Late night, sharp decline! Chip giant, bad news strikes unexpectedly!

The U.S. stock earnings season is full of surprises.

Affected by weaker-than-expected guidance, Qualcomm, a major U.S. chip giant, saw its stock price plummet sharply, dropping over 12% in pre-market trading on Thursday. During the earnings call, Qualcomm executives warned that due to severe shortages and rising prices of storage chips, mobile phone manufacturers are being forced to cut back on orders. The company’s mobile chip revenue guidance for Q2 2026 has been lowered to $6 billion.

Meanwhile, UK chip design giant Arm’s stock also fell significantly, dropping over 8% in pre-market trading. Analysts pointed out that, as a key revenue source for Arm, the smartphone market is facing dual pressures from storage chip shortages and slowing growth.

Qualcomm Plummets

On February 5, Beijing time, Qualcomm’s stock price sharply declined in pre-market trading, falling over 12% at one point. As of the time of writing, the decline remains at 11.18%.

The news comes after Qualcomm’s latest financial report showed that global storage supply shortages have dragged down the company’s performance guidance, which fell short of market expectations.

Specifically, Qualcomm’s fiscal first quarter of 2026 reported revenue of $12.25 billion, up 5% year-over-year, slightly exceeding the market expectation of $12.21 billion; adjusted net profit was $3.781 billion, down 1%; adjusted earnings per share (EPS) were $3.50, up 3%, beating the expected $3.41.

By business segment, Qualcomm’s mobile business contributed $7.82 billion in revenue, up 3%; IoT business contributed $1.69 billion, up 9%; automotive business contributed $1.1 billion, a 15% increase.

For guidance, Qualcomm expects revenue for the second quarter of fiscal 2026 to be between $10.2 billion and $11 billion; adjusted EPS between $2.45 and $2.65. In comparison, analysts’ consensus forecast for Q2 revenue is $11.11 billion, with EPS of $2.89.

Regarding the reasons for the weaker-than-expected guidance, Qualcomm executives explained that global storage chip supply is tight and prices are rising. AI data centers are increasing storage demand, squeezing supply and raising costs for mobile OEMs. Some customers are reducing inventory buildup and channel stock, which short-term impacts chip orders.

During the earnings call, Qualcomm CEO Cristiano Amon candidly stated that although end-user demand remains strong, the mobile industry is facing a serious memory shortage.

Qualcomm executives also revealed that multiple manufacturers are taking action to reduce production plans and clear channel inventories.

This means that the resulting decrease in chip orders will directly impact Qualcomm’s performance in the next quarter. Management warned that this industry-scale adjustment caused by memory shortages and price hikes could persist throughout the remainder of the fiscal year.

Amon stated, “Although our mobile chip outlook in the short term is affected by the industry’s storage chip supply constraints, we remain optimistic about demand for high-end smartphones.”

Warning Signs

Qualcomm is one of the world’s largest suppliers of smartphone chips, serving major Android phone manufacturers and Apple, the iPhone maker. Therefore, its financial reports are seen as a key indicator of supply and demand dynamics in the personal electronics semiconductor industry.

Similarly, UK chip design giant Arm’s stock also fell sharply, dropping over 8% in pre-market trading.

Arm’s latest financial report shows that for the third quarter ending December 31, 2025, revenue increased 26% year-over-year to $1.24 billion, slightly above analyst expectations of $1.23 billion. The company’s fourth-quarter revenue guidance was a median of $1.47 billion, also higher than the market average forecast of $1.44 billion.

However, the “licensing revenue,” a key indicator of future adoption rates, unexpectedly underperformed in the third quarter, triggering a sell-off.

Regarding the issue of storage chip shortages and rising prices potentially constraining the mobile supply chain, Arm management said that supply chain constraints are more likely to first impact low-end models, which have lower royalty rates, making the impact more controllable.

But Qualcomm warned that as memory suppliers redirect manufacturing capacity toward HBM to meet AI data center demands, the resulting storage chip shortages and price increases could define the overall scale of the mobile industry for the entire fiscal year.

Counterpoint Research predicts that rising DRAM prices will continue to push up the bill of materials (BoM) costs for phones, with low-, mid-, and high-end models increasing by approximately 25%, 15%, and 10%, respectively, and possibly rising another 10-15% into Q2 2026.

In this context, mid- and low-end phone manufacturers will inevitably face more aggressive cost management options, including raising prices, reducing memory configurations, or compressing profit margins.

UBS’s analysis indicates that to fully offset the impact of rising memory prices, the average selling price (ASP) of mid- and low-end phones needs to increase by 17%, while flagship and high-end phones need to increase by 7%.

Wang Yang noted that at lower price points, there is limited room to raise prices. If costs cannot be fully passed on, OEMs may adjust their product strategies. Some low-SKU shipments have already shown signs of reduction.

Memory chip manufacturers are attempting to increase capacity, but expansion cycles are lengthy. Building new factories and completing equipment installation and debugging typically take over a year.

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