Qualcomm and Arm Drop Together: The Bill for Rising Memory Prices Finally Arrives for Mobile Chip Companies

On July 29, after the close of the U.S. stock market, Qualcomm and Arm released their earnings reports one after the other.

First, let's talk about Qualcomm. Its revenue reached $9.947 billion, exceeding the consensus estimate of $9.67 billion. However, the non-GAAP earnings per share were $2.21, below the expected $2.23. More critically, the guidance for the next fiscal quarter is revenue between $9.7 billion and $10.5 billion, with earnings per share between $2.05 and $2.25. According to Reuters' statistics, the market consensus expectation is $2.36 per share, meaning Qualcomm's upper guidance is still below expectations. This is not an "outperformance"; it is revenue exceeding expectations, profits slightly missing, and guidance significantly falling short.

Now, let's discuss Arm. Its shareholder letter is clean, with revenue of $1.289 billion and adjusted earnings per share of $0.45, both exceeding expectations, and the guidance for the next quarter also surpassing forecasts. However, its stock price initially dropped by 8.11% that day, occurring during normal trading hours before the earnings report was released. After the report came out, the stock price hardly moved, but once the conference call concluded, it fell another 7% to 8%. A Bloomberg news article even retained the phrase "outperformance did not impress investors" in its URL, while the displayed headline was changed to "Mobile Slowdown Outweighs Data Center Growth, Arm Drops."

What happened in between? Both companies used the same word in their earnings reports: memory.

### Mobile Shrinkage, Automotive Lifeline

Qualcomm's official earnings presentation includes a slide dedicated to its Android mobile business. It states that due to rising memory prices and supply constraints, it expects QCT's Android mobile revenue to decline by approximately 20% year-on-year in fiscal year 2026, with a drag on annual earnings per share exceeding $1.50. It also announced a price increase for its products starting September 1 to pass on the rising input costs.

This slide is the most direct evidence in both earnings reports. The rise in storage prices resulted in an operating profit of 89.49 trillion won for Samsung, while Qualcomm faces a bill specifically amounting to $1.50 per share.

The gross margin also reflects this. Qualcomm's GAAP gross margin for this quarter is 53.1%, down from 55.6% in the same period last year. According to the transcript of the conference call, management described the QCT gross margin as "slightly below our historical range," citing rising memory and input costs as the reasons.


This quarter, mobile business revenue was $5.086 billion, a 20% year-on-year decline. Automotive business revenue was $1.588 billion, a 61% increase, marking 23 consecutive quarters of double-digit growth. The gap between these two bars in the chart is rapidly narrowing, with automotive quarterly revenue approaching one-third of mobile revenue for the first time.

There is also a more long-term issue on the mobile side. The official presentation states that due to supply constraints, the decline in revenue from Apple products will accelerate starting in the fourth fiscal quarter, "Our modem share on the upcoming iPhone is expected to be significantly lower than the previous estimate of 20%." According to the conference call transcript, CFO Akash Palkhiwala stated that Apple revenue is expected to decline by about 50% from the September quarter to the December quarter.

CEO Cristiano Amon made a remark worth remembering during the call; according to Reuters, he said, "We have effectively replaced Apple with data centers." The official statement is more cautious, with the presentation indicating that the year-on-year incremental revenue from non-mobile sources in fiscal year 2027 will replace all Apple product revenue in fiscal year 2026.

The data center line currently resembles a timeline. The revenue path provided is approximately $300 million in fiscal year 2026, $5 billion in fiscal year 2027, and over $15 billion in fiscal year 2029. Within the $5 billion for fiscal year 2027, two hyperscale customers' custom chips are expected to contribute over $1 billion each. One of these has already been publicly disclosed; Meta has signed a strategic agreement with Qualcomm for multiple generations of CPU roadmaps, with the first Dragonfly C1000 not expected to go into production until the second half of 2028.

Seaport Global analyst Jay Goldberg's assessment to Reuters was less than kind, stating that Qualcomm "is witnessing a shift in Android share away from itself and has lost almost all remaining share from Apple."

### Arm's Conference Call, Problems Arise

Arm's shareholder letter contains a set of impressive numbers. Data center royalties have more than doubled year-on-year for the second consecutive quarter. Cumulative shipments of the Neoverse architecture have surpassed 1.5 billion cores, with the most recent 500 million cores shipped in just 9 months, while the first billion cores took 6 years. The shareholder letter also cites IDC data, indicating that spending on Arm architecture for server platforms has nearly doubled in the past two quarters, surpassing x86 platforms.


The dark line in the chart indicates another matter. This quarter's royalty revenue was $715 million, a 22% year-on-year increase, but it did not exceed the $737 million from the third quarter of fiscal year 2026, which was the peak for Arm royalties in a single quarter. The licensing fees have fluctuated significantly, with year-on-year growth ranging from -15% to +72%, and the market has always focused on the smoothly rising line of royalties, which did not reach a new high this quarter.

What truly caused the stock price to turn downward was a downgrade during the conference call. According to the call's records, Arm lowered its full-year royalty growth guidance from about 20% to the high teens, citing weak smartphone market conditions and high memory prices, and expects the smartphone market to experience a double-digit decline. In the guidance for the next quarter, licensing fees are expected to grow by about 30%, while royalties are only expected to grow in the low teens.

### Why Did Outperformance Not Lead to Gains?

As of the close on July 29, Arm's forward P/E ratio was 103.66, while Qualcomm's was 15.22, a difference of 6.8 times. More notably, Arm's forward P/E ratio is 5.4 times higher than Nvidia's 19.07, while Nvidia's rolling 12-month revenue of $253.49 billion is 49 times that of Arm.


TechTimes explained this mechanism clearly in an analysis following the earnings report, stating that at forward P/E ratios between 100 and 120, "a clean outperformance can no longer push the stock price up." This statement explains a phenomenon not limited to Arm. When valuations have already discounted growth for several years into the future, the function of earnings reports shifts from providing surprises to confirming assumptions, and any lack of confirmation is magnified.

There is also a variable that most reports did not mention. It has been reported that the U.S. Federal Trade Commission has launched a formal antitrust investigation into Arm since May 2026, examining whether it will weaken or refuse to provide CPU architecture licenses to competitors after launching its self-developed AGI CPU, with parallel investigations by South Korea and the European Commission. If regulators ultimately require non-discriminatory pricing, the profit margin assumptions in Arm's long-term model of $25 billion in revenue for fiscal year 2031 will need to be recalculated.

Arm's self-developed chip line did make progress this quarter. The shareholder letter states that demand for AGI CPUs has exceeded $2 billion, spanning fiscal years 2027 and 2028, doubling the $1 billion opportunity disclosed in the previous quarter, with new customers including several from the U.S. and China. Jefferies' estimates to Reuters are more optimistic than the company's own, predicting that this business could reach $18 billion by fiscal year 2031, higher than Arm's own estimate of $15 billion.

### Not Just a Matter for Two Companies

According to statistics, the Philadelphia Semiconductor Index fell by 18.2% in July, after doubling in the first half of the year. In July, 19 tech stocks fell over 25%, most of which were semiconductors, with 7 still showing triple-digit gains for the year.

The arrangement of the points in the chart below is clear; those that fell the most in July are basically those that rose the most this year. SanDisk fell 40.4% in July but is still up 471% for the year. Micron fell 26.5% in July but is up 197% for the year. Arm fell 36.6% in July but is up 105.7% for the year.


Qualcomm is the exception. It fell 15.75% in July and is down 8.99% year-to-date. It is not in the group being squeezed for valuation because it has no AI premium to squeeze. The consensus rating from thirty-six analysts is hold, with an average target price of $220.57, about 40% higher than the current price. Forty analysts have a consensus rating of buy for Arm.

The other two earnings reports released on the same day can be viewed together. Microsoft reported revenue of $90 billion, with Azure growth at 43%, and its stock rose about 8% in after-hours trading. Meta reported revenue of $60.8 billion, with growth at 28%, but net profit declined, causing its stock to drop 8% to 10% in after-hours trading. Samsung achieved a record operating profit, but its stock price remained largely unchanged that day.

Rising storage prices allowed Samsung to earn Nvidia's record in a single quarter, while the other half of that bill was written by Qualcomm and Arm in their respective earnings reports.