Qualcomm, the U.S. chipmaker best known for the processors inside many of the world's smartphones, is preparing for a future where phone sales no longer drive its growth. On a November 4th call with investors, management said it expects global handset units to remain "flat to down" in calendar 2027, and it guided for a mid-single-digit percentage decline in its phone chip revenue in the fiscal first quarter of 2027 compared with the prior quarter.
The message is clear: the smartphone boom that powered Qualcomm for years is maturing, and the company is shifting its focus to other markets, especially data centers.
A changing growth engine
Qualcomm's QCT division, which makes the company's chips, has long relied on handsets for the bulk of its revenue. But with phone sales plateauing, management is pointing to non-handset businesses as the next growth driver. The company said it expects QCT non-handset revenue to grow more than 60% year over year in fiscal 2027, with data center chips leading the charge.
Specifically, Qualcomm said it expects data center revenue to exceed $650 million in the December quarter, helped by custom accelerators that are starting to ship and connectivity products that are ramping up with Amazon Web Services (AWS), a major cloud computing provider. These are chips designed for the massive servers that power cloud computing and artificial intelligence workloads, a market that has become a battleground for chipmakers like Nvidia, AMD, and Intel.
This is a notable shift for Qualcomm, which has traditionally been a mobile-first company. The push into data centers is part of a broader strategy to diversify beyond phones, as the company also explores opportunities in cars, the Internet of Things (IoT), and other connected devices. Qualcomm's post-Apple future has been a key theme for investors, especially as its relationship with Apple, a major customer, has evolved.
Why the shift is happening
Smartphone sales have been sluggish for years, as consumers hold onto their devices longer and upgrade cycles lengthen. The market is also highly competitive, with rivals like MediaTek offering cheaper alternatives. Qualcomm's own phone chip business has been soft, though the company has been signing new AI-related deals. Its phone chip business remains soft, but AI deals are growing, which is part of the reason investors are watching the data center push closely.
The move into data centers is not without challenges. Phone chip sales follow predictable seasonal patterns tied to device launches, but custom silicon for data centers depends on customer milestones and can be lumpy from quarter to quarter. Qualcomm also noted that December likely won't be its high quarter because Apple-related revenue is ramping down, underscoring how the old cadence is changing.
This lumpiness is a key risk. If a major customer delays a ramp-up, revenue can slip, and estimates can swing quickly. But once a custom chip program is in production, it tends to be "sticky"—customers are unlikely to switch suppliers easily, which can provide a stable revenue base over time.
What it means for investors
For investors, Qualcomm's $650 million-plus December data center target is becoming the new checkpoint. When a company says phones may stay flat, investors look for what replaces that growth. Qualcomm is pointing to data center and other non-handset sales, but the market will judge the story by shipment milestones, not promises.
If the December quarter clears the $650 million mark and subsequent ramps land on time, analysts may gain confidence modeling a less handset-driven Qualcomm. If timelines slip, estimates can swing quickly, because custom chip programs are "sticky" once they're in production but can be lumpy while they scale.
The broader backdrop is also important. Data center demand is being driven by the AI boom, but there are concerns about the pace of buildout. State data center rules are splitting tech stocks as the AI buildout slows, and political factors could also play a role. A Democratic midterm sweep could set up roadblocks for AI data centers, and some analysts warn that midterms could delay data center builds, risking a significant portion of future capacity.
For everyday investors, the key takeaway is that Qualcomm is transforming its business model. The company is no longer just a smartphone chipmaker; it's becoming a broader semiconductor player. That could mean more volatility in the short term as the market adjusts to the new mix, but it also opens up new growth avenues. As always, it's important to watch how the company executes on its data center ambitions, because that will likely determine whether the stock can maintain its momentum.
