Qualcomm has a phone problem, and a price hike won’t fix it

Qualcomm is increasing chip prices to offset higher production costs. The company cited more expensive wafer fabrication, chip packaging, memory and other materials. This matters because its handset business is already shrinking, making customers more sensitive to price increases.

The first increase came in September, but handset chip revenue still fell 26% year-on-year, to $5.14 billion. Qualcomm’s chip margins also worsened. Its chip division’s revenue fell 8%, while its pretax margin dropped from 29% to 24%.

Price increases are not expected to fully protect margins until the second half of fiscal 2027, beginning in April. Meanwhile, phone makers face weak demand, higher memory costs and lower shipments. Qualcomm is therefore asking struggling customers to pay more before the financial benefit is visible.

Qualcomm’s handset chip business suffered a major contraction. Revenue fell 26% in the September quarter, from $6.96 billion a year earlier to $5.14 billion. That erased roughly $1.8 billion in quarterly sales and missed the $5.21 billion StreetAccount estimate.

The decline continued across the full fiscal year. Handset chip revenue dropped 13% to $24.07 billion, about $3.7 billion below the previous year. Qualcomm’s adjusted earnings per share also fell 12% for the year, to $10.54.

The fall reflects weaker demand from phone manufacturers. Global smartphone shipments dropped 20% year-on-year from July through September. OPPO and Vivo each shipped more than 20% fewer phones, while Xiaomi also reduced shipments and began using its own chip in premium models.

Snapdragon is Qualcomm’s branded family of smartphone chips, often built as an integrated platform rather than a single isolated component. It provides much of the processing power a phone needs to run apps, manage graphics, connect to mobile networks and handle other digital tasks.

Inside a smartphone, the chip processes instructions from the operating system and applications. It can also coordinate functions such as camera processing, wireless communication and energy use, depending on the specific model. Faster or more capable Snapdragon platforms generally support higher-end phone features.

Qualcomm’s results show why this role matters commercially. The company sells these chips to phone makers, and handset revenue fell 26% in the September quarter. The article does not identify specific Snapdragon features, but it shows that fewer phone shipments directly reduce demand for Qualcomm’s smartphone chip platforms.

A profit margin measures how much revenue remains after costs. If wafers, packaging, memory and other materials become more expensive, Qualcomm keeps less money from each chip unless price increases fully cover those costs. That reduces profitability even when the company sells similar products.

Qualcomm’s chip division provides a clear example. Revenue fell 8% to $9.02 billion, while its pretax margin dropped to 24% from 29% a year earlier. The company expects an even lower margin of 20% to 22% this quarter. It attributed three percentage points of that decline to folding its data centre unit into the chip segment.

Qualcomm has raised prices, but the protection is delayed. It expects price increases to fully support margins only in the second half of fiscal 2027, beginning in April. Until then, costs and weak demand continue to pressure profits.

Demand for Qualcomm’s chips is weakening because the smartphone market is shrinking. Global smartphone shipments fell 20% year-on-year in the July-to-September quarter. Fewer finished phones mean manufacturers need fewer processors, directly reducing Qualcomm’s handset sales.

Qualcomm’s major Android customers show the pressure. OPPO and Vivo each shipped more than 20% fewer phones than a year earlier. Xiaomi also cut shipments. Rising memory prices have forced brands to raise phone prices and reduce production, making the market even harder for customers.

Qualcomm expects the smartphone market, which still drives most of its chip sales, to remain flat through 2027. That outlook limits the chance of a quick handset rebound. The company is also facing competition from Xiaomi’s own XRING O3 chip in premium phones, where Qualcomm sells its most expensive processors.

Xiaomi’s use of its own XRING O3 chipset could reduce Qualcomm’s role by removing Qualcomm chips from some premium smartphones. This matters because premium phones are the part of the market where Qualcomm sells its most expensive and potentially highest-value processors.

The article says Xiaomi is using XRING O3 to set its premium phones apart. Instead of buying Qualcomm’s chip for those models, Xiaomi can use its own chipset as a product differentiator. That gives Xiaomi another way to control a key component of its phones and reduces one source of Qualcomm’s handset revenue.

The immediate effect is part of a broader decline. Xiaomi has already cut shipments, while global smartphone shipments fell 20% year-on-year. If Xiaomi uses its own chip across more premium models, Qualcomm could lose both unit sales and opportunities to sell its most expensive smartphone chips.

Qualcomm has two connected smartphone businesses. Its chip division sells processors and related components to phone makers. Its licensing business collects royalties when manufacturers use Qualcomm’s patents. This combination gives Qualcomm revenue from both the hardware inside phones and the intellectual property behind mobile technology.

When phone shipments fall, manufacturers need fewer chips, so Qualcomm’s handset revenue declines. The same market contraction can also reduce licensing revenue because there are fewer phones and potentially less licensing activity. In the September quarter, handset chip revenue fell 26% to $5.14 billion, while licensing revenue fell 7% to $1.3 billion.

Licensing weakened even after Qualcomm renewed deals with Apple, Huawei and Transsion. Its licensing profit fell 10%. The figures show that stronger agreements cannot fully offset a weaker phone market when fewer devices are being produced and sold.