The global semiconductor industry experienced a dynamic week marked by significant policy initiatives, revealing Qualcomm earnings reports, and the challenging chip supply chains.

Governments continued vigorously trying to reshape supply chains while market signals highlighted persistent economic and geopolitical challenges. 

Qualcomm beats earnings, but future headwinds loom

Last week, Qualcomm reported results for its second fiscal quarter of 2025 (ending March 2025), exceeding analyst expectations but issuing a cautious outlook that concerned investors. 

The company posted revenue of approximately $10.9 billion, a 17% year-over-year increase, and adjusted earnings per share of $2.85, beating consensus forecasts.

Performance rose due to the core chip sales segment (QCT), which generated $9.5 billion. The critical Mobile Handset division contributed $6.93 billion, up 12% year-over-year. Diversification efforts in Automotive ($959 million, up 59% YoY) and Internet of Things ($1.58 billion) showed strong percentage growth. However, the licensing arm (QTL) remained flat year-over-year at $1.32 billion.

Despite the earnings beat, Qualcomm’s stock declined following the announcement. This adverse reaction was mainly due to the company’s cautious guidance for the third fiscal quarter, projecting revenue between $9.9 billion and $10.7 billion, with the midpoint ($10.3 billion) slightly below analyst expectations.

Qualcomm management cited several factors for the subdued outlook: ongoing macroeconomic pressures and, crucially, uncertainty regarding the impact of the global trade landscape, particularly potential tariffs. 

While no “material direct impact” was reported, the risk associated with tariffs affecting demand for devices using Qualcomm chips (especially smartphones assembled in China) or disrupting supply chains remains a significant concern for investors. Qualcomm’s substantial revenue exposure to China (estimated up to 66% by some analysts) makes it particularly sensitive to these tensions.

Another persistent anxiety is Apple’s ongoing effort to replace Qualcomm’s modem chips with its in-house designs. Apple is a crucial customer, accounting for over 20% of Qualcomm’s revenue. The potential for a broader transition across iPhone models, possibly by 2027, poses a significant threat to chip sales and high-margin licensing income. Underlying softness in the overall smartphone market also contributes to the cautious forecast.

“Within the Apple product business, as we’ve said, we expect our share to go lower in the launches that happened in the fall,” said Akash Palkhiwala, Chief Financial Officer and Chief Operating Officer, during the earnings conference call. 

The market’s sharp reaction highlights how heavily investors weigh future risks like geopolitical uncertainty and customer concentration. While diversification efforts show promise, they are still relatively small compared to the core mobile business. 

The stagnation in the QTL licensing division also raises questions about the health of this historically lucrative model, potentially due to market slowdowns or regulatory pressures. This puts more pressure on chip sales and diversification for future profitability.

U.S.  pushes further to boost chip factories

Building on the foundation of the 2022 CHIPS and Science Act, which introduced the Advanced Manufacturing Investment Credit (AMIC) offering a 25% tax credit for qualified domestic semiconductor investments, new legislation has reached the U.S. House of Representatives. Introduced on May 1st, the Building Advanced Semiconductors Investment Credit (BASIC) Act seeks to enhance this incentive significantly.

The proposed BASIC Act aims to strengthen the existing AMIC by increasing the investment tax credit rate from 25% to 35% and extending its availability.

Some sources suggest a four-year extension; legislative text cited by sponsoring Congresswoman Claudia Tenney’s office points to an extension through December 31st, 2030.

“To restore America as a manufacturing powerhouse, we must empower American companies with the tools they need to succeed. The BASIC Act extends and expands the manufacturing investment credit, encouraging investment in the U.S. economy and enabling companies like Micron to build factories in New York,” said Tenney (NY), the lead proponent of the legislation.

This legislation works hand in hand with the Trump administration to revitalize American manufacturing and bring jobs back to the United States,” said Congresswoman Claudia Tenney (NY), the lead proponent of the legislation.

Industry leaders, including TSMC’s Senior vice president Peter Cleveland, have highlighted these disparities. They view the legislation as crucial for securing long-term investment and addressing an “unfair edge” foreign rivals hold. The bill is also positioned as vital for ensuring U.S. leadership in technology, aligning with broader economic and national security goals.

The Semiconductor Industry Association (SIA) has voiced strong support, calling the BASIC Act a “welcome effort” and “critical” for U.S. competitiveness and sustained technology leadership.

The substantial capital and multi-year timelines involved in building modern fabrication plants make long-term policy certainty highly valuable, and the extended duration offers crucial planning stability. 

Efforts to potentially expand the credit to include research and development (R&D) and design activities, as the SIA advocates suggest a move towards a more comprehensive strategy for fostering a resilient domestic value chain.

Europe faces critical reliance on Chinese legacy chips

Across the Atlantic, a stark warning from the European Court of Auditors (ECA), the EU’s fiscal watchdog, underscored the bloc’s strategic vulnerabilities, particularly concerning China’s mature-node or “legacy” chips. 

Despite hosting world-class companies like Infineon, NXP, and STMicroelectronics, domestic production capacity is not meeting demand. 

In a report published on April 28th, the ECA stated the EU is “dangerously reliant” on China for these chips, with approximately one-third of such imports originating there. This dependency is significant because legacy chips are indispensable components in critical European industries, including automotive, consumer appliances, medical devices, and defense.

The auditors cast doubt on the EU’s ability to achieve its ambitious European Chips Act goal of doubling its global semiconductor value chain share to 20% by 2030, labeling the target as “aspirational” and unrealistic. 

“The Chips Act was prepared in urgency, meaning the procedures usually applied when preparing legislation were not followed, such as evaluation of previous strategies, and an impact analysis of the proposal,” says the report.

The European Commission’s revised forecast projects only an 11.7% market share by 2030. The EU also recorded substantial semiconductor trade deficits in 2024, including a €9.8 billion deficit with China.

The issue is particularly acute for legacy chips. Analysis suggests a significant EU supply gap for legacy chips, requiring substantial imports by 2030. Simultaneously, China is aggressively expanding its mature-node capacity, projected to account for 40% of the global buildout in this segment by 2030.

This reliance on Chinese legacy chip imports creates significant economic security risks and potential vulnerability amidst geopolitical tensions. Concerns are mounting that this dependence could undermine EU strategic autonomy, particularly as these chips are vital for technologies associated with the green transition, suggesting widening trade deficits. 

An ECA member, Annemie Turtelboom, highlighted that even reliance on traditional allies could suffer from geopolitical friction, necessitating diversification. In response, the EU and the U.S. have begun investigating potential dependencies and unfair pricing or subsidization by Chinese competitors.

However, navigating this situation is complex. Some European industry leaders caution against overly aggressive measures, noting that Europe currently needs legacy chips produced in China due to insufficient domestic supply, and protectionist actions could disrupt critical supply chains, especially for the automotive sector. 

Constant supply chain challenges 

The situation underscores the difficulty of significantly boosting domestic production of mature technologies in the face of intense global cost competition and deeply integrated supply chains.

The semiconductor industry navigated significant policy shifts, earnings reports, and the increasing demands of AI. The U.S. proposed the BASIC Act to enhance and extend tax credits for domestic chip manufacturing to counter foreign competition and secure technology leadership. Europe faces critical reliance on Chinese legacy chips, casting doubt on its ambitious Chips Act goals. 

From EETimes