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. chipmaker, saw its stock price plummet significantly. During pre-market trading on Thursday, it once dropped over 12%. At the earnings conference, Qualcomm executives warned that due to severe shortages and rising prices of storage chips, mobile phone manufacturers are being forced to cut 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 sharply, 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 Plunges

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

News-wise, Qualcomm’s latest financial report shows that, affected by a global storage supply shortage, the company’s guidance 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 forecast of $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 in 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 guidance shortfall, Qualcomm executives explained that tight global storage chip supply and rising prices are key factors. AI data centers are increasing storage demand, squeezing supply and margins for mobile OEMs. Some customers are reducing inventory buildup and channel stock, which short-term impacts chip orders.

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

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

This means that the resulting decrease in chip orders will directly impact Qualcomm’s next quarter performance. Management warned that this industry-scale adjustment, driven 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 analysts’ expectations of $1.23 billion. The company’s fourth-quarter revenue guidance was a midpoint of $1.47 billion, also higher than the market average forecast of $1.44 billion.

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

Regarding the issue of “storage chip shortages/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 levels, making the impact manageable.

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

Counterpoint Research predicts that rising DRAM prices will continue to push up mobile BOM (bill of materials) costs, increasing costs by approximately 25%, 15%, and 10% for low-, mid-, and high-end models respectively, with a further 10-15% increase possible 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 a 7% increase.

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.

Currently, storage 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.