Akos, it is good to see you. So, let's dig into this. You beat on revenue and earnings for the quarter. Akos, your guidance misses consensus, and it sounds like the issue here is memory tightness impacting handset builds. Just walk me through what you're seeing, Akos, and how long do you think those memory constraints persist? Akos, is it a quarter, two, longer?
Of course. Well, great to see you first of all. Thanks for having me. We had incredible results for the first quarter. We had record revenues, record earnings per share, and then within our chipset business we had record for handset revenues and record for automotive revenues. So very happy with the quarter that we reported. When you think about the following quarter, which is the guidance quarter, we gave very strong guidance in automotive and IoT. Automotive growing greater than 35% on a year-over-year basis and IoT growing in low teens. The challenge that we outlined is really for the handset business where the demand continues to be strong. We saw consumers continuing to buy handsets as we had expected. Our design win pipeline within chips is very strong as well and the economic backdrop is reasonable as well. So when you put those three together, the demand profile in handsets has not changed. What has really changed is our customers' access to memory and pricing. Given the success of data centers and several of the memory vendors redirecting some of their supply to the data center needs, the handset customers are constrained and what you're seeing being reflected in our outlook is really the adjustment process that the customers are going through and we see it as a short-term phenomena that'll get settled over some period of time. There are a lot of uncertainties at this point. So difficult to pinpoint the timeline, but it is a short-term phenomena that'll get settled. I think the demand is very important for us. It's stable and as we look forward, we're confident that we'll be able to tide this and continue on the trajectory our handset business was on before this started.
Akos, it's Dan here. Good to see you. I want to just ask about where the landscape is as far as the different types of handsets that are being impacted, right? Because you guys aren't the only ones that are being impacted by memory. Obviously, we had Apple discuss that, we had different PC makers dealing with this as well. It's not just smartphones, laptops, it's anything that uses this kind of memory. Where are you seeing this though as far as the price point? Is it the lower end handsets? Is it the higher end? Where does that sit? And then I want to ask about the data center business that you guys have that's in early innings still. Does it play into that at all or is that just on a separate note?
Yeah. So these are great questions, Dan. When you think about the handset market, if you're a handset OEM, a lot of your margin and profit is made in the high tiers. That is where Qualcomm is very strong. And so as the OEMs kind of work through the constraints, we very much expect them to be able to fulfill the needs they have over the premium and high tiers and that should help us a lot because that's again as I said before, that's where Qualcomm is very strong. You might see a little bit of volume being sacrificed at the mid-low tiers where there might not be enough supply and so there's a little bit of impact on us but I think the key focus for us is focusing on the high tier where Qualcomm is very strong. Data center is an area that we are extremely excited about. We are, as you know, we're not a material player in that business today. But as the data center is changing, inference is becoming more important, power efficiency is becoming more important. We are able to bring the technologies that we have created on the edge and create something unique for us. So we've come up with these new chips, we call it AI 200 and AI 250 that come this year and next year. And what they will be able to do is deliver inference performance that's best-in-class at very, very low power. And then we're also addressing with AI250 memory bandwidth which is one of the constraints that data center operators have. And so as we come in with these unique chips that give an advantage to our customers, we're very optimistic about the traction that we'll get around it and we're looking forward to our investor day in a few months where we'll provide a lot more details about the product and the traction and the customer interest.
Akos, let's talk margins here for a second because chip gross margins, analysts were saying this morning, Akos, they seem fine they said. So just walk me through the puts and takes there. Is that mix improvement, Akos? Is it cost advantages? What's going on and what do you see ahead? What does the trajectory of those margins look like, Akos?
Yeah, Josh, our gross margins have been very strong and the reason for that is technology leadership. I mean, we've done very well, we have very unique industry-leading products, our customers recognize that and that's reflected in our gross margin profile. As we go forward, I think that's going to continue. Our leadership is going to stay intact. We are introducing new chips that really offer these unique capabilities not just in processing but in AI. We see that as we look at 2027, you're going to see new experiences come into phones, especially with agentic AI at the center of it, and our road map gets stronger and I think that's going to continue to get reflected in our gross margins.
As far as the automotive business goes, you guys have been a player in this for quite some time and it seems to be on the up and up for the past few quarters. Where do you see that going at this point? How do you expect that to continue to evolve? And I got to ask again, is memory an issue at all in that aspect?
Yeah, I think we've been very excited about our automotive business. I think we've taken the technology portfolio that we have in handsets and really added significant capability to it to make it optimized and suitable for where the cars are going. Right? That is an industry that's in transition. It requires a lot more and different kind of technologies than it did a few years ago. And Qualcomm is hitting that inflection point and bringing the right set of technologies into cars. So very excited. I think we talked about Volkswagen signing up with Qualcomm at scale. Several Japanese OEMs, Korean OEMs, US OEMs, Chinese, Europeans, they're all using our technology. And so the scale that we bring to bear is incredible. And we're now becoming the leader in ADAS as well going forward. Autonomous driving. The other thing I'll say about automotive is that we are able to leverage this technology into robotics as well. Robotics obviously is an incredible new area that's coming up with humanoids and manufacturing robots and warehousing robots. All kinds of changes happening in the industry and this is going to be a massive market and Qualcomm is now at the center of that transformation with our new product Dragon Wing IQ10 which brings the strengths from a connectivity, processing, and AI perspective all together and really optimized product for robotics and humanoids going forward. So very excited about working with the industry leaders on it and as you look forward for Qualcomm, I think the opportunities are really limitless.
Yeah, I got to mess around with some of the robots at CES last month, which feels like it was, you know, 10 years ago considering how wild this past week has been. But I just want to ask lastly on IoT. You guys have a strong business there. I got to see one of those cool interactive bird feeders at CES as well. Unfortunately, I can't put that into my apartment, but where do you guys see that business kind of taking shape and where is the biggest growth opportunity there for you guys?
Yeah, I'll highlight personal AI devices as something that's really a transformation of the consumer experience. I think we've had wearable devices for a while, whether you're putting it on your wrist or in your ears. But those devices are being transformed and glasses are being added to those device lists. And think of a device that can see everything you can see, a device that can hear everything you can hear, and a device that has an AI agent and you can have a conversation with it. And it becomes the most personal device to you. It becomes a device that understands everything about you, can anticipate your needs and help you. And that's a transformation that's coming globally. We're working with the leaders in US. We're working with leaders in China, in India, and other geographies. And that's going to be a massive transformation. A new device coming into the consumer ecosystem and Qualcomm's at the center of that transformation. So very excited about that part of the IoT business.
All right, thank you Akos and Dan. Appreciate it.
Thanks very much guys. Appreciate it.
Got to talk about another stock though right now and that is Qualcomm because those shares are also under heavy selling pressure after its revenue outlook fell below the street's expectations. Angelo Zino is joining us now, equity analyst at CFRA Research. You got a buy rating still on this stock, Angelo. But there was a lot of disappointment here particularly in the company's bread-and-butter smartphone business which is under pressure because of the inability to get memory chips into these phones. So, you know, this really seems to be a big challenge for the industry overall. How bad is it, do you think, and how long is it going to last?
Yeah, Julie. So, you know, thanks for having me. It's pretty bad right now, right? I mean you kind of look at how constrained we are. I mean you kind of laid it out nicely but you think about where all that memory demand is going right now and look no further than Alphabet results last night and the boost in capex plans, right? That's really the issue at hand right now. It's the fact that you're getting all this memory capacity really kind of devoted to the data center AI infrastructure build. Now, as a result, if you're on the PC or smartphone side of things, you're getting hit really hard. When you look at what's happening with Qualcomm here on a sequential basis, you're looking at handsets dropping north of 20%, let's call it about nearly 13 to 15% on a year-over-year basis in terms of decline. The good thing is we've now seen this reset on the expectations and you kind of look ahead. It's likely going to remain pretty weak here. We'd say over the next six to eight quarters at least as far as the memory bottlenecks are concerned before you really get any notable help. And again that's going to hurt especially given that they do have a lot of business at the low end of the channel where a lot of those pressures are being felt. On top of that, they are losing ongoing Apple business which continues to wind down. So, they're hitting it all over the place in their core business. The good thing is they are diversifying and that really is the core story here. If you are a bull, you're getting a very value cheap play here with a long-term trajectory in terms of new emerging markets.
