Shares of Qualcomm and Arm slide following latest earnings reports – News

Two of the world’s top chip design companies were down in the dumps today, as shares of both Qualcomm Inc. and Arm Holdings Plc plummeted in late trading today amid concerns about memory supply constraints.

Qualcomm’s stock fell more than 9%, while shares of Arm lost almost 8% of their value in extended trading, after they both edged past Wall Street’s expectations in their latest financial results.

In the case of Qualcomm, it reported fiscal first-quarter earnings before certain costs such as stock compensation of $3.50 per share on revenue of $12.25 billion, ahead of the consensus estimate of $3.41 per share and $12.21 billion in sales. However, its profitability took a hit, with net income declining to just $3.004 billion, down from $3.18 billion in the same quarter one year ago.

As for Arm, it delivered fiscal third-quarter earnings of 43 cents per share on sales of $1.24 billion, up 26% from a year earlier, squeaking ahead of the analysts’ consensus of 41 cents in earnings and $1.23 billion in revenue.

Memory issues mess up guidance

Investors bailed on Qualcomm after executives warned that it’s likely to miss expectations in the current quarter. The smartphone chip designer is forecasting second-quarter earnings of between $2.45 and $2.65 per share on revenue of $10.2 billion to $11 billion, trailing the Street’s forecast of $2.89 per share on $11.11 billion in sales by a long distance.

The shortfall is directly related to global memory supply issues, Qualcomm Chief Financial Officer Akash Palkhiwala said. Investments in data centers for artificial intelligence are consuming vast amounts of memory production capacity that were previously used to supply smartphones and other devices.

As a result, smartphone manufacturers, which buy their own memory and pair it with Qualcomm’s modems and processors, are curtailing their chip purchases to avoid building up too much inventory. Instead, they’re buying only enough chips to match the memory they can obtain.

Qualcomm Chief Executive Cristiano Amon (pictured) told CNBC that “memory is going to define the size of the mobile market” for the foreseeable future. He also said he’s unsure if smartphone makers are going to increase their prices in response to the higher cost of memory, but either way it’s unlikely to impact Qualcomm too much. That’s because they will likely focus more on higher-end devices, which can better absorb any increases, he explained.

“We see this as an industry issue affecting everything in consumer electronics,” Amon added.

During the quarter, Qualcomm generated $7.82 billion in revenue from handset sales, up 3% from a year earlier. Its smaller business segments grew more rapidly, with revenue from the Internet of Things group rising 9%, to $1.69 billion, and the automotive segment up 15%, to $1.1 billion.

Amon also talked about the company’s nascent data center business, where it supplies energy-efficient processors for AI workloads. He said he’s expecting sales from these products to start having a material impact in fiscal 2027. “Everything is on track,” he insisted.

Licensing revenue comes up light

It’s less clear why some investors went sour on Arm today, since its guidance was a lot more favorable. The chip designer said it’s anticipating fourth-quarter earnings of 58 cents per share on sales of $1.47 billion at the midpoint of its forecast range, which compares favorably with the Street’s forecast of 57 cents per share and $1.44 billion.

It may just be that investors are disappointed that the company isn’t doing much better than expected, given the stunning AI-powered growth of many of its rivals in the chip industry. During the quarter, Arm generated royalty revenue of $737 million, up 27% from a year earlier, while licensing revenue came to $505 million, up 25%. Those numbers were mixed, with analysts targeting $708 million in royalty sales and $520 million in licensing.

Arm CEO Rene Haas said the company’s growth is being driven by all of its major segments, including smartphones, AI accelerators, general purpose data center chips, physical AI and edge AI. “Demand for AI computing on our platform continues to accelerate,” he said. “Record royalty results in the third quarter reflect the growing scale of our ecosystem, as customers design the Arm compute platform into next-generation systems across cloud, edge and physical environments to deliver high-performance, power-efficient AI.”

As a result of today’s declines, Qualcomm’s stock is now down 12% in the year to date, while Arm is down 5%.

Photo: SWSX/YouTube