Bernstein: Can data center growth fill the gap as the smartphone market weakens?

Why is the earnings preview focused on the next quarter?

Bernstein expects Qualcomm to report fiscal fourth-quarter revenue of 10.1 billion dollars and adjusted earnings per share of 2.15 dollars for the quarter ending in September 2026, in line with the midpoint of company guidance and broadly consistent with Visible Alpha consensus estimates of 10.1 billion dollars and 2.17 dollars.
For the next fiscal quarter, ending in December 2026, the firm cut its revenue and earnings-per-share forecasts from 10.6 billion dollars and 2.34 dollars to 10.2 billion dollars and 2.21 dollars, below consensus estimates of 10.6 billion dollars and 2.32 dollars. The gap is concentrated in the chip business: the firm expects QCT revenue of about 8.7 billion dollars, versus consensus of about 9.1 billion dollars.

In the third calendar quarter of 2026, global smartphone shipments fell 22% year over year and by a high single-digit percentage sequentially; shipments usually rise sequentially in that period, with double-digit gains in some years. Excluding Apple, shipments fell 26% year over year and 11% sequentially.
In the 12 months through the third quarter of fiscal 2026, handsets accounted for 68% of Qualcomm’s QCT chip sales. As a result, the weakening handset market will still significantly affect the company’s overall performance, despite growth in its automotive and Internet of Things businesses.
Bernstein believes current changes in the memory market are adding to pressure on the smartphone market, and Qualcomm’s handset business guidance for the quarter is above market trends. However, the firm also believes Qualcomm may previously have oversupplied the market to a lesser extent than PC processor makers.

Bernstein expects Qualcomm’s revenue from Apple to fall by about 6 billion dollars year over year in fiscal 2027; meanwhile, the firm lowered its Android revenue assumption from roughly flat to a high single-digit decline. The company had previously said Android revenue would be roughly flat.
Visible Alpha consensus expects handset revenue to fall by about 5 billion dollars year over year in fiscal 2027. Bernstein believes the decline in Apple-related revenue alone will exceed that figure, and the Android business may also decline, so it considers the consensus estimate too high.
The firm lowered its fiscal 2027 adjusted earnings-per-share forecast from 9.57 dollars to 8.77 dollars, below the consensus estimate of 10.02 dollars.

Bernstein maintained its assumption of approximately 5 billion dollars in data center revenue growth in its fiscal 2027 model, offsetting part of the decline in Apple-related revenue; growth in the automotive and Internet of Things businesses is also advancing diversification.
The firm believes data center growth could lift earnings in fiscal 2028 through fiscal 2029, but near-term earnings expectations still need to be adjusted before then.
Bernstein cut its price target from 165 dollars to 155 dollars and maintained its market-perform rating; its primary analysis applies an unchanged price-to-earnings multiple of 15 to its average earnings-per-share forecasts for fiscal 2028 and fiscal 2029.