Bernstein comments on Qualcomm (QCOM.US) Q4 earnings report: Revenue exceeds expectations, profit margin pressure is too optimistic, and the outlook for the mobile phone business is too optimistic

The Zhitong Finance App learned that Bernstein released a research report saying that although Qualcomm (QCOM.US) revenue for the fourth quarter of fiscal year 2026 (FQ426) exceeded expectations, earnings per share (EPS) were only basically in line with expectations due to pressure on profit margins; guidelines for the new fiscal season were also mixed, and the inclusion of data center business further dragged down profit margins. Based on uncertainty about profit margins, Bernstein maintained Qualcomm's “same as the market” rating, with a target price of $155.

Financial Report Interpretation: Revenue Exceeding Expectations Is Hard to Hide Pressure on Profit Margins

Bernstein pointed out that the overall performance of Qualcomm FQ426 was “fair”, with revenue of 10.44 billion US dollars exceeding market expectations of 10.10 billion US dollars. However, from a structural point of view, the characteristic of increasing revenue and not increasing profit is obvious: the automobile and IoT business performed well, offsetting the drag of the year-on-year decline in the mobile phone business; however, the overall profit margin was low, resulting in EPS ($2.17) being basically the same as the market expected $2.16.

This margin pressure is further highlighted in the new fiscal quarter (FQ127) guidance. Although the company reported revenue of $10.8 billion (higher than expected), EPS guidance was only $2.25, which was lower than market expectations of $2.31. Bernstein emphasized that the QCT (chip business) profit margin guide was only 20%-22%, far below the forecast of 24.9%. Management said it included a 3 percentage point drag from the data center business; however, even after excluding this impact, the profit margin was still about 1 percentage point lower than expected, indicating that the company continues to face cost pressure.

Diverse stories have been realized, but the outlook for the mobile phone market is too optimistic

The research report points out that Qualcomm's diversification logic is emerging. The company expects sales of the non-mobile phone business (automobiles+IoT+ data centers) to increase by more than 60% year-on-year in fiscal year 2027, of which the total growth rate of automobiles and IoT may exceed 30%; at the same time, the mobile phone business will account for less than 50% of total chip sales (about 64% in FY2026).

However, Bernstein had reservations about the initial profit contribution of the data center business and used the term “empty heat” (empty heat) to describe its characteristics of “increasing revenue without increasing profit.” That is, although the business has begun to contribute revenue, the profit margin is low, which will make investors feel uncomfortable in the short term. Furthermore, Bernstein believes that management is too optimistic about the “roughly flat” outlook for the mobile phone market for the 2027 calendar year (CY27), and bluntly stated that he was surprised that management did not take this opportunity to lower expectations, which increased the downside risk of the mobile phone business outlook.