Shares in US chip giant Qualcomm slid over 6% in after-hours trading despite reporting a 10% year-on-year revenue increase to US$10.4 billion (A$16 billion) for its fiscal third quarter, as smartphone chip sales came in below expectations.

Handset revenues rose 7% to US$6.33 billion, falling short of analysts’ forecast of US$6.48 billion, raising investor concerns about slowing smartphone demand and the impact of global trade tensions on the sector.

Qualcomm, which supplies processors and modems to top-tier smartphones including Apple and Samsung, continues to diversify beyond handsets, with strong growth in its automotive and IoT divisions.

Automotive chip sales surged 21% to US$984 million, while IoT revenues climbed 24% to US$1.68 billion.

Combined, these segments contributed US$2.7 billion – up 23% year-on-year – highlighting Qualcomm’s pivot towards next-gen connected devices and vehicles.

Third-quarter non-GAAP earnings per share hit US$2.77, beating analyst estimates of US$2.72.

Qualcomm returned US$3.8 billion to shareholders through dividends and buybacks.

Looking ahead, Qualcomm guided Q4 revenue between US$10.3 billion and US$11.1 billion and EPS of US$2.75 to US$2.95, slightly above mid-range expectations.

Despite solid execution, investors remain wary.

The smartphone segment – still Qualcomm’s core revenue driver – faces mounting challenges, with global chipmakers including Intel and Texas Instruments also issuing cautious forecasts.

Adding to the uncertainty is Apple’s in-house modem development, which threatens Qualcomm’s long-term iPhone modem supply.

Although Apple has yet to fully replace Qualcomm’s components, it has already deployed its own modem in the entry-level iPhone 16e.

Qualcomm is also making strategic moves, including a US$2.4 billion deal to acquire Alphawave Semi, boosting its wired connectivity and compute capabilities.

The company showcased a major AI breakthrough this quarter, demonstrating a 1 billion parameter model running locally on smart glasses.

While Qualcomm’s diversification strategy shows promise, weaker-than-expected handset sales cast a shadow over its near-term outlook.