Qualcomm Shares Tumble as AI Data Center Demand Squeezes Consumer Chip Supply
Qualcomm’s stock experienced a significant downturn, dropping 8%, following the semiconductor giant’s issuance of disappointing financial guidance. The company cited an overwhelming demand for artificial intelligence data centers as the primary driver, a trend that is currently constraining the supply of essential memory chips for consumer electronics.
During an earnings call, Qualcomm CEO Cristiano Amon directly attributed the current weakness to memory supply constraints. He elaborated that the availability of dynamic random access memory (DRAM), a crucial component in devices ranging from smartphones to wearables, has diminished year-over-year. While Amon affirmed that demand for handsets remains robust, the diversion of manufacturing capacity towards high-bandwidth memory (HBM) for data centers has created a bottleneck.
“The challenge is that all memory vendors have allocated their production capacity to data centers,” Amon explained, indicating that this shift will inevitably lead to reduced availability and increased costs for memory components destined for the consumer electronics market.
Despite topping its first-quarter estimates, Qualcomm projected adjusted earnings per share for the current quarter to fall between $2.45 and $2.65, with revenue anticipated to be in the range of $10.2 billion to $11 billion. This forecast fell short of the $11.11 billion in sales and $2.89 per share earnings that analysts had predicted.
Amon expressed uncertainty regarding whether smartphone manufacturers would pass on increased costs to consumers. However, he anticipates that the supply shortage will continue to impact production volumes. He also noted that Qualcomm’s clientele, particularly those focused on premium devices, are better positioned to absorb potential price hikes for memory.
The ripple effects of this memory crunch are becoming increasingly evident across the technology sector. Arm Holdings, for instance, also saw its shares decline post-earnings, with concerns over smartphone memory chip availability weighing on investor sentiment. Similarly, Apple recently signaled difficulties in securing sufficient chip supply to meet strong iPhone demand.
This supply-demand imbalance, however, is proving beneficial for memory chip manufacturers such as Micron Technology and Samsung Electronics, driving up prices for their products.
Looking ahead, Amon conveyed strong confidence in Qualcomm’s prospects within the AI and data center sectors, projecting the company to begin generating revenue from these areas by fiscal year 2027. This strategic pivot underscores Qualcomm’s commitment to capitalizing on the burgeoning AI revolution, even as it navigates short-term supply chain challenges in its traditional markets. The company’s ability to balance its consumer-facing business with its high-growth data center ambitions will be a key determinant of its future success.
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