0000804328-26-000061
SEC filingQ2 FY26 revenue declined 3% YoY to $10.6B, net income surged 162% to $7.4B due to $5.7B tax benefit from valuation allowance release.
For the second quarter of fiscal 2026, Qualcomm reported total revenues of $10.6 billion, down 3% year-over-year from $11.0 billion. The decline was primarily driven by a $393 million decrease in QCT equipment and services revenues, partially offset by higher Data Center revenues (+$97M) and QTL licensing revenues (+$63M). Gross margin contracted slightly to 54% from 55% due to higher product costs and unfavorable mix at QCT. Net income surged 162% to $7.4 billion, largely reflecting a $5.7 billion non-cash income tax benefit from releasing the valuation allowance on federal deferred tax assets following IRS guidance on CAMT. Operating expenses rose meaningfully: R&D increased $247M (11% YoY) and SG&A increased $192M (27% YoY), driven by higher share-based compensation and acquisition-related costs. The effective tax rate was negative 230% for the quarter, versus 9% in the prior year.
QCT: Revenues fell 4% YoY to $9.1 billion. Handsets, the largest sub-segment, dropped 13% to $6.0 billion as major OEMs reduced inventory due to memory supply constraints and price hikes. Automotive revenues grew 38% to $1.3 billion, driven by higher shipments of Snapdragon digital cockpit and ADAS/AD products and favorable mix. IoT revenues rose 9% to $1.7 billion on improved mix. QCT EBT margin declined 3 points to 27% as higher operating expenses and lower gross margin more than offset higher average selling prices.
QTL: Licensing revenues increased 5% to $1.4 billion, driven by favorable mix and higher estimated revenues per unit. EBT margin improved 2 points to 72% on revenue growth.
QSI: Revenues were nil; EBT swung to a loss of $30 million from a gain of $10 million a year ago, due to mark-to-market losses on equity investments.
Management highlighted several headwinds for the coming quarters: continued memory constraints affecting handset OEM demand, the ongoing ramp of Apple's in-house modem (which will negatively impact QCT revenues), and global trade policy uncertainties including tariffs. On the positive side, Qualcomm expects strong automotive and IoT momentum, with new vehicle launches and product diversification. The company also noted that the permanent reinstatement of domestic R&D expensing under the OBBB Act will favorably impact cash flows. No specific numerical guidance was provided. The release of the valuation allowance is expected to normalize the tax rate for the remainder of fiscal 2026.
Total cash, cash equivalents, and marketable securities stood at $9.8B as of March 29, 2026, down from $10.2B at September 28, 2025. The company held $5.4B in cash and equivalents and $4.4B in marketable securities, all classified as current. Total debt was $15.3B ($498M short-term commercial paper and $14.8B long-term debt). Shareholders' equity increased to $27.3B from $21.2B at fiscal year-end, driven by net income and the issuance of common stock for the Alphawave acquisition. Inventories rose to $7.4B from $6.5B, with work-in-process representing the largest component at $4.3B. Deferred tax assets surged to $6.0B from $0.7B following the release of the valuation allowance.
Qualcomm has multi-year capacity purchase commitments with certain suppliers of its integrated circuit products. Total advance payments related to these commitments recorded on the balance sheet were $782M at March 29, 2026, down from $1.9B at September 28, 2025. Of this amount, $469M was in other current assets and $313M in other assets. The company also has an unsecured commercial paper program allowing up to $4.5B in issuances, with $498M outstanding at quarter end.
During the first six months of fiscal 2026, Qualcomm returned $7.3B to shareholders through $5.4B in share repurchases (34M shares) and $1.9B in dividends. On March 17, 2026, the company announced a new $20.0B stock repurchase program, bringing total remaining authorization to $21.9B. The quarterly dividend was increased from $0.89 to $0.92 per share, effective for dividends payable after March 26, 2026. Capital expenditures totaled $1.1B, representing 4.7% of total revenues. Net debt increased by $0.5B, with $1.2B in commercial paper proceeds and $0.8B in repayments, plus $174M in repayment of acquired company debt.
Qualcomm reports three reportable segments: QCT (semiconductor), QTL (licensing), and QSI (strategic investments). QCT revenues were $9.1B in Q2 FY2026, down 4% YoY, with segment EBT of $2.5B (27.2% margin). Within QCT, handset revenues were $6.0B (down 13% YoY), automotive $1.3B (up 38% YoY), and IoT $1.7B (up 9% YoY). QTL revenues were $1.4B, up 5% YoY, with segment EBT of $1.0B (71.9% margin). QSI reported a segment loss of $30M. Nonreportable segments (including Data Center) contributed $141M in revenues and a $121M loss. Customer concentrations remained high: two customers accounted for 24% and 22% of total revenues in Q2, respectively.
Operating cash flow of $7,414 million exceeded net income of $10,375 million by a wide margin, primarily due to a large $5,857 million income tax provision less than tax payments (a timing benefit) and $1,749 million in share-based compensation. However, working capital consumed cash: inventories rose $802 million, while unearned revenues fell $194 million. Trade accounts payable provided $229 million.
Capital expenditures surged to $1,082 million (from $491 million), representing 14.6% of operating cash flow, up from 6.9% a year ago. Free cash flow (operating cash flow minus capex) was $6,332 million, but the company returned $7,337 million to shareholders via repurchases ($5,442 million) and dividends ($1,895 million), implying a free cash flow payout ratio of 116%.
Investing activities also included $1,238 million for acquisitions and $1,925 million in marketable securities purchases, partly offset by $1,985 million in proceeds. Financing activities were dominated by $5,442 million in share repurchases and $1,895 million in dividends, funded partly by $1,246 million in short-term debt proceeds. The net cash decrease was $2,408 million, ending the period with $5,435 million in cash and equivalents.