehicle in our history. Our products have also evolved from SoCs to integrated compute modules. Customer demand remains strong across the portfolio, and Qualcomm is positioned to rank among the world's largest automotive semiconductor suppliers by revenue in fiscal 2027. In Siasun Robot&Automation, our high-end Dragonwing IQ10 processor is about to begin commercial ramp, with strong customer momentum. This quarter, ecosystem partners demonstrated AI models with up to 80 billion parameters running directly on the IQ10. In fiscal 2027, we will continue to expand the technology and capabilities of the Siasun Robot&Automation platform. As we expected, the adoption and capabilities of AI agents are rising rapidly, with consumer adoption growing alongside. A typical example is Meta Muse, which surpassed 10 million downloads in just 40 days. We are also seeing more companies design experiences and devices around agents, including new personal AI form factors such as agent phones and smart glassesMeta's audio AI glasses, Muse Charm, Gemini glasses, and Alibaba Group Holding Limited Sponsored ADR's Qwen AI glasses are recent examples, with more to come over the next year. Smartphones are indispensable devices for the agent experience: they know the user best, are carried everywhere, and hold the user's context, preferences, and authorizations; devices are also evolving to support both the user's own actions and agents acting on the user's behalf. Delivering these experiences requires more compute performance, energy efficiency, and connectivityexactly Qualcomm's strengths. More customers have built agent features into flagship devices, and we are pleased to share that the world's first agent phones have launched on Snapdragon platforms. Entering fiscal 2027, we are pleased with our share position in high-end Android and expect further gains as the agent phone transition drives higher compute content per device. As a reference, leading AI companies are targeting 2028 for smartphones that can run 100-billion-parameter models locally with all-day battery life. Achieving this will require a step-function increase in on-device compute performance. Finally, I am very proud to share that SpaceX has selected Qualcomm to support Starlink Mobile's nationwide U.S. terrestrial 5G network. Starlink is building one of the most ambitious new cellular networks in the U.S., and our Dragonwing infrastructure platform will combine advanced massive MIMO, dedicated RAN processing, and carrier-grade Layer 1 software. Under the multi-year agreement, deployment will begin in 2027 and is expected to be one of the largest 5G deployments in the U.S. Together we will advance U.S. wireless leadership, starting with 5G and the convergence of satellite and terrestrial connectivity. This new architecture lays the foundation for next-generation connectivity and network intelligence. It is a major win for our infrastructure business and the beginning of a strategic relationship with enormous potential. Before I close, I want to briefly address our litigation with Arm. We are pleased that the jury found that Arm breached its long-standing Architecture License Agreement (ALA) with Qualcomm, failed to fulfill its commitments, willfully interfered with Qualcomm's business, and engaged in unfair competitionwhether as a supplier or a competitor. Combined with Qualcomm's prior court wins, this outcome further exposes Arm's intent to harm Qualcomm and its ecosystem. This outcome is a victory for innovation and competition. We will continue to focus on developing and delivering industry-leading semiconductors to customers worldwide, including Oryon CPUs from mobile to data center. In summary, we enter fiscal 2027 having made important progress against the growth plan set at our Investor Day. Since then we have signed major strategic agreements and positioned the data center business for scale ramp. As we build Qualcomm's next chapter, we will continue to focus on execution and are confident in delivering our fiscal 2029 targets. Akash Palkhiwala (Executive Vice President, CFO and COO, Qualcomm): Thank you, Cristiano, and good afternoon, everyone. Let me start with fourth-quarter results. We delivered Non-GAAP revenue of $10.4 billion and EPS of $2.17, with revenue at the high end of our guidance range. QTL revenue was $1.3 billion with a 70% pre-tax margin (EBT margin), in line with expectations. QCT revenue was $9.0 billion, at the high end of our guidance range, with a 24% pre-tax margin, in line with expectations. QCT handset revenue was $5.1 billion, reflecting the impact of industry-wide memory dynamics on the global smartphone market. QCT automotive delivered its first $2 billion revenue quarter, up 89% year-over-year, driven primarily by growing adoption of integrated module products based on our fifth-generation compute platform. QCT IoT revenue was $1.9 billion, up 4% year-over-year, led by industrial, networking, and Siasun Robot&Automation categorieswhich grew 20% year-over-yearpartially offset by the impact of memory supply constraints on consumer products. Total QCT non-handset revenue (including automotive and IoT) grew 36% year-over-year, demonstrating continued execution against our growth plan. Finally, we returned $2 billion to shareholders, including $1 billion each in buybacks and dividends. Before turning to guidance, an update on several factors already reflected in our financial performance. First, on QTL, we have completed long-term license agreements with Apple Inc., Huawei, and Transsion, with no renewals with major handset OEMs scheduled for the next several years. Following the signing of the agreements, the QTL revenue run rate and long-term revenue forecast remain unchanged. Second, as discussed last quarter, we are implementing price increases across our product lines to reflect higher semiconductor input costs; we expect the full benefit of these actions to be reflected in QCT gross margin in the second half of fiscal 2027. Finally, fiscal 2027 will be an important milestone for the data center businesstransitioning from customer engagement to revenue realization. First-quarter guidance reflects the start of shipments for custom silicon projects with two hyperscaler customers. As we discussed previously, these custom silicon projects will accrete QCT operating margin but dilute gross margin. These factors are reflected in fourth-quarter results and the first-quarter outlook. First-quarter guidance: We expect revenue of $10.4 billion to $11.2 billion and Non-GAAP EPS of $2.15 to $2.35. QTL revenue is expected to be $1.3 billion to $1.5 billion, with a pre-tax margin of 72% to 76%, reflecting normal seasonality. QCT revenue is expected to be $9.0 billion to $9.6 billion, with a pre-tax margin of 20% to 22%. Please note that QCT pre-tax margin guidance includes a 3-percentage-point impact from folding data center into the QCT segment starting in fiscal 2027, and reflects investment in AI accelerator and CPU platforms ahead of revenue ramp. Importantly, this segment change has no impact on total company guidance or QCT's 30% long-term pre-tax margin target. We expect QCT handset revenue to decline mid-single-digit percentage sequentially, with growth in Android revenue offset by continued decline in Apple Inc. product revenue. QCT data center revenue is expected to exceed $650 million, driven by initial shipments to custom silicon customers. Combined QCT automotive and IoT revenue is expected to be roughly flat sequentially. Finally, we expect Non-GAAP operating expenses of about $2.8 billion. Before closing my prepared remarks, an overview of progress executing our growth strategy. In fiscal 2027, we expect to achieve two key milestones in revenue diversification. First, QCT non-handset revenue (automotive, IoT, and data center) grows more than 60% year-over-year starting in the first quarter. Second, non-handset revenue will account for more than 50% of QCT revenue this fiscal year. In data center, we are executing against the targets set at our Investor Day, including $5 billion in fiscal 2027 and $15 billion in fiscal 2029; we expect data center revenue to ramp sequentially through fiscal 2027, exiting the fiscal year at a $7 billion annualized run rate. We are also expanding our customer pipeline with more global hyperscalers, including our long-term strategic agreement with Amazon.com, Inc. AWSwith a potential revenue opportunity of up to $60 billion over the next decade. This quarter, we also successfully validated our high-bandwidth compute technology in lab trials, a key milestone toward delivering an innovative AI inference accelerator solution that addresses data center memory bandwidth challenges. We are also well positioned to lead other key industry trends, including the transition of consumer devices to agentic AI and the adoption of physical AI in automotive, industrial, and Siasun Robot&Automation applications. Finally, thank you to our employees for their outstanding execution and innovation in fiscal 2026; their efforts enable us to deliver industry-leading products to customers worldwide. Q&A Session Joshua Buchalter (TD Cowen): Let me start with gross margin. Last quarter you previewed a step-down in gross margin as the ASIC business begins to ramp. But looking across the yearsimple math suggests that to reach a $7 billion run rate exiting the fiscal year, the data center business needs to grow nearly 3x. As the data center business gets bigger and custom silicon ramps aggressively through the year, should gross margin be expected to decline continuously? Akash Palkhiwala: Josh, this is Akash. Let me give the overall company gross margin framework first. As discussed last quarter, we are implementing price increases to reflect higher semiconductor costs across the industry; the related benefit begins in the second quarter and is fully reflected in the second half of fiscal 2027. The mechanics are as follows: as price increases take effect, our underlying gross margin will return to the historical range of 48% to 50%, currently at the lower end of that range. As for data center, as said before, it accretes operating margin but dilutes gross margin, which calibrates gross margin downward on top of that framework. This is consistent with what we said last quarter, and we are executing as planned. Joshua Buchalter (TD Cowen): A follow-up: great to see the HBC demonstrated this week. Early on in accelerator products, which workloads are getting the most feedback? Any update on commercialization progress? It is supposed to begin contributing in the second half of this fiscal yearonly a few quarters away. Amon: Thank you, this is Cristiano. We are very pleased with HBC progress, actually better than what we said at Investor Day: the design target was about 0.5 picojoules per bit, and lab measurements are about 0.3; yields exceed expectations, and technology progress is satisfying. The workload getting the most positive feedback is decodeefficiency in the decode phase is extremely high. We are engaging deeply with customers: when you go from only a PowerPoint to having real silicon in hand, the nature of the conversation changes. This strengthens not only our confidence in custom ASIC prospects but also in the commercial product offering for the 2029 target. Another interesting change is that the combination of HBC and custom accelerators is now also entering customer conversations. Overall, customer engagement is very positive. Joseph Cardoso (J.P. Morgan Research): Please expand on how data center revenue ramps through the year and how customers are phased into guidance. Also, you have talked about two customers in the past, and a third appeared in the slidesis the third in this fiscal year's guidance, or does it ramp at another point? Akash Palkhiwala: Joseph, this is Akash. On the financials first: the $5 billion revenue forecast for fiscal 2027 was given previously, Q1 guidance is above $650 million, and revenue will ramp sequentially through the year, exiting the fiscal year at about a $7 billion annualized rate and entering fiscal 2028. Supply-side preparation is sufficient to execute the $5 billion target; upside beyond $5 billion will be limited by supply rather than demand. In fiscal 2028, we start from $7 billion, the fiscal 2027 customer relationships continue into fiscal 2028, and design win coverage is very strong, sufficient to support strong year-over-year growth in fiscal 2028. For the $15 billion target in fiscal 2029, current customer engagement will also give us high coverage. Amon: A brief addition on customers: most of the $5 billion in fiscal 2027 comes from two hyperscaler customers, one of which is Amazon.com, Inc., with details on silicon plus interconnect already public. We have another accelerator customer and are in deep negotiations on custom silicon for subsequent generations, part of the ramp toward fiscal 2028 and 2029. In the prepared remarks we also mentioned that, besides Meta, there are new potential CPU customers in engagement. Joseph Cardoso (J.P. Morgan Research): A follow-up on handset revenue: from the end of this fiscal year into next fiscal year, is growth mainly driven by price increases stacking up? How should the magnitude and timing of price increases be understood? More broadly, this year's market data show memory price increases contracting the handset market; what is the initial view on market health next year? Akash Palkhiwala: On the overall market, for 2025 to 2026, consistent with other industry analysts, we expect a low-to-mid-teens decline; entering 2027, we expect flat to slightly downthis has been our business planning assumption, and it is evolving as expected. Specifically on QCT Android revenue, as you know, we called the June quarter the low point for QCT handset revenue and China Android, and revenue has grown in both the September and December quarters since, which is encouraging. Our planning has been conservative and is now proceeding fully as expected. Joseph Moore (Morgan Stanley Research): On royalty rates, you said the QTL revenue run rate is unchangedshould that be understood as per-device rates on new contracts similar to before? I want to confirm that. Akash Palkhiwala: Joe, we do not disclose contract details, as they are confidential; but we said the revenue run rate is unchangedyou can understand that as our preserving the rates and royalties in the renewals. Joseph Moore (Morgan Stanley Research): Very helpful. Also on the warrant structure in the Amazon.com, Inc. agreement, do you view it as a way to work with other customers? Will there be similar warrant arrangements in the future, or is it limited to this specific relationship? Akash Palkhiwala: Looking at our overall data center engagement, these are very traditional semiconductor industry customer partnership models. The Amazon.com, Inc. warrant structure is the exceptionwe issued at-the-money warrants, and this is currently our only exception. In the future we will evaluate other structures on a deal-by-deal basis for data center partnerships, but the overall framework should be understood as consistent with the traditional semiconductor model. Timothy Arcuri (UBS Group AG Investment Bank Research): Akash, can you give a little outlook for the March quarter? I know you don't want to guide March, but on the last call you said March revenue would growApple Inc.'s comparison base is easy, and Android should also be better. Can you give a sense? Akash Palkhiwala: Tim, you're right that we are not giving March-quarter guidance now, but a few points may help. First, December has historically been our strongest quarter of the year; with Apple Inc. product revenue declining, we no longer expect December to be the annual high point. Second, data center revenue is above $650 million in Q1 and ramps sequentially through the year, which partly determines the quarterly cadence. Third, from fiscal 2026 to 2027, non-handset revenue including automotive, IoT, and data center is expected to grow more than 60%, enough to cover the decline in Apple Inc. product revenue. Finally, handset revenue is expected to be less than half of total company revenue in fiscal 2027a key milestone in the diversification plan, and we are pleased to achieve it this fiscal year. Timothy Arcuri (UBS Group AG Investment Bank Research): Understood, last time you also said March would grow, and now you don't want to commit. Akash Palkhiwala: I think the framework the market is currently using to look at this business is reasonable. Stacy Rasgon (Bernstein Research): I want to dig into the handset market outlook. The flat expectation surprised me a bitQ3 market revenue may be down more than 20% year-over-year, and Q4 doesn't look great either; your own China Android revenue has been growing since June or September, and you are raising prices. How do you rule out the possibility that Android channel pre-bought ahead of price increases? I am a bit confused by the handset outlook, and any additional color would help. Akash Palkhiwala: Stacy, two parts: the market first, then QCT revenue. The overall market, as said, declines low-to-mid teens in 2025-2026 and is expected to be flat to slightly down in 2026-2027a prudent planning assumption given the uncertainty in the overall environment. Specifically on QCT revenue, the impact in fiscal 2026 came not only from market changes but also from OEM channel destocking; in fiscal 2027 we do not expect that impact again, because we have been tracking channel inventorywe also have QTL data to cross-check, and channel inventory remains lean. Therefore we expect QCT revenue to track the overall market. Amon: Stacy, let me add one point. Because of long-term partnerships with customers, many price increases could exceed cost increases because we are mainly pricing new platforms and new models; the increases will only be fully reflected in second-half numbers, so they are less affected by prebuy. As Akash said, based on the market data we see, the June quarter remains the low point for China Android. Stacy Rasgon (Bernstein Research): A follow-up: you talked about a 75% share framework for Samsung. When the next-generation platform ramps in 2027, will the share framework still be the same? Amon: Yes, absolutely. On the Samsung business, the way to think about it is simple: our baseline used to be 50%, and now that baseline is no longer 50% but above 70%that is how we plan future generations of Galaxy business, and we suggest you plan the same way. In addition, we are expanding our business scope with Samsung: traditionally we were not the main supplier for all of its wearables and other devices, and you will see that change with high-end Galaxy designs. Benjamin Reitzes (Melius Research): Changing topics (since Stacy just asked about Samsung). Automotive significantly beat this quarter, and you mentioned price increasesis there prebuy in automotive as well? Is this performance sustainable through the year? Amon: No, good question. We talked about the fifth-generation platform transition last quarter. To give an intuitive number: for models on the road today with our third-generation platform, silicon content on the fifth-generation platform is 8 times that of the third generationautomotive compute content is increasing substantially. Most of our automotive growth comes from share gains, a process of converting the design win pipeline into revenue; the step-function growth in SoC revenue will continue. Benjamin Reitzes (Melius Research): Then Akash, QCT pre-tax margin (EBT) starts from guided 20% to 22%; how does it evolve through the year as data center mix rises? How should we model it? Akash Palkhiwala: Ben, let me use this opportunity to clarify: we changed segments, and QCT now includes data centerin fiscal 2026 it was outside QCT. This change alone lowers QCT operating margin by about 3 percentage points, and of course we are in an investment period ahead of revenue ramp in several product lines. This does not change total Qualcomm numbers, only the segment presentation. We do not guide operating margin by quarter or year, but QCT's operating margin target is unchanged at 30%; as revenue scales over the next two to three years, we are confident in achieving it. Liam Pharr (Bank of America Corp Securities Research, on behalf of Vivek Arya): On networking interconnect, you mentioned AWS optical interconnect ramping and a second optical interconnect customer. Can you help quantify the interconnect business today and its growth in fiscal 2027 and 2028 as it moves toward 224G and 1.6T? Does consolidation in the optical interconnect industry affect you? From an equity perspective, is there a natural synergy between interconnect and lasers? Amon: Very good question. We do not break it out, but you should assume interconnect revenue is included in the $15 billion (fiscal 2029) and $5 billion (fiscal 2027). We are very optimistic and continue to invest. This asset came from the Alphawave acquisitionI think Qualcomm is the natural home for communications technology. This quarter at ECOC 2026, we demonstrated progress in optics and co-packaged optics with Lumentum. You raise a good point: industry structure will change, and my analogy is what happened in RF front end, which creates opportunities. We are having very interesting conversations with some laser companies, especially as various forms of partnership and strategic alliance are forming. This is an exciting opportunity for Qualcomm, and you will see more products from Qualcomm in optics in the future; we have been advancing the 400G, 800G, and 1.6T roadmap. Liam Pharr (Bank of America Corp Securities Research): On the Dragonfly CPU, the new potential customer besides Meta, how do you view CPU upside relative to custom accelerators? The Arm remedies phase is not over; could the outcome affect the CPU roadmap or cost structure? Amon: Two parts. First, no impact on our CPU roadmap; our position on the Arm litigation is very clear, and we are very comfortable with our ability to continue developing and shipping Oryon products. Second, I think new customers should be viewed as upside beyond the $5 billion and $15 billion targetscurrently we have only Meta as a CPU customer, and any new customer is upside beyond the revenue targets. James Schneider (Goldman Sachs Group, Inc. Research): Please clarify: relative to the three hyperscaler customers ramping in fiscal 2027, will all three reach revenue significance by the time we exit this fiscal year, or only two, with the other falling outside the fiscal year? Akash Palkhiwala: You can understand it as: two of the customers will reach very meaningful scale, forming the bulk of the $5 billion, and will continue into fiscal 2028 and even 2029these are long-term, multi-generational, multi-product partnerships, and both are already at scale. James Schneider (Goldman Sachs Group, Inc. Research): When modeling fiscal 2027, besides the overall operating margin commentary, should there be a major step-up in OpEx? Akash Palkhiwala: Our OpEx approach is consistent with the past year: September-quarter guidance is $2.8 billion. The focus of OpEx is bringing in new capabilities needed for diversification, especially in data center, which will continue to be an investment area. One timing point: there is a calendar-year employee-related expense reset every January, consistent with prior years. Christopher Caso (Wolfe Research): First question on the Starlink announcement this morning: can you provide more details on timing, scale, and Qualcomm's content in the project? Amon: On timing, we are talking about 2027financially, revenue will begin to appear at the end of fiscal 2027 and more in fiscal 2028. On scale, what we can say now is: this is a nationwide U.S. terrestrial network, possibly one of the largest network builds in the U.S. We provide silicon content for the radio portion, including massive MIMO, as well as accelerators for digital units and Layer 1 software. This is an excellent partnership with SpaceX on next-generation infrastructure. This industry has long run on proprietary equipment, and we see many innovation trends from Open RAN to AI-native. This is a multi-year agreement that also includes joint planning for next-generation wireless technology. We are very proud, and this