Qualcomm Says Supply, Not Demand, Will Cap Data Center Sales Beyond $5 Billion Target
The chipmaker reiterated its $5 billion fiscal 2027 data center target and said it should exit that year at a $7 billion run rate.
Qualcomm Chief Financial Officer Akash Palkhiwala said on the company's earnings call Wednesday that supply, not demand, will be the limit on data center sales above the $5 billion fiscal 2027 target. Qualcomm, which designs chips and software for phones, cars, connected devices and data center equipment, expects that business to exit the year at about a $7 billion run rate.
Supply is the constraint
Palkhiwala told analysts Qualcomm is "very well positioned from a supply perspective" to reach $5 billion, and expects "to be constrained by supply rather than demand for upsides beyond the $5 billion." Data center revenue is guided to more than $650 million in the first fiscal quarter, then should ramp through the year.
Most of the fiscal 2027 figure is custom silicon for the main AI accelerator at two hyperscaler customers, Palkhiwala said, with connectivity the next-largest piece. CEO Cristiano Amon said the majority of the $5 billion comes from those two customers, one of them Amazon. A third customer is on the accelerator, and new CPU prospects beyond Meta would be upside to the targets, he said.
A $15 billion target for fiscal 2029 adds CPUs and AI accelerators. Palkhiwala also cited the long-term agreement with Amazon Web Services, which carries a potential revenue opportunity of up to $60 billion over 10 years.
Margin math and a weak outlook
Palkhiwala said custom silicon is dilutive to gross margins but accretive to operating margins. Moving data center into the chip segment trims that segment's first-quarter margin guidance by three percentage points, he said, with its long-term 30% target unchanged.
First-quarter profit guidance of $2.15 to $2.35 a share fell short of what analysts wanted, Yahoo Finance reported. Shares fell more than 6% in extended trading, according to Seeking Alpha.
Leaning away from handsets
Management said the Apple license renewal and the loss of Apple as a chip customer are now behind it, while memory-driven weakness in handsets continues, with handset chip revenue down 26% from a year earlier, according to CNBC. On the call, Palkhiwala said handsets should be under half of total revenue in fiscal 2027.
Amon said Starlink network deployment begins in 2027, with revenue mostly in fiscal 2028, and that Amazon custom accelerators began shipping in October.
Qualcomm's own plan calls for data center revenue to reach $15 billion in fiscal 2029, up from the $5 billion it targets for fiscal 2027.
Sources
- Qualcomm (QCOM) earnings report Q4 2026 — CNBC
- Qualcomm: Fiscal Q4 Earnings Snapshot — Associated Press
- Qualcomm ticks up as Q4 results outweigh mixed guidance (QCOM:NASDAQ) — seekingalpha.com
- Qualcomm's Smartphone Chip Sales Miss Estimates, Shares Fall — Reuters
- Qualcomm tops Q4 estimates, but Q1 earnings outlook falls short — Yahoo Finance
