Qualcomm Q1 FY2026 Quarterly Report Analysis: Margins Looking Bad

1. Executive Summary

Qualcomm’s Q1 FY2026 results were steady overall. Revenue grew, but this was offset by margin pressure and lower earnings.

Total revenue rose 5% from last year to $12.3 billion. Most of this growth came from the QCT segment, thanks to higher sales in handsets, automotive, and IoT.

The QTL licensing business remained strong, posting steady mid-single-digit growth and contributing to overall profits.

Even though revenue increased, profits were lower. Gross margin dropped to 55% because of lower QCT margins and higher costs. Net income fell 6% from last year to $3.0 billion.

Higher R&D spending shows management’s emphasis on long-term growth and technology leadership, but it reduces short-term earnings.

Strong cash flow remained a key strength, with almost $5.0 billion from operations. This allowed the company to return more money to shareholders.

This quarter, the company bought back $2.65 billion in shares and paid $0.95 billion in dividends. It also made tactical investments, including the acquisition of Alphawave.

Overall, this quarter shows Qualcomm is in a transition. The company has steady revenue and cash flow, disciplined returns to shareholders, and ongoing investment for future growth, but faces short-term margin and earnings pressure.

2. Key Financial Highlights

Metric	Q1 FY2026	YoY Change	Investor Relevance
Revenue	$12.25B	+5%	Reflects modest top-line growth despite mixed end-market demand
QCT Revenue	$10.61B	+5%	Growth driven by handsets, automotive, and IoT
QTL Revenue	$1.59B	+4%	Stable licensing income with incremental volume growth
Gross Margin	55%	-100 bps	Margin pressure primarily from QCT mix and cost dynamics
Net Income	$3.0B	-6%	Earnings declined despite revenue growth due to margin compression and higher costs
Operating Cash Flow	$4.97B	+8%	Strong cash generation supports capital returns and investment
Cash & Marketable Securities	$11.8B	-5% QoQ	Decline driven by acquisitions and shareholder returns
Share Repurchases	$2.65B	–	Aggressive capital return during the quarter
Dividends Paid	$0.95B	–	Reinforces commitment to shareholder returns
Capital Expenditures	$0.55B	–	Continued investment in long-term growth initiatives

Qualcomm saw steady, though not faster, revenue growth in Q1 FY2026. Strong performance in its QCT segment, especially in automotive and IoT, helped balance out slower handset sales.

The QTL segment continues to be a reliable, high-margin part of the business, growing at the same pace as device volumes.

Profitability decreased, as gross margin fell by 100 basis points from last year. This was mainly because of lower QCT margins and higher operating costs.

As a result, net income dropped even as revenue grew, indicating that short-term operating leverage is under pressure.

Cash generation is still a strong point. Operating cash flow improved from last year and easily covered major returns to shareholders, such as $2.65 billion in share buybacks and almost $1.0 billion in dividends.

The drop in cash balances is due to planned spending, such as the Alphawave acquisition, not to business weakness.

Overall, this quarter shows Qualcomm is in a transition period. The company has steady revenue and cash flow, but margins are returning to normal, and investments are higher.

This positions Qualcomm to diversify beyond mobile, even if it means short-term earnings pressure.

3. Income Statement Analysis

Consolidated Statement of Income

($ in millions, except margins)	Q1 FY2026	Q1 FY2025	YoY Change
Revenue	12,252	11,669	+5%
Cost of Revenues	(5,568)	(5,161)	+8%
Gross Profit	6,684	6,508	+3%
Gross Margin	55%	56%	-100 bps
Research & Development	(2,453)	(2,230)	+10%
Selling, General & Admin	(1,165)*	(963)*	+21%
Operating Income	~3,066	~3,315	-7%
Net Income	3,000	3,190	-6%

(*SG&A approximated from unallocated SG&A and segment disclosures.)

Revenue Quality and Growth Drivers

Our review shows that revenue growth is strong and well diversified, with a 5% year-over-year increase driven mainly by the QCT segment.

Handsets, automotive, and IoT all contributed to growth, showing that the company is making progress in moving beyond its traditional mobile business.

QTL licensing revenues also grew by 4%, which illustrates the strength and stability of Qualcomm’s royalty-based business model.

Both operating segments contributed evenly, which suggests that revenue is stable. However, overall growth remains in the mid-single digits and has not picked up.

Cost Structure and Operating Leverage

Rising costs were the main reason earnings fell this quarter.

The cost of revenues increased faster than sales, resulting in a 100-basis-point drop in gross margin. This was mostly due to the QCT product mix and higher costs.

Operating expenses rose by double digits, mainly due to higher R&D spending on long-term growth projects and increased share-based compensation.

As a result, operating income decreased even as revenue increased, indicating negative short-term operating leverage.

We think this shows the company is making planned investments, not facing ongoing inefficiency.

However, until revenue growth re-accelerates or cost growth moderates, operating leverage is likely to remain constrained, keeping near-term earnings growth below revenue growth.

Net Income Interpretation

Net income fell 6% from last year to $3.0 billion, even though revenue grew by 5%. This shows that higher sales did not lead to stronger profits this quarter.

Our study shows that lower earnings were mainly due to shrinking gross margins and higher operating costs, not to weaker demand or lower-quality revenue.

Gross margin dropped by 100 basis points, mostly because of pressure on QCT margins and changes in product mix. This made new revenue less profitable.

Meanwhile, spending on R&D and SG&A rose faster than sales. This indicates continuing investment in future growth and higher pay-related costs.

Together, these factors canceled out the gains from higher revenue and steady licensing income.

We think the drop in net income shows that Qualcomm is in a phase of heavy investment.

Management is focusing on long-term expansion and diversification, even if that means lower short-term profits.

Importantly, strong operating cash flow continues to support earnings. This suggests that the pressure on profits is temporary and part of a strategy, not a lasting problem.

3.1 Margin Analysis

Margin Metric	Q1 FY2026	Q1 FY2025	YoY Change	Key Driver
Gross Margin	55%	56%	-100 bps	QCT mix and higher cost of revenues
R&D as % of Revenue	20%	19%	+100 bps	Increased investment in growth/diversification
Operating Margin	~25%	~28%	~-300 bps	Margin compression + opex growth
Net Margin	~24%	~27%	~-300 bps	Lower operating leverage

Our study shows that Qualcomm’s margins shrank across the board in Q1 FY2026, even as revenue rose.

The 100 bps decline in gross margin reflects pressure within the QCT segment, driven by product mix and cost dynamics, partially offset by the inherently higher-margin QTL licensing business.

Operating margins declined more than gross margins, indicating that operating expenses increased faster.

R&D spending rose to 20% of revenue. This shows management is focused on enduring growth and diversification, but it also puts pressure on short-term profits.

Higher SG&A costs also limited operating leverage, causing operating margins to shrink by about 300 basis points.

Net margin also dropped, reaching about 24%. This shows that extra revenue is not turning into as much profit as before.

We think these margin changes are due to a period of strategic investment, not a permanent decline.

However, unless revenue grows faster or costs slow down, margins will probably recover only slowly.

4. Cash Flow Analysis

Consolidated Cash Flow Summary

($ in millions)	Q1 FY2026	Q1 FY2025	YoY Change	Key Driver
Net Cash from Operating Activities	4,965	4,587	+8%	Strong earnings conversion and working capital benefits
Net Cash Used in Investing Activities	(1,721)	(671)	(1,050)	Alphawave acquisition and higher investments
Net Cash Used in Financing Activities	(3,882)	(3,008)	(874)	Increased share repurchases and dividends
Net Change in Cash & Marketable Securities	(656)	+908	NM	Capital deployment outweighing inflows
Cash & Marketable Securities (end of period)	11,822	12,478*	-5% QoQ	Uses of cash exceeded generation

(*Prior-period balance reflects end of FY2025 Q4.)

Operating Cash Flow Strength

Our study shows that Qualcomm’s operating cash flow remains a key component of its budgetary strength.

In Q1 FY2026, operating cash flow rose 8% from a year earlier to $5.0 billion, which was much better than the drop in reported net income.

This difference shows the strength and dependability of Qualcomm’s earnings.

It is supported by strong cash conversion, steady licensing revenues, and positive working capital changes, such as the use of earlier advance supply payments.

We think this strong operating cash flow gives Qualcomm significant flexibility.

It allows the company to invest more in R&D, make targeted acquisitions, and continue delivering value to shareholders without putting pressure on its balance sheet.

It is important to note that operating cash flow has stayed strong even while margins are under pressure. This shows that current challenges to profits are not hurting cash flow.

Capital Expenditures and Free Cash Flow

In Q1 FY2026, capital expenditures were about $0.55 billion, showing our ongoing investment in long-term capacity, product development, and technology.

While elevated relative to historical trough levels, capex remains disciplined and well within operating cash flow capacity, consuming only a modest portion of cash generated during the quarter.

After these investments, our free cash flow stayed strong. It easily covered dividends and supported continued share buybacks.

We believe Qualcomm’s free cash flow remains strong, even as it makes significant investments. This lets the company invest in future growth while returning funds to shareholders.

Overall, we think strong operating cash flow and careful capital spending position Qualcomm well to create long-term value, even as margins adjust in the short term.

5. Balance Sheet & Liquidity Analysis

($ in millions)	Dec 28, 2025	Sep 28, 2025	QoQ Change	Investor Takeaway
Cash & Cash Equivalents	7,205	5,520	+1,685	Strong on-balance-sheet liquidity
Marketable Securities	4,617	4,635	(18)	Stable, low-risk liquidity buffer
Total Cash & Marketable Securities	11,822	12,478	(656)	Decline driven by capital deployment
Total Debt (Long-term)	14,817	14,811	+6	Leverage stable and well-managed
Net Debt	~2,995	~2,333	+662	Increase reflects M&A and returns
Credit Facility Utilization	Undrawn	Undrawn	—	Significant unused liquidity
Shares Outstanding (millions)	1,067	~1,082*	decreased	Reflects active buybacks

We find that Qualcomm’s balance sheet remains strong and conservatively managed, even after a quarter of significant capital spending.

Total cash and marketable securities fell slightly to $11.8 billion.

This drop was due to planned cash uses, such as share buybacks, dividends, and the Alphawave acquisition, not to weaker business performance.

Debt levels stayed about the same. Qualcomm did not use any short-term borrowing, and its credit facility remains untouched, indicating it has ample liquidity.

Net debt rose from last quarter, but we think it remains at a safe level. This is backed by strong operating cash flow and steady licensing income.

Overall, we think Qualcomm has a flexible liquidity position.

It can fund new investments, maintain shareholder returns, and withstand market ups and downs without putting its balance sheet under stress.

The company’s careful use of debt and large cash reserves gives it flexibility as it moves through this period of diversification and investment.

5.1 Liquidity & Solvency Ratios

Ratio	Q1 FY2026	Q4 FY2025	Trend	Investor Insight
Current Ratio	~1.6x	~1.7x	Slight decline	Comfortable short-term liquidity
Cash Ratio	~0.8x	~0.7x	Improved	Strong immediate liquidity buffer
Net Debt / EBITDA*	~0.4x	~0.3x	Modestly higher	Conservative leverage profile
Debt / Total Capital	~33%	~32%	Stable	Balanced capital structure
Operating Cash Flow / Total Debt	~0.33x	~0.31x	Improving	Strong debt service capacity

(*EBITDA approximated based on operating income and depreciation trends disclosed in the filing.)

Our analysis shows that Qualcomm’s liquidity is strong. The current ratio is well above 1.0x, so the company can easily meet its short-term obligations.

The current ratio dropped slightly from last quarter, but this was due to planned capital use, not a decline in working capital health.

The cash ratio improved, showing that the company can cover its liabilities with its most liquid assets.

This is particularly important given elevated shareholder returns and acquisition-related cash usage during the quarter.

Looking at solvency, the company’s leverage is still low and well-managed.

Net debt rose slightly after acquisitions and buybacks, but Net Debt to EBITDA remains low, indicating the company has ample balance sheet flexibility.

Strong operating cash flow compared to total debt further shows that Qualcomm can easily service its debt.

Overall, we think Qualcomm’s liquidity and solvency show a low financial risk.

The company is well-positioned to handle market ups and downs and still has the flexibility to invest, return capital, and pursue new opportunities.

6. Segment Performance

Revenue by Segment

Segment	Revenue ($M)	% of Total Revenue	YoY Growth	Key Drivers
QCT (Semiconductors)	10,613	87%	+5%	Higher handset shipments, automotive and IoT growth
QTL (Licensing)	1,592	13%	+4%	Increased estimated sales of cellular products
Total Reportable Segments	12,205	~100%	+5%	Balanced contribution
Non-reportable Segments	47	<1%	Flat	Immaterial

Qualcomm’s revenue is still mostly driven by the QCT segment, which accounted for 87% of total revenue and grew by mid-single digits this quarter.

Handsets, automotive, and IoT all helped QCT grow, showing that Qualcomm is making progress in reaching markets beyond just mobile devices.

Although QTL brings in less revenue, it remains important because it is stable and has high profit margins.

The 4% year-over-year growth shows that device volumes are steady and illustrates the reliable nature of Qualcomm’s revenue from intellectual property.

Overall, the mix of segments shows balanced growth. QCT offers scale and room to expand, while QTL improves earnings quality and maintains steady cash flow.

However, since most revenue comes from QCT, short-term results can be affected by changes in product mix and costs, especially when margins are under pressure.

7. MD&A and Strategic Direction

Our review of management’s discussion shows that Qualcomm is carefully moving through a transition period.

The company is working to manage short-term profit challenges through thoughtful investments in long-term growth.

Management points to reliable demand in its main businesses.

QCT is growing thanks to handsets, automotive, and IoT, while QTL still offers a reliable source of recurring revenue.

This supports management’s belief that the business remains strong, even amid uncertain economic circumstances.

Strategically, management is concentrating on expanding beyond just mobile handsets.

Higher R&D spending and the Alphawave acquisition indicate that Qualcomm is moving into new areas such as data center connectivity, automotive platforms, and edge computing.

We think these steps seek to expand Qualcomm’s market and make its business less cyclical over time, even if they put some pressure on margins and earnings right now.

Management also stresses the importance of careful capital use and keeping shareholders’ interests in mind.

The company is using its strong cash flow to buy back shares and pay dividends, demonstrating confidence in its ability to continue generating cash.

At the same time, Qualcomm is managing its balance sheet carefully to remain flexible for future growth and withstand any ups and downs.

Overall, we think the management discussion clearly outlines a strategy.

The company is willing to accept short-term earnings fluctuations to create longer-term growth opportunities, while strong cash flow and careful capital allocation help protect against risks throughout this period.

8. Risk Factors

Risk Category	Description	Potential Impact
Customer Concentration	Significant revenue exposure to a limited number of large OEMs and licensees	Revenue volatility and pricing pressure
Apple Modem Transition	Increasing use of in-house modems by Apple	Structural decline in QCT handset revenues and margins
Margin Pressure	Product mix shifts and higher costs in QCT	Sustained pressure on gross and operating margins
Licensing Dependence	Reliance on a small group of major QTL licensees, including Chinese OEMs	Cash flow and earnings risk from disputes or non-payment
End-Market Cyclicality	Demand sensitivity in premium smartphones	Revenue and earnings volatility
Legal & Regulatory	Ongoing IP litigation and regulatory scrutiny	Potential financial penalties and business disruption
Execution Risk (Diversification)	Expansion into automotive, IoT, and data center	Lower-than-expected ROI and prolonged margin dilution

Our analysis shows that Qualcomm’s risk profile is clear but still significant.

The main risks stem from reliance on a few key customers and changes to technology platforms, especially those involving Apple.

The move toward companies making their own modems is a long-term challenge for QCT revenues.

This change means Qualcomm will need to rely more on diversifying its business to offset potential losses.

Qualcomm’s licensing business is highly profitable but also carries risks. These include relying on a small group of large global manufacturers and the chance of disputes with them.

If there are problems with licensing agreements, it could have a big effect on cash flow because QTL is so important to Qualcomm’s earnings.

Margin risk remains elevated in the near term as product mix evolves andManagement sees these pressures as part of investing for the future.

However, there is still uncertainty about how well Qualcomm can grow in new areas like automotive, IoT, and data center connectivity. This remains a key uncertainty.

Overall, we think Qualcomm’s strong balance sheet and cash flow help reduce downside risk.

Still, creating long-term value will depend more on how well the company diversifies and controls costs as it faces ongoing challenges.

9. Shareholder Returns

Capital Allocation

Use of Capital	Amount ($B)	Priority	Investor Implication
Share Repurchases	2.65	High	Aggressive return of excess cash; EPS support
Dividends Paid	0.95	High	Reinforces predictable income return
M&A & Strategic Investments	1.10	Medium–High	Long-term growth optionality (e.g., Alphawave)
Capital Expenditures	0.55	Medium	Sustains technology leadership and capacity
Debt Management	Minimal change	Low	Balance sheet stability preserved

We find that Qualcomm’s capital allocation strategy remains focused on shareholders and disciplined, supported by strong operating cash flow.

The company focused on direct returns, giving back $3.6 billion through buybacks and dividends in one quarter. This shows faith in its steady cash flow and underlying value.

Management also put significant funds into key investments, especially the Alphawave acquisition. This shows a dedication to long-term growth outside the main mobile markets.

Capital spending stayed reasonable and was fully supported by cash from operations, so it did not put extra strain on free cash flow.

Importantly, the company made these moves without taking on more debt, which keeps its balance sheet flexible.

Overall, we think Qualcomm’s capital allocation strikes a good balance.

The company intends to deliver strong returns to shareholders now while also making careful investments for future growth, all while sustaining a cautious financial approach.

10. Final Overview

Qualcomm’s Q1 FY2026 results show a stable but changing business, with stable revenue growth, some short-term margin pressure, and strong, reliable cash flow.

Revenue rose 5% year over year, propelled by ongoing growth in the QCT segment across handsets, automotive, and IoT.

The QTL licensing business continued to provide steady, high-quality revenue and cash flow.

Together, these factors show that the company can continue to deliver steady revenue even when market conditions are mixed.

Profitability slowed this quarter, as gross and operating margins contracted due to changes in the QCT mix, higher costs, and increased R&D spending.

As a result, net income fell even as revenue grew, indicating little short-term operating leverage.

We think this margin pressure is due to a planned investment phase, not a lasting problem, as management focuses on diversification and enduring growth.

Strong cash flow is still a key strength. Operating cash flow grew from last year and easily covered large equity holder returns, such as share buybacks and dividends, as well as investments, including the Alphawave acquisition.

These capital decisions were made while maintaining a prudent balance sheet and ample liquidity, hence preserving financial adaptability.

Overall, we see Qualcomm as a business with strong cash flow and an evolving strategy.

Short-term earnings may be constrained by margin pressures and high investment levels, but strong cash flow, careful capital allocation, and greater diversification support a solid long-term outlook for investors.