# How Qualcomm makes money

CXProWealth Business Lens · Qualcomm (QCOM) · Q3 FY2026

Read from the 10-Q for the period 2026-03-30 to 2026-06-28, filed 2026-07-29 with the SEC (accession 0000804328-26-000086): https://www.sec.gov/Archives/edgar/data/804328/000080432826000086/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $9.9B (-4.0% on the year)
- Operating income: $1.6B (operating margin 16.3%)
- Net income: $2.0B (net margin 20.1%)
- Gross margin: 53.1%
- Free cash flow: $495.0M (5.0% of revenue)
- Cash conversion (operating cash flow / net income): 0.50x
- Capital expenditure: 5.0% of revenue

## Where the money goes (Q3 FY2026)

- Total revenues → Total costs and expenses: $8.3B
- Total costs and expenses → Research and development: $2.6B
- Total costs and expenses → Other: $68.0M
- Total costs and expenses → Cost of revenues: $4.7B
- Total costs and expenses → Selling, general and administrative: $976.0M
- Total revenues → Operating income: $1.6B
- Operating income → Interest expense: $178.0M
- Operating income → Income before income taxes: $1.4B
- Investment and other income, net → Income before income taxes: $1.0B
- Income before income taxes → Income tax (expense) benefit: $460.0M
- Income before income taxes → Net income: $2.0B

## Where the revenue comes from

### Products and services (Composition of Certain Financial Statement Items Revenues (Details))

| Member | Value | Share |
|---|---:|---:|
| Handsets | $5.1B | 51.1% |
| IoT | $1.8B | 18.4% |
| Automotive | $1.6B | 16.0% |

The members do not sum to total revenue.

### ConsolidationItems (Segment Information (Details))

| Member | Value | Share |
|---|---:|---:|
| Operating Segments | $9.8B | 98.3% |
| Reconciling Items | $165.0M | 1.7% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Equipment and services | $8.5B | 85.2% |
| Licensing | $1.5B | 14.8% |
| **Total revenues** | $9.9B | 100% |
| Cost of revenues | $4.7B | 46.9% |
| Research and development | $2.6B | 26.2% |
| Selling, general and administrative | $976.0M | 9.8% |
| Other | (-$68.0M) | 0.7% |
| **Total costs and expenses** | $8.3B | 83.7% |
| **Operating income** | $1.6B | 16.3% |
| Interest expense | ($178.0M) | 1.8% |
| Investment and other income, net | $1.0B | 10.2% |
| **Income before income taxes** | $2.5B | 24.8% |
| Income tax (expense) benefit | ($460.0M) | 4.6% |
| **Net income** | $2.0B | 20.1% |
| Basic earnings per share | $2 | 0.0% |
| Diluted earnings per share | $2 | 0.0% |
| Basic | 1,057,000,000 |  |
| Diluted | 1,069,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2007 | $8.9B | $2.9B | $3.3B | $3.8B | $818.0M | $3.0B |
| FY2008 | $11.1B | $3.7B | $3.2B | $3.6B | $1.4B | $2.2B |
| FY2009 | $10.4B | $2.5B | $1.6B | $7.2B | $761.0M | $6.4B |
| FY2010 | $11.0B | $3.7B | $3.2B | $4.1B | $426.0M | $3.7B |
| FY2011 | $15.0B | $5.0B | $4.3B | $4.9B | $593.0M | $4.3B |
| FY2012 | $19.1B | $5.7B | $6.1B | $6.0B | $1.3B | $4.7B |
| FY2013 | $24.9B | $7.2B | $6.9B | $8.8B | $1.0B | $7.7B |
| FY2014 | $26.5B | $7.6B | $8.0B | $8.9B | $1.2B | $7.7B |
| FY2015 | $25.3B | $5.8B | $5.3B | $5.5B | $994.0M | $4.5B |
| FY2016 | $23.6B | $6.5B | $5.7B | $7.6B | $539.0M | $7.1B |
| FY2017 | $22.3B | $2.6B | $2.4B | $5.0B | $690.0M | $4.3B |
| FY2018 | $22.6B | $621.0M | -$5.0B | $3.9B | $784.0M | $3.1B |
| FY2019 | $24.3B | $7.7B | $4.4B | $7.3B | $887.0M | $6.4B |
| FY2020 | $23.5B | $6.3B | $5.2B | $5.8B | $1.4B | $4.4B |
| FY2021 | $33.6B | $9.8B | $9.0B | $10.5B | $1.9B | $8.6B |
| FY2022 | $44.2B | $15.9B | $12.9B | $9.1B | $2.3B | $6.8B |
| FY2023 | $35.8B | $7.8B | $7.2B | $11.3B | $1.5B | $9.8B |
| FY2024 | $39.0B | $10.1B | $10.1B | $12.2B | $1.0B | $11.2B |
| FY2025 | $44.3B | $12.4B | $5.5B | $14.0B | $1.2B | $12.8B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +13.7% (year before +8.8%): accelerating
- Operating income: +22.7% (year before +29.3%): slowing
- Net income: -45.4% (year before +40.2%): slowing
- Free cash flow: +14.9% (year before +13.3%): steady

## Key insights

### Costs rose 9.4% while revenue fell 4.0%

Research and selling costs grew as handset sales slipped, so operating income fell 41.1% to $1.63B and operating margin to 16.3%.

Total revenues fell 4.0% to $9.95B from $10,365 million a year earlier, while total costs and expenses rose 9.4% to $8.32B. Research and development grew 17.1% to $2.61B and selling, general and administrative grew 26.6% to $976M. Operating income fell to $1.63B from $2.76B, and operating margin to 16.3% from 26.6%. _(from the filing)_
Research spending of $2.61B now exceeds operating income of $1.63B. A year earlier it was $2.23B, 80.6% of operating income of $2.76B. The filing names lower reimbursements for product engineering work and higher share-based compensation, which now includes equity awards that replaced annual cash incentives for non-executive leaders. Restructuring, substantially all severance, added $68M. _(from the filing)_
The filing traces the revenue drop to handsets: "lower chipset shipments to certain major OEMs", as customers adjusted build plans "as a result of the negative effects of recent memory supply constraints and related price increases." Automotive and IoT revenues rose, offsetting part of it. _(from the filing)_
Analysis: part of the cost growth is a change in how leaders are paid, equity in place of cash, so not all of it is new capacity. The margin rebuilds when handset revenue returns or the newer markets grow into the larger cost base; neither has happened in this quarter's numbers. _(analysis)_

### Investment gains made up 41% of pre-tax income

Investment and other income of $1.01B equalled 41.2% of pre-tax income, so net income of $2.00B exceeded operating income of $1.63B.

Investment and other income, net rose 183.2% to $1.01B from $358M, which the filing attributes "primarily due to higher net gains from initial public offerings of certain QSI equity investments." A year earlier the line was 12.1% of pre-tax income of $2.95B; this quarter it was 41.2% of $2.46B. _(from the filing)_
The gains equal 62.4% of operating income. Net margin was 20.1%, above an operating margin of 16.3%; a year earlier net margin of 25.7% sat below operating margin of 26.6%. Net income fell 24.9%, operating income 41.1%. _(from the filing)_
The filing notes that the equity securities in QSI investees that completed initial public offerings "remain subject to short-term lock-up restrictions on the ability to sell." Their value can move in either direction before the shares can be sold. _(from the filing)_
Analysis: results below operating income swing widely from quarter to quarter. Net income was a loss of $3.12B in Q4 FY2025 and $7.37B in Q2 FY2026, against operating income of $2.92B and $2.31B. Operating income is the steadier read of the chip and licensing businesses. _(analysis)_

### Capital spending absorbed half of operating cash flow

Operating cash flow fell to $991M while capital spending rose to $496M, so free cash flow was 5.0% of revenue, against 24.9% a year earlier.

Operating cash flow was $991M against $2,875 million a year earlier, and capital expenditure rose to $496M from $294M. Capital spending took 50% of operating cash flow, against 10.2% a year earlier. Free cash flow was $495M against $2,581 million. _(from the filing)_
Cash fell further than profit: operating cash flow was 60.9% of operating income of $1.63B, against 104.1% a year earlier. Over the nine months the filing points to working capital, chiefly "an increase in inventory reflecting certain customer demand impacts from memory supply constraints". _(from the filing)_
The higher capital spending runs through the whole fiscal year: capital expenditure was $549M, $533M and $496M in the first three quarters of fiscal 2026, against $277M, $214M and $294M in the same quarters of fiscal 2025. _(from the filing)_
Analysis: the inventory links the handset slowdown to the cash line. If customers resume builds as memory supply settles, that inventory turns into cash; if the slowdown lasts, it carries a write-down risk. Even at its higher level, capital spending of 5.0% of revenue stays light, because manufacturing is outsourced. _(analysis)_

### Competitive edge

- **Licensing held at $1.47B as chip sales fell** Royalties on other makers' phones were flat year on year while equipment and services fell, so licensing revenue now equals 90.5% of operating income.
- **The phone chip platform now earns in cars and devices** Automotive at 16.0% and IoT at 18.4% of revenue grew while handsets fell, spreading research that phones already pay for.

### What to watch

- **Supplier costs rose faster than chip prices** Cost of revenues rose to 46.95% of revenue from 44.4%, which the filing attributes to higher product cost only partly offset by higher selling prices.
- **Handset revenue rests on a few large customers** Handsets were 51.1% of revenue, and the filing expects Apple to use more of its own modems, with a significant negative impact on chip revenue.
- **China exposure meets a push for chip self-sufficiency** A significant portion of revenue comes from Chinese phone makers, and the filing names government pressure, trade restrictions and payment delays as threats.

## Investor view

**Handset chip sales slipped while Qualcomm kept spending to diversify, and operating margin fell to 16.3%**

### How it makes money

Qualcomm sells chips and licenses patents. In the company's words: "We derive revenues principally from sales of integrated circuit products and licensing our intellectual property, including patents and other rights." This quarter equipment and services brought in $8.48B, 85.2% of total revenues of $9.95B, and licensing $1.47B, 14.8%. _(from the filing)_
The chip business sells platforms into three markets. Handsets were $5.09B, 51.1% of revenue; IoT, which covers PCs, extended reality, industrial and networking devices, was $1.83B, 18.4%; automotive was $1.59B, 16.0%. Manufacturing is mostly outsourced: "We primarily utilize a fabless production model", with third parties running wafer production, assembly and most testing, apart from facilities that make certain radio frequency front-end modules and filters. _(from the filing)_
Licensing is a royalty on other companies' phones. The filing describes licensing revenues as "principally from royalties generated through our licensees’ sales of mobile handsets", recognized over time, and notes that "Substantially all of QTL’s costs and expenses are comprised of operating expenses." The patents come out of the same research spending that designs the chips: $2.61B this quarter, 26.2% of revenue. _(from the filing)_
A third segment, QSI, makes strategic investments and has no revenue. Its results arrive below operating income, inside investment and other income, net, which was $1.01B this quarter. Businesses outside the reportable segments, including the Data Center business built around the Alphawave acquisition, contributed $165M of revenue, 1.7% of the total. _(from the filing)_

### What shifted

Revenue fell 4.0% to $9.95B from $10,365 million a year earlier. Licensing was flat at $1.47B; equipment and services fell to $8.48B from $8.89B. The filing traces the drop to handsets: "lower chipset shipments to certain major OEMs", driven by "customers adjusting build plans to reduce their inventory levels as a result of the negative effects of recent memory supply constraints and related price increases." Automotive and IoT revenues rose, offsetting part of it. _(from the filing)_
Spending rose while revenue fell. Total costs and expenses grew 9.4% to $8.32B. Research and development rose 17.1% to $2.61B, 26.2% of revenue, up 4.7 points; selling, general and administrative rose 26.6% to $976M. The filing names lower reimbursements for product engineering work and higher share-based compensation, which now includes equity awards that replaced annual cash incentives for non-executive leaders. Restructuring, substantially all severance, added $68M. _(from the filing)_
Margins narrowed at both levels. Cost of revenues was $4.67B, 46.95% of revenue, up 2.5 points; the filing attributes the chip unit's lower gross margin to "higher product cost, partially offset by higher average selling prices". Operating income fell 41.1% to $1.63B from $2.76B, taking operating margin to 16.3% from 26.6% a year earlier. _(from the filing)_
Net income held up better than operating income because of investment gains. Investment and other income, net rose 183.2% to $1.01B from $358M, "primarily due to higher net gains from initial public offerings of certain QSI equity investments." That line equalled 41.2% of income before taxes of $2.46B. Net income fell 24.9% to $2.00B, a net margin of 20.1%, above the operating margin of 16.3%. _(from the filing)_
Cash fell further than profit. Operating cash flow was $991M against $2,875 million a year earlier, and capital expenditure rose to $496M from $294M, leaving free cash flow of $495M, 5.0% of revenue, against $2,581 million. Over the nine months the filing points to working capital, chiefly "an increase in inventory reflecting certain customer demand impacts from memory supply constraints". _(from the filing)_

### Risks in the filing

Concentration. The company says "We derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium-tier handset devices." A delay in one large customer's purchases cuts revenue in that period, and the purchasing power of a few dominant phone makers can push chip prices down. _(from the filing)_
Customers making their own chips. Apple, Samsung and Xiaomi design integrated circuits for some of their devices, and the filing states that "we expect that Apple will increasingly use its own modem products, rather than our products, in its future devices", with a significant negative impact on chip revenue and cash flow. Supply shortages, it adds, can push more customers to bring chips in-house. _(from the filing)_
China. A significant portion of revenue comes from Chinese phone makers and from others selling devices into China. The filing names pressure from the "Chinese government (which has prioritized semiconductor self-sufficiency)", the revoked U.S. export license for sales to Huawei, tariffs and trade restrictions, and Chinese rules on moving funds out of the country that can delay payments from customers and licensees. _(from the filing)_
Supply and licensing. As a fabless company it depends on a limited number of foundries and test houses, mostly in Asia, which can raise prices or give capacity to others when demand is high. On licensing it names "Efforts by some OEMs to avoid paying fair and reasonable royalties" and government challenges to its licensing practices. Separately, Arm is appealing a judgment in Qualcomm's favor over the CPU designs Qualcomm acquired with Nuvia. _(from the filing)_
Two of these risks already show in this quarter's lines: supplier cost increases appear as cost of revenues taking a larger share of revenue, and the memory-driven demand cut appears as lower handset sales and a build-up of inventory. Customer vertical integration is stated as an expectation rather than a line on this page, and the licensing line, flat while chips fell, shows no sign yet of the royalty disputes the filing describes. _(analysis)_

## Founder view: mechanisms

### A royalty on every phone, not just its own

Qualcomm earns twice from the same research. Engineering that shapes wireless standards produces patents, which it licenses to phone makers whether or not they buy its chips, and the same engineering goes into the chips it sells. The licensing stream rides on the whole industry's unit sales, so it moves with phone volumes and royalty terms rather than with Qualcomm's share of chip sockets. _(analysis)_

### One platform carried into new markets

A phone chip is a dense package of low-power computing, graphics, AI processing and radios. Qualcomm reuses that platform in cars, PCs, headsets and industrial devices, where the same capabilities are newer and buyers pay for them. Each new market spreads research that phones have already paid for, and lowers dependence on a few handset customers. _(analysis)_

### Fabless: light on assets, exposed to the supplier's price

Qualcomm designs chips and pays others to make them, which keeps capital spending light and gives it the most advanced manufacturing without owning a factory. The trade-off is that its cost of goods is set by a few foundries, packagers and memory makers, who raise prices when capacity is short and decide whose orders come first. _(analysis)_

### A venture arm that pays off in lumps

Through QSI, Qualcomm takes minority stakes in companies that build on or around its technology. The stakes support its ecosystem first and return cash only when an investee lists or is sold. Gains arrive in lumps, sit below operating income, and can make total earnings look steadier than the business that produced them. _(analysis)_

## Member research

Signed-in members read, on the page: what Qualcomm's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Qualcomm 10-Q for the period to 2026-06-28: https://www.sec.gov/Archives/edgar/data/804328/000080432826000086/ (2026-07-29)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02