QUALCOMM INC/DE (QCOM)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in “Part I, Item 1” of this Quarterly Report and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended September 28, 2025 contained in our 2025 Annual Report on Form 10-K.

This Quarterly Report (including but not limited to this section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “may,” “will,” “would” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. Additionally, statements concerning future matters such as our future business, prospects, results of operations or financial condition; research and development or technology investments; new or enhanced products, services or technologies; emerging industries or business models; design wins or product launches; industry, market or technology trends, dynamics or transitions; our expectations regarding future demand or supply conditions; strategic investments or acquisitions, and the anticipated timing or benefits thereof; legal or regulatory matters, including the expected impacts of recently enacted or pending tax or other regulatory changes; U.S./China trade or national security tensions; vertical integration by our customers; competition; annual effective tax rates; and other statements regarding matters that are not historical are also forward-looking statements.

Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Third Quarter Fiscal 2026 Overview

Revenues for the third quarter of fiscal 2026 were $9.9 billion, a decrease of 4% compared to the year ago quarter, with net income of $2.0 billion, a decrease of 25% compared to the year ago quarter. Key items from the third quarter of fiscal 2026 included:

•QCT revenues decreased by 5% in the third quarter of fiscal 2026 compared to the year ago quarter due to lower handset revenues, partially offset by higher automotive and IoT revenues.

•QTL revenues decreased by 3% in the third quarter of fiscal 2026 compared to the year ago quarter.

•Investment and other income, net increased by $656 million compared to the year ago quarter, primarily due to higher net gains from initial public offerings of certain QSI equity investments.

Our Business and Operating Segments

We develop and commercialize foundational technologies and products used across industries and applications from mobile devices to other areas including automotive and the internet of things (IoT). We derive revenues principally from sales of integrated circuit products and licensing our intellectual property, including patents and other rights.

We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our Data Center business.

Our reportable segments are operated by QUALCOMM Incorporated and its direct and indirect subsidiaries. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering and research and development functions are operated by Qualcomm Technologies, Inc. (QTI), a subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent

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portfolio. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.

Seasonality. Many of our products and much of our intellectual property are incorporated into consumer wireless devices, which are subject to seasonality and other fluctuations in demand. Our revenues have historically fluctuated based on consumer demand for devices, as well as on the timing of customer/licensee device launches and/or innovation cycles (such as the transition to the next generation of wireless technologies). This has resulted in fluctuations in QCT revenues in advance of and during device launches incorporating our products and in QTL revenues when licensees’ sales occur. These trends may or may not continue in the future. Further, the trends for QTL have been, and may in the future be, impacted by disputes and/or resolutions with licensees and/or governmental investigations or proceedings.

Results of Operations

Third quarter 2026 vs. 2025

The decrease in revenues in the third quarter of fiscal 2026 was primarily due to:

-    $502 million in lower equipment and services revenues from our QCT segment

-    $40 million in lower licensing revenues from our QTL segment

+    $88 million in higher equipment and services revenues from our Data Center segment, primarily driven by our acquisition of Alphawave in the first quarter of fiscal 2026

First nine months 2026 vs. 2025

The decrease in revenues in the first nine months of fiscal 2026 was primarily due to:

-    $367 million in lower equipment and services revenues from our QCT segment

-    $143 million in licensing revenues from a settlement of a licensing dispute in the second quarter of fiscal 2025, which was not allocated to our segment results

+    $182 million in higher equipment and services revenues from our Data Center segment, primarily driven by our acquisition of Alphawave in the first quarter of fiscal 2026

+    $80 million in higher licensing revenues from our QTL segment

Third quarter and first nine months 2026 vs. 2025

Gross margin percentage decreased in the third quarter and first nine months of fiscal 2026 primarily due to a decrease in QCT gross margin percentage.

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Third quarter 2026 vs. 2025

The increase in research and development expenses in the third quarter of fiscal 2026 was primarily due to:

+    $244 million increase driven by higher costs related to the development of wireless and integrated circuit technologies (including investments in key growth and diversification opportunities), primarily driven by lower non-recurring engineering cost reimbursements for product-related development work

+    $101 million increase in share-based compensation expense

First nine months 2026 vs. 2025

The increase in research and development expenses in the first nine months of fiscal 2026 was primarily due to:

+    $541 million increase driven by higher costs related to the development of wireless and integrated circuit technologies (including investments in key growth and diversification opportunities), primarily driven by lower non-recurring engineering cost reimbursements for product-related development work and an increase in employee-related expenses

+    $269 million increase in share-based compensation expense

We expect to continue investing in key growth and diversification initiatives. The increase in our share-based compensation expense includes the replacement of our annual cash incentive awards for fiscal 2026 and 2027 with a two-year equity award for our broader non-executive leadership team. This approach is designed to motivate and retain our team to execute our long-term diversification strategy, while further aligning their compensation with the interests of our stockholders.

Third quarter 2026 vs. 2025

The increase in selling, general and administrative expenses in the third quarter of fiscal 2026 was primarily due to:

+    $62 million increase in share-based compensation expense

+    $27 million increase in sales and marketing expenses (including investments in growth and diversification initiatives)

+    $24 million increase in expenses driven by the revaluation of our deferred compensation obligation (which resulted in a corresponding increase in net gains on deferred compensation plan assets within investment and other income, net due to the revaluation of the related assets)

First nine months 2026 vs. 2025

The increase in selling, general and administrative expenses in the first nine months of fiscal 2026 was primarily due to:

+    $184 million increase in share-based compensation expense

+    $91 million increase in acquisition-related expenses

+    $64 million increase in sales and marketing expenses (including investments in growth and diversification initiatives)

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.

The following section generally discusses fiscal 2025 and 2024 items and year-to-year comparisons between fiscal 2025 and 2024. Discussions of fiscal 2023 items and year-to-year comparisons between fiscal 2024 and 2023 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 29, 2024.

Our Business and Operating Segments

We develop and commercialize foundational technologies and products used across industries and applications from mobile devices to other areas including automotive and the internet of things (IoT). We derive revenues principally from sales of integrated circuit products and licensing our intellectual property, including patents and other rights.

We are organized on the basis of products and services and have three reportable segments. We conduct business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. Our QSI (Qualcomm Strategic Initiatives) reportable segment makes strategic investments. We also have nonreportable segments, including QGOV (Qualcomm Government Technologies) and our Data Center business (formerly referred to as our cloud computing processing initiative).

Further information regarding our business and operating segments is provided in “Part I, Item 1. Business” of this Annual Report.

Seasonality. Many of our products and much of our intellectual property are incorporated into consumer wireless devices, which are subject to seasonality and other fluctuations in demand. Our revenues have historically fluctuated based on consumer demand for devices, as well as on the timing of customer/licensee device launches and/or innovation cycles (such as the transition to the next generation of wireless technologies). This has resulted in fluctuations in QCT revenues in advance of and during device launches incorporating our products (for example, certain major handset OEMs accelerated their premium-tier device launches into the first quarter of fiscal 2025) and in QTL revenues when licensees’ sales occur. These trends may or may not continue in the future. Further, the trends for QTL have been, and may in the future be, impacted by disputes and/or resolutions with licensees and/or governmental investigations or proceedings.

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Fiscal 2025 Overview

Revenues were $44.3 billion, an increase of 14% compared to revenues of $39.0 billion in fiscal 2024, with net income of $5.5 billion, a decrease of 45% compared to net income of $10.1 billion in fiscal 2024. Key items from fiscal 2025 included:

•QCT revenues increased by 16% in fiscal 2025 compared to the prior year, primarily due to higher handsets, IoT and automotive revenues.

•QTL revenues remained approximately flat in fiscal 2025 compared to the prior year.

•We recorded a charge of $5.7 billion to income tax expense to establish a valuation allowance in the fourth quarter of fiscal 2025 as we no longer expect to realize substantially all of our existing federal deferred tax assets as a result of the tax reform legislation included in the One Big Beautiful Bill Act (OBBB) enacted on July 4, 2025.

Results of Operations

2025 vs. 2024

The increase in revenues in fiscal 2025 was primarily due to:

+    $5.1 billion in higher equipment and services revenue from our QCT segment

+    $143 million in licensing revenues resulting from a settlement of a licensing dispute in the second quarter of fiscal 2025, which was not allocated to our segment results

2025 vs. 2024

Gross margin percentage decreased in fiscal 2025 primarily due to a decrease in the proportion of total revenues related to QTL licensing revenues (which have a higher margin percentage contribution).

2025 vs. 2024

The increase in research and development expenses in fiscal 2025 was primarily due to a $118 million increase in share-based compensation expense. Our costs related to the development of wireless and integrated circuit technologies (including investments in key growth and diversification initiatives) remained approximately flat, primarily driven by $314 million in higher non-recurring engineering cost reimbursements for product-related development work, partially offset by an increase in employee-related costs.

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2025 vs. 2024

The increase in selling, general and administrative expenses in fiscal 2025 was primarily due to:

+    $231 million increase in sales and marketing expenses (including investments in key growth and diversification initiatives)

+    $70 million increase in employee-related expenses

2025 vs. 2024

Other expenses in fiscal 2025 consisted of restructuring and restructuring-related charges.

Other expenses in fiscal 2024 primarily consisted of $107 million in restructuring and restructuring-related charges (substantially all of which related to severance costs) and a $75 million charge related to the settlement of a securities class action lawsuit.

2025 vs. 2024

Net gains on marketable securities in fiscal 2025 was primarily driven by the initial public offerings of certain QSI equity investments.

Net gains on other investments in fiscal 2024 was primarily driven by observable price changes on certain of our QSI non-marketable equity investments.

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Income Tax Expense (in millions, except percentages)

The following table summarizes the primary factors that caused our annual tax provision from continuing operations to differ from the expected income tax provision at the U.S. federal statutory rate. Substantially all of our income is taxed in the U.S., of which a significant portion qualifies for preferential treatment as foreign-derived intangible income (FDII) at a 13% effective tax rate for the periods presented. Additional information regarding our annual effective tax rate (including discussion related to the impact of the requirement to capitalize research and development expenditures for federal income tax purposes, and the benefit related to the transfer of intellectual property between foreign subsidiaries in fiscal 2024) is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 3. Income Taxes.”

On July 4, 2025, tax reform legislation included in the OBBB was enacted in the United States. The OBBB includes significant corporate tax reforms, including the permanent reinstatement of deducting domestic research and development expenditures as incurred beginning in fiscal 2026 (under prior law such expenditures were capitalized and amortized over five years). The legislation also modifies international tax provisions, including changes to the FDII regime. Specifically, it renames FDII as Foreign-Derived Deduction Eligible Income (FDDEI), maintains the current FDDEI effective tax rate of 13% through fiscal 2026 and adjusts the FDDEI effective tax rate to a permanent 14% rate in fiscal 2027 (compared to 16% under prior law). As a result of these changes, we expect to be subject to the corporate alternative minimum tax (CAMT) beginning in fiscal 2026. CAMT imposes a 15% federal minimum tax on adjusted financial statement income, reduced by general business credits, including research and development credits. As we expect to perpetually be subject to CAMT, we no longer expect to realize substantially all of our existing federal deferred tax assets and recognized a charge of $5.7 billion to income tax expense to establish a valuation allowance in the fourth quarter of fiscal 2025.

Beginning in fiscal 2023 and through fiscal 2025, for federal income tax purposes, we were required to capitalize and amortize domestic research and development expenditures over five years (such expenditures were previously deducted as incurred). Our cash flows from operations were adversely affected due to significantly higher cash tax payments. However, since the resulting deferred tax asset was established at the statutory rate of 21% (rather than the current effective tax rate of 13% after considering the FDII deduction), capitalization favorably affected our total provision for income taxes and results of operations. With the enactment of OBBB, such impacts on our cash flows and tax provision are not expected to continue beginning in fiscal 2026. Changes in future taxable income (including less of our income qualifying for preferential treatment as FDDEI), tax laws (including changes to the CAMT rules) and other factors may change our determination regarding whether we will be able to realize our deferred tax assets.

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Segment Results

The following should be read in conjunction with the fiscal 2025 and 2024 results

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