Qualcomm and Arm Show the Memory Squeeze Has Reached Smartphones

Earlier this week, Apple warned that rising memory prices would cut its profit margins. On Wednesday evening, two of the most important companies in the smartphone supply chain showed what the same shortage is doing to the rest of the phone industry.

Qualcomm: handsets down, cars and data centres up

Qualcomm, whose processors and modems go into most premium Android phones, reported fiscal fourth-quarter revenue of about $10.4 billion, ahead of estimates but down about 8% from a year earlier. Adjusted earnings per share were $2.17, in line with expectations.

The weak spot was handsets. Revenue from phone chips fell 26% to $5.14 billion. Management said that reflected “industry-wide memory dynamics” in the smartphone market. Put simply, memory chips have become so expensive and scarce that phone makers are building fewer phones, or cheaper ones, and buying fewer of Qualcomm’s chips. Qualcomm is also losing modem sales as Apple shifts to its own in-house designs.

Its forecast for the current quarter disappointed too. Revenue guidance of $10.4 billion to $11.2 billion and adjusted EPS of $2.15 to $2.35 came in below analysts’ expectations at the midpoint, and the chip business’s profit margin is expected to fall. The shares fell about 10% on Thursday morning.

There were bright spots. Automotive revenue topped $2 billion for the first time, up 89% from a year earlier, as carmakers put more computing power into vehicles. Qualcomm also expects its new data-centre chips to start contributing revenue in fiscal 2027. Those businesses are growing quickly, but they’re not yet large enough to offset a slump in phones.

Arm: royalties tell the story

Arm doesn’t make chips. It designs the architecture that almost every smartphone processor uses and collects a royalty on each chip sold. That makes its royalty revenue a good gauge of how many devices are being built.

Arm’s revenue and earnings beat estimates, but royalty revenue grew only 8% to $670 million, below forecasts, and its guidance for the next quarter didn’t impress investors. Analysts pointed to the same memory shortage weighing on smartphone demand. Arm’s shares had already fallen 5% on Wednesday before the report and dropped further on Thursday.

How AI is squeezing phones

The connection is the same one we’ve followed all week. AI data centres need enormous amounts of high-bandwidth memory. Memory makers such as Samsung, SK Hynix and Micron have shifted production toward it because it’s more profitable. That leaves less capacity for the ordinary memory used in phones and laptops, and prices have soared.

The result is a transfer of money within the technology industry:

• Memory makers earn higher prices. (Though on Thursday their shares fell sharply, partly on fears that weaker phone sales will eventually cut memory demand too.)
• Device makers like Apple pay more and either accept lower margins or raise prices.
• Phone-chip suppliers like Qualcomm and Arm sell fewer units when phone makers cut production.
• Consumers pay more for phones and laptops, or wait longer to upgrade.

What it means for investors

The broader lesson is that a boom in one area can hurt others that compete with it for the same scarce input. The AI build-out isn’t only lifting the companies directly involved. It’s raising costs for industries that have nothing to do with AI.

For Qualcomm specifically, the question is timing. Memory shortages tend to ease as manufacturers build new capacity, though that takes years, and Micron’s stalled Taiwan plant is a reminder that new factories can be delayed. In the meantime, Qualcomm is trying to grow fast enough in cars and data centres to reduce its dependence on phones. This quarter showed that transition is real, but not yet complete.