No Fabs, and That Was the Right AnswerNarrow moat

Qualcomm (QCOM) — moat facet

Spending on engineers instead of factories is why a $44 billion company earns forty-percent returns on capital.

Qualcomm owns no fabs, and in a decade when owning fabs became the strategic question in semiconductors, that turned out to be the right answer twice over.

Where the money goes, FY2025 ($M)$19,738MCost of revenues$12,355MOperating income$9,042MResearch &development$3,110MSelling, general& adminNo fabrication capacity anywhere in this picture — $9.0bn goes into engineers instead.
Spending on people rather than plant is why the returns look like this.

The company designs, and TSMC and Samsung build. What that buys is the ability to spend on engineering rather than on capacity: $9,042 million of research and development in fiscal 2025, the largest line in the cost structure, larger than cost of revenues at the licensing business by a factor of six.1 It also buys returns on capital that a fab owner cannot reach — Qualcomm's has run between 22% and 49% since 2019 against a cost of capital nearer 10%.2

The comparison worth making is with Texas Instruments, which owns its fabs and has spent six years and roughly $24 billion building more. TI's return on invested capital more than halved over that period as the capital piled up.3 Qualcomm's did not, because there was nothing to pile.

The cost of the arrangement is that Qualcomm's manufacturing advantage is rented, from the same foundry its competitors use. MediaTek buys leading-edge TSMC capacity too. So does Apple. On process technology, nobody in this market has an edge over anybody — which pushes the whole contest back onto design, integration and the licence.

Watch gross margin through a supply squeeze. A fabless company's costs are somebody else's prices.

Moat trajectory: Holding steady

The fabless model is working exactly as designed and nothing about it is improving or deteriorating — returns run in the twenties, capital stays small, and TSMC sets the input costs.

The number that tests this moat
Reported
Research and development
$9,042M — 20.4% of revenue

The largest line in the cost structure after cost of revenues, at a company that owns no fabrication capacity. The money a vertically integrated peer commits to capacity goes here instead, which is why returns on capital run in the twenties and forties rather than the low teens. It rose to 26% of a smaller revenue base in the June 2026 quarter.

Source: Qualcomm Form 10-K, FY2025 ↗
⚠ Threats to the moat
⚠ THREAT 01
Rented Manufacturing Means Rented Costs
The advantage rented from TSMC is available to MediaTek at the same counter, and in a squeeze the largest customer is served first.
References
  1. ReportedWhat that buys is the ability to spend on engineering rather than on capacity: $9,042 million of research and development in fiscal 2025, the largest line in the cost structure, larger than cost of revenues at the licensing business by a factor of six.
    Qualcomm Incorporated, Form 10-K FY2025 — consolidated statements of operations and the income-tax note. Revenues: equipment and services $37,869M and licensing $6,415M, total $44,284M (2024 $38,962M, 2023 $35,820M). Cost of revenues $19,738M, research and development $9,042M, selling, general and administrative $3,110M, other $39M, total costs and expenses $31,929M; operating income $12,355M (2024 $10,071M). Income before income taxes $12,663M; income tax expense $7,122M, driven primarily by a $5.7 billion charge to income tax expense to establish a valuation allowance as a result of the tax reform legislation included in the One Big Beautiful Bill; net income $5,541M against $10,142M in 2024. Diluted earnings per share $5.01 ($8.97, $6.42) on 1,105 million diluted shares (1,130, 1,126). Qualcomm intends to continue paying quarterly cash dividends. — FY2025 · publ. 2025-11-05 · source ↗
  2. ReportedWhat that buys is the ability to spend on engineering rather than on capacity: $9,042 million of research and development in fiscal 2025, the largest line in the cost structure, larger than cost of revenues at the licensing business by a factor of six. It also buys returns on capital that a fab owner cannot reach — Qualcomm's has run between 22% and 49% since 2019 against a cost of capital nearer 10%.
    Qualcomm Incorporated, Form 10-K FY2025 — consolidated statements of operations and the income-tax note. Revenues: equipment and services $37,869M and licensing $6,415M, total $44,284M (2024 $38,962M, 2023 $35,820M). Cost of revenues $19,738M, research and development $9,042M, selling, general and administrative $3,110M, other $39M, total costs and expenses $31,929M; operating income $12,355M (2024 $10,071M). Income before income taxes $12,663M; income tax expense $7,122M, driven primarily by a $5.7 billion charge to income tax expense to establish a valuation allowance as a result of the tax reform legislation included in the One Big Beautiful Bill; net income $5,541M against $10,142M in 2024. Diluted earnings per share $5.01 ($8.97, $6.42) on 1,105 million diluted shares (1,130, 1,126). Qualcomm intends to continue paying quarterly cash dividends. — FY2025 · publ. 2025-11-05 · source ↗
  3. ReportedTexas Instruments owns its fabs and spent roughly $24 billion on capacity over six years, with return on invested capital falling from 49.8% to 17.6% over the same period.
    Texas Instruments Incorporated, Form 10-K FY2025 — Management's Discussion and Analysis, cash flow statement and the free-cash-flow reconciliation. Cash flow from operations $7,153M (2024 $6,318M), 40.5% of revenue; capital expenditures $4,550M (2024 $4,820M); proceeds from CHIPS Act incentives $335M; free cash flow $2,938M (2024 $1,498M), 16.6% of revenue. In 2025 TI invested $3.94bn in R&D and SG&A, invested $4.55bn in capital expenditures and returned $6.48bn to shareholders. Dividends paid were $4,999M against $4,795M in 2024 and $4,557M in 2023, reflecting an increased dividend rate; $1,477M was used to repurchase 8.5 million shares against $929M for 4.7 million shares in 2024. Net proceeds of $1,199M were received from the issuance of fixed-rate long-term debt and $750M of maturing debt retired. Over the ten-year period from 2016 to 2025 TI allocated $109 billion, of which about $24 billion went to capital expenditures, and states it is near completion of its six-year elevated capital expenditure cycle. The dividend was raised 4% to $1.42 per share per quarter, marking 22 consecutive years of increases, since extended to 23. The One Big Beautiful Bill Act, enacted 4 July 2025, provided for expensing of US research and eligible capital expenditure and increased the CHIPS Act investment tax credit; TI expects the effective tax rate and tax-related cash payments to be lower than under prior law from 2026. — FY2025 · publ. 2026-02-06 · source ↗
Sources
Generated September 23, 2026