Citi: Data-center ramp still cannot offset Apple modem exit; Qualcomm FY27/28 EPS forecasts cut 17%/12%

Why did the September-quarter results slightly beat consensus, yet the earnings forecasts still get cut?

Qualcomm’s September-quarter sales and EPS including SBC were respectively 3% and 2% above FactSet consensus. However, in the company’s December-quarter guidance, sales were 3% above consensus while EPS was 1% below consensus, leaving revenue resilience alongside earnings pressure.
Citi cut its FY27 and FY28 EPS forecasts including SBC by 17% and 12%, respectively. The main drag is the handset business: Citi expects FY27 handset revenue of about 17 billion dollars, below about 24 billion dollars in FY26. Apple modem revenue is expected to decline to 1.5 billion–1.6 billion dollars, while Android handset revenue excluding Apple is expected to be broadly flat.

Management expects data-center revenue to exceed 650 million dollars in the first quarter of FY27 and to grow sequentially thereafter, reaching an annualized revenue run rate of about 7 billion dollars by the end of FY27. This differs from the approximately 5 billion-dollar full-year revenue target for FY27, which the company reaffirmed as its annual target. The data-center revenue target for FY29 is more than 15 billion dollars.
Growth is currently driven primarily by custom AI inference accelerators for two hyperscalers, including Amazon. Data-center operations dilute gross margin but increase operating margin, so a rapid rise in revenue does not mean gross margin is improving at the same pace.
According to Citi’s estimates, FY27 non-handset revenue from automotive, IoT and data centers, among other areas, will total about 21 billion–22 billion dollars, up more than 60% year over year. Handset revenue is estimated at about 17 billion dollars, bringing projected total revenue to 44 billion–44.5 billion dollars.

At the end of FY26, automotive revenue was running at an annualized rate of about 8 billion dollars, around 1 billion dollars above prior expectations. Citi attributed this to increased content and broader adoption of the fifth-generation Digital Chassis platform. Management also said Qualcomm’s share at Samsung had risen from a historical level of about 50% to above 70%, supporting the handset business.
The commercial deployment plan for a ground-based 5G network for Starlink Mobile, developed in partnership with SpaceX, starts in 2027. Related revenue is expected to be added on top of QCT’s existing business starting in FY28. The project adds a source of medium-term growth, but its revenue contribution is expected later than the current data-center ramp.

Citi maintained its Neutral rating and 175-dollar price target, raising its valuation multiple from 20 times FY28 EPS to 22 times to reflect data-center growth and improved business visibility. Relative to the share price of 173.19 dollars cited in the report, the target implies an expected share-price return of about 1%.
The higher valuation does not eliminate the risk associated with the handset business’s weighting: Citi notes that handsets still account for about 70% of Qualcomm’s sales, while opportunities for growth in handset shipments and value per device are limited in 2026–2027. Data centers provide a new growth driver, but the exit of Apple modem revenue continues to weigh on earnings expectations for the next two years.