Qualcomm Inc said on Wednesday it expects sales from its data center business to reach $15 billion by 2029 as it shifts its focus away from core smartphone chips. The company's shares rose more than 12% in after-hours trading Wednesday on the news.
Qualcomm Chief Financial Officer Akash Palkhiwala said at an investor presentation that the data center business will bring in $5 billion in revenue in fiscal 2027, of which $1 billion will come from new custom chip customers.
Qualcomm also said it expects chip revenue outside smartphones to reach $40 billion by 2029, up from its previous forecast of $22 billion, and that mobile phone chips will account for just one-third of its chip revenue by then.
"We're going to really diversify," Palkhiwala said.
Shares of Arm Holdings, which provides the underlying technology for many of Qualcomm's chips, also rose 5% after the forecast.
Analysts at Bank of America have previously stated that Qualcomm's data center business is expected to bring in annual revenue of approximately US$2 billion to US$5 billion by the 2027-2028 fiscal year.
Earlier in the day, Qualcomm said its new AI chips would be used by Microsoft and Meta Platforms, and that it would also customize chips for two other unnamed "hyperscale cloud service providers."
Qualcomm's shift into AI chips reflects growing pressure on the smartphone market. The smartphone market has been shrinking due to a shortage of memory chips caused by surging demand for AI infrastructure and as major customers such as Apple and Samsung develop their own chips.
The chipmaker said Wednesday that Microsoft will use its new chip, which uses low-cost memory chips commonly used in smartphones and laptops, rather than the expensive high-bandwidth chips used by Nvidia and the SRAM memory used by Cerebras Systems.
The company calls this new chip High Bandwidth Compute (HBC).
Tony Pialis, head of Qualcomm's data center, said: "In terms of price/performance, we bring tremendous value to the industry."
Qualcomm said Meta will use its new CPU, the Dragonfly C1000, designed for artificial intelligence data centers, entering a market where Arm Holdings and Nvidia are aggressively courting customers.
Pialis also revealed that Qualcomm has won two large customers - known in the computing industry as "hyperscale cloud service providers" - for which it will customize chips and start generating revenue by the end of this year.
"I didn't have to fight for hyperscale cloud service provider customers; they attracted us," Pialis said, without naming the customers.