Qualcomm's new businesses arrive on time, but its margin repair is dated to late fiscal 2027

Qualcomm is trying to replace a shrinking phone-chip business with chips for cars and data centres, and the September 2026 quarter showed that replacement arriving roughly on the schedule the company set. Automotive revenue grew 89% from a year earlier, and the company reiterated its target of $5 billion in data-centre revenue for fiscal 2027. Profit has not kept pace. Total revenue fell 8%, while GAAP operating margin, the share of sales left after every operating cost, fell to 13.1% from 25.9% a year earlier.

The decline built up over the year rather than arriving at once. Operating margin was 27.5% in the first quarter of the fiscal year and fell in each of the three quarters after it.

Most of the lost margin comes from costs that kept rising while sales fell. Against the same quarter a year earlier, research and development spending rose while revenue fell, so it took almost 5 more points of every sales dollar. Gross margin, what is left after the cost of making the chips, fell 4.6 points; the company says chip input costs, from wafers to memory, have risen across the industry. A line the income statement labels Other, made up mainly of restructuring charges, also took a larger share, as did selling and administrative costs.

Leaving the charges out narrows the gap without closing it. On the company's adjusted measure, which excludes share-based pay, restructuring and acquisition costs, operating margin was 26.5% against 33.8% a year earlier, calculated from its reconciliation.

The repair the company has put a date on is pricing. It is raising prices across its products to pass on those input costs, and it expects the full benefit to reach gross margin in its chip business, known as QCT, in the second half of fiscal 2027. The finance chief, Akash Palkhiwala, said the first effect would show in the second fiscal quarter. In July the company had described the benefit as arriving gradually over the next couple of quarters; the timetable is now later and more precise.

The current quarter's guidance shows no improvement yet. The company guided QCT's pre-tax margin to 20% to 22%, which includes a 3-point drag from moving data centre into the unit and spending ahead of its revenue, against 24% last quarter. The long-run target for that margin is still 30%, which Mr Palkhiwala tied to revenue growth over the next two to three years.

The revenue side has been running ahead of plan. Automotive ended the fiscal year at an annualised rate of about $8 billion, above the figure the company gave a quarter earlier, and data-centre revenue now counts inside QCT. Management says that business will lower gross margin but add to operating margin. Its custom chips for data-centre customers began shipping only in October, after the fiscal year closed, so the filed results cannot yet test the claim.

That leaves a holder with two timetables. The one for new revenue has so far been kept. The one for margins runs to the second half of fiscal 2027, and the guidance for the current quarter, once the effect of adding data centre is set aside, holds the chip unit's margin level rather than improving it.