Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, July 31, 2024. The playback number for today's call is (877) 660-6853, International callers, please dial (201) 612-7415. The playback reservation number is 13747430. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q3, we delivered non-GAAP revenues of $9.4 billion and non-GAAP earnings per share of $2.33, which was above the midpoint of our guidance range. Revenues from our chipset business of $8.1 billion reflect a sequential growth in automotive and IoT and continued traction of our Snapdragon mobile platforms across leading smartphones. Our automotive and IoT revenues were the result of ongoing execution of our diversification strategy. Licensing business revenues were $1.3 billion. Now I would like to share some key highlights from the business. In automotive, we secured more than 10 new design wins with global automakers during the quarter. These include next-generation digital cockpit connectivity and/or ADAS and autonomy. Our Snapdragon Digital Chassis continue to scale across virtually all OEMs and is now a key asset for the automotive industry. As we look forward, we're focused on extending our industry-leading on-device AI solutions to the Snapdragon Digital Chassis to enable automotive-centric Gen AI use cases and applications. It's important to note that our architecture with capabilities across all domains is uniquely positioned to enable sensor data to be utilized simultaneously for ADAS autonomy workloads and user-centric Gen AI experiences in the digital cockpit. A great example is our Snapdragon Ride Flex solution, which combines digital cockpit and ADAS on a single SoC. Future drivers for automotive growth include Gen AI experiences the software-defined vehicle transition, central computing replacing microcontrollers, expansion into 2-wheelers and core to cloud services. In handsets, we are pleased that all Galaxy Z Fold6 and Flip6 are powered by the Snapdragon 803 for Galaxy, delivering extraordinary AI capabilities premium level performance and power efficiency for foldable devices. Together with Samsung and our other partners, we continue to push the boundaries of own device Gen AI on mobile devices. To that end, we're pleased with the growth and trajectory of AI use cases on smartphones. This continued expansion of AI features is a precursor to next-generation smartphones which we believe will become AI-centric with pervasive on-device AI working across applications in the cloud. Qualcomm is very well-positioned to help drive this transformation across the industry in the coming years. At our upcoming Snapdragon Summit in October, we will reveal details of our next-generation Snapdragon 8 flagship mobile platform, the first to be powered by our custom Oryon CPU. This platform, combined with new and unparalleled NPU AI capabilities is already exceeding both our and our customers' performance expectations. In compute, we're very pleased that Copilot+ PCs powered exclusively by Snapdragon X Series platforms became available for purchase on June 18. This marks the start of one of the most significant transitions in personal computing since the launch of Windows 95 and is restoring performance leadership back to the Windows ecosystem. 20 Copilot+ PCs from Microsoft, Dell, HP, Lenovo, Acer, ASUS and Samsung are now available across 20 countries and 47 retailers. It's important to highlight the unique Copilot+ and Snapdragon ex-elite dedicated retail spaces in Best Buy, Costco, Curies, Harvey Norman and many more. We are very pleased with the initial response with several models sold out at retailers and online. Our retail presence is expected to expand to more than 60 retailers across 25 countries in the coming months. We're also working closely with more than 50 global commercial customers to drive Snapdragon readiness in their respective environments. Additionally, we added the Snapdragon X Series platforms to the Qualcomm AI hub, allowing developers to easily take advantage of optimized AI models to create responsive power-efficient and compelling on-device generative AI applications for Copilot+ PCs. As we look forward to 2025, we are already working with OEMs on the next wave of Copilot+ PCs. In addition to new design wins, our X Series product road map will expand to address PCs with retail prices as low as $700 without compromising NPU performance. Longer term, we believe the benefits of Snapdragon X Series platforms make it clear that the PC ecosystem has begun the transition to an ARM-compatible architecture. As we look forward, we're forecasting that at least of PCs will be AI capable by 2027. Given our clear technology leadership and competitive road map we expect to be positioned as one of the top silicon suppliers for these devices. We also remain excited about the continued positive momentum in XR, particularly the success of Meta's Ray-Ban smart glasses. Sales are exceeding our expectations due in part to the integration of Llama into the experience. We foresee an acceleration in demand for extended and mixed reality devices as new use cases enabled by Gen AI gain scale. Snapdragon XR remains the industry platform of choice, and we are engaged with major ecosystem players, including Meta, Google, Microsoft, and others. Most recently, at the Augmented World Expo will showcase 2 of the latest XR devices, NTT's augmented reality glasses and Sony's upcoming head-mounted mixed reality device. In industrial IoT, we're pleased to report that we're now collaborating with Aramco on connectivity, AI and advanced computing solutions for industrial and enterprise use cases in Saudi Arabia. This also includes accelerating development of the industrial 4G, 5G and non-terrestrial networks ecosystem, including the first significant wide area private cellular network for IoT. As the industrial sector is transformed by AI, we expect an increase in demand for more complex on-device processing. This trend aligns well with our core capabilities, especially the computing and AI road map we have built for Auto and PC. As high-performance processing and intelligence at the edge becomes critical for the next phase of enterprise digital transformation, we see a unique opportunity to build a leadership position in this space. In the next few months, we will announce our new dedicated product road map for industrial IoT and including support for multiple operating systems, ability to run multibillion parameter AI models in a comprehensive development platform. Finally, we're very pleased to share that we recently signed a key long-term licensing agreement with Honor, a leading Chinese smartphone OEM. We continue to be pleased with the company's diversification beyond mobile, and we're particularly proud of what we have accomplished to date in automotive and PC. We will provide additional updates on our diversification strategy at our Investor Day in New York on November 19. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Matt Ramsay:

I have a couple of questions, guys, really highlighting some of the diversification the company is now starting to deliver on in the revenue. I guess the first one is in the automotive business, some pretty big upside there. And maybe you could talk a little bit about like the -- you're seeing some of this revenue come through now in OEM programs that no doubt you won 2 or 3 years ago. Do you think that continues as we roll through the next several quarters? I mean what kind of momentum could we see as some of these units start to roll out from, I guess, the programs you won a long time back? And then Cristiano on the second one, people keep asking lots of questions about AI PCs. As you know, you're getting really close here to when the holiday ramp period would start for you to sell in units. So maybe you could give us your current take on your expectations of what the PC market could bring in terms of units or revenue for your company as we look forward into the next fiscal year.

Operator:

Our next question is from the line of Samik Chatterjee with JPMorgan.

Cristiano Amon:

Thank you for your question, Samik. So on smartphones, I would start by saying one thing that we really like. And I think it was reflected by some of the metrics provided by Akash he talks about in his remarks, 50% growth within China with Chinese OEMs. So I has expanded the size of the premium tier. So even in a market which it's kind of flattish to low single-digits in growth. The premium tier is actually growing faster. And we've seen that. We're seeing a larger premium tier enabled by AI. And to your specific question, we are happy with the trajectory of AI features. We used to have a few. Now we have tens of AI features. And eventually, when they get to 100, we're going to start to see a change that -- a smartphone with AI feature will become an AI smartphone. We don't have any heroic assumptions in our model, but we actually like the direction this is going that could create an interesting upside if we have an AI-driven upgrade cycle. It's still early in the process, but the use cases are becoming more interesting. I pointed to the increase of use cases in the Galaxy Flip6 and Fold6. China has a number of use cases. They're going to be launched in the next flagship. And I know you asked about bringing AI to the master. We intend to do that. The same thing we're doing with the PC which is as we expand the road map, we're not compromising on AI capabilities. We're going to see us doing that within our mobile road map. But on the premium tier, I'm actually very excited given the upcoming launch of our next Snapdragon that has our custom CPU. And you're going to see the same shift in performance that we have done in the PC ecosystem restoring the performance back to the Windows ecosystem, you're going to see doing us something similar in phones. And AI is going to be a big part of the story.

Akash Palkhiwala:

Yes. Thanks, Samik. Samik, we're pretty happy with the way the quarter has played out, right? If you look at our handset business, we are growing. We are -- we're guiding that will grow low single-digit percentage on a quarter-over-quarter basis. IoT, we're guiding low double-digit growth, and we're seeing strength across industrial edge networking and consumer. And then auto coming off of an extremely strong quarter in June, we're guiding flat revenue in the September quarter. And so all of these, both IoT and automotive are incremental to our previous expectations, and you're seeing that benefit show up in our guidance.

Chris Caso:

I guess first question is just a clarification on the extra week in the quarter that you referred to. Can you speak about what impact you might expect it to have on both revenue and cost? And if there's any implications on that the absence of the extra week, as you go into the following quarter, which is obviously a seasonally strong quarter.

Chris Caso:

Okay. Understood. And then moving over to QTL. The guidance for the fourth quarter is -- it's outside of the range that you have been talking about before. You haven't changed your expectation for global handset units. So can you speak to the reason for the QTL guidance and if that's sustainable going forward because typically, the first quarter is a stronger quarter for that segment.

Operator:

Our next question is from the line of Stacy Rasgon with Bernstein Research.

Akash Palkhiwala:

Sure, Stacy. So as you know, well, we typically grow into the first quarter into the December quarter, and we're expecting that it's a seasonally strongest quarter of the year going forward. And as we think about the quarter, there couple of factors we consider. First is the launch of our new Android premium tier chip, which is going to be a tailwind for us. We do go back from the 16 weeks -- 14 weeks back to 13 weeks within the quarter. And then relative to last year, we'll not have Huawei product revenue going forward, which we did have last year. So net of all of this, when you look at a year-over-year basis, we expect revenue to be largely -- revenue growth to be largely consistent with the year-over-year growth we saw in December quarter last year.

Akash Palkhiwala:

Yes. I mean Stacy and all candor, we're a few weeks into our launch. And so it's too early to kind of have either a bullish assumption or a specific assumption on PC. We do have indications from our customers and we've tried our best to factor it in as we usually do. But as Cristiano said, to us, this is about kind of the longer-term growth opportunity and being very specific on sell-through in the short term is not really something that we have insight into. But we will, as we get to Investor Day, we're going to give a lot more disclosure on our specific plans on revenue ramp.

Joe Moore:

I wanted to come back to the 50% growth in China handset. And it sounds like you talked about growth in the premium tier there. Can you kind of give us a sense of how much of that is price versus units? And is that -- is the market expanding? And then maybe market share commentary because your numbers seem better than your competitor.

Operator:

Our next question is from the line of Christopher Rolland with Susquehanna.

Alex Rogers:

Chris, this is Alex. Thanks for the question. So if you look at the licensing progress basically over the last year or so, we set out to execute on a number of renewals and extensions. And we've done actually a really good job doing that. The most recent was getting on or signed up to a long-term agreement. And then, as you know, Apple extended through '27. But we also noted recently that we have 2 major Chinese OEM signed long term. Well, we haven't named them, but they are significant handset manufacturers. And then we're working through negotiations with others that we still have optimistic expectations in terms of getting them signed up. We also recently announced that we signed up tranching to a 5G license, and we're still negotiating with them. There's some litigation ongoing, but I think the important thing is to focus on the 5G license with that company and the ongoing negotiations. So Huawei is a company that we've been engaged with, just like the others in terms of trying to move negotiations forward. We expect that to continue. We don't really have any news on that just yet.

Operator:

Our next question is from the line of Ross Seymore with Deutsche Bank.

Cristiano Amon:

All right. Thanks for your question, Ross, loaded question. So I'm going to have to unpack one by one. I think the first part of the question, how do we think about modem technology. We feel pretty good about our modem technology. I think this is one of the core competencies of the company. We continue to be the number 1 company in the country in a number of wireless patents and extended essential patents and continue to be the company pushing for the road map. As it relates to our business with Apple, we still operate with the framework that we provided to you all. I think when we extended the chipset agreement, and we expect to be operating within that. We have no new update to provide it everything above what we said before is an upside. So we don't have that in our financial planning assumptions above what we had disclosure. When we think about the application processor, I think the conversation is a little bit more interesting because we have always said the leadership in AI performance, we always had the leadership and sustained peak and sustained performance in mobile gaming in other applications with our Adreno GPU. And now for the first time in a while, we're going to have our own custom CPU, which will be announced at the Snapdragon Summit and will be in the flagship devices launching towards the end of the year, beginning of 2025. So I will argue that our application processor advantage is accelerating. And as I said in this earnings, I think the launch of the Copilot+ PC was really a graduation for Qualcomm as it used to be perceived as a communications company isn't really a computing company. To the point that now we become the benchmark for others to follow within the PC industry. And I think that is going to be reflected in -- in the handset as well as we have our own custom CPU. As it relates to relationship with Samsung, we have executed agreements with them. It's largely consistent to what you have seen with the launch of the GS24, how is that going to continue. We're pretty happy with the relationship. And I think we both have a lot of opportunity with the AI coming into premium smartphones.

Akash Palkhiwala:

Sure, Ross. So that comment was really focused on overall company, so not just QCT, but the overall Qualcomm metrics. From a gross margin perspective, we did slightly better than we expected. We had guided in the third quarter. And what we're doing is we're guiding fourth quarter in line with the guidance we had provided for third quarter. I think as you look forward beyond fourth quarter into fiscal '25 using fourth quarter as a way to model the going-forward path is a reasonable way of thinking about it.

Tal Liani:

Can you hear me?

Tal Liani:

Okay. Perfect. Sorry. So I need help to define your addressable market in compute, meaning. Is it mostly about consumer laptops, enterprise? How do you envision your addressable market in the compute segment? And the second thing is you talked a lot about AI, AI inclusion in handsets. When we talk to carriers, they seem to be far away from it in the sense that they can't find the applications yet. What do you -- what do you think is going to drive the deployment? What kind of applications and what's the timing of applications that will drive the deployment of AI in handsets?

Akash Palkhiwala:

It was on AI applications.

Operator:

Our last question is from Tom O'Malley with Barclays.

Cristiano Amon:

Thank you, Tom. Actually, I appreciate the question. I really like the question to give me an opportunity to explain this. You should think of Qualcomm -- we're not just trying to build one big business of differentiation. Actually, we're building a number of business -- I'm sorry, of diversification. We're really focused on this. And when we talk about Auto Investor Day, that was actually in September 2022, we kind of outline how that is going to be turning into a big platform for Qualcomm and building into the financials. And then hopefully, you can see now, especially with this quarter, that's materializing. And that will continue. That's not going away. We expect -- given the size of our pipeline, we talk about $4 billion in '26. We talk about $9 billion towards the end of the decade. We're on track to do that. But the second one is PCs. And as we get -- it's early. As I said, we're very happy. It's exceeding our expectations. Some models sold out. We just launched. I think when we get to the Investor Day, we probably will feel comfortable putting a metric out there of what that's going to represent and how that's going to grow over time when we think about the total contribution to Qualcomm. That's one they're very excited. But we don't stop there. The next one, and I encourage you to so what we're going to do next quarter, I think AI and computing, it's driving the industrial road map towards Qualcomm. So we we're completely redesigning our industrial road map, and we're going to unveil that road map in the coming months. So we think about this as -- there are many markets that can benefit from technology. We're super focused on growth and diversification and it's about a number of bets, not just one bet.

Operator:

That concludes today's question-and-answer session. Mr. Amon you have anything further to add before adjourning the call?

Operator:

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Second Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded May 1, 2024. The playback number for today's call is (877) 660-6853, International callers, please dial (201) 612-7415. The playback reservation number is 13745532.

Mauricio Lopez-Hodoyan:

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala, in addition, Alex Rogers will join the question-and-answer session.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q2, we delivered non-GAAP revenues of $9.4 billion. Non-GAAP earnings per share of $2.44, was above the high end of our guidance. Revenues from our chipset business of $8 billion, reflect strong premium tier demand for Android smartphones and continued momentum in automotive.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Matthew Ramsay:

Cristiano, I wanted to ask you a question about sort of handset, modem and RF architecture as we move into sort of the era of AI in handsets and mobile devices, where I think it's likely that the compute system and the memory system of the phone take up more battery life potentially as we try to compute some of these applications for AI inference on the device.

Cristiano Amon:

Well, let me unpack this. I think as far as modern-RF, we believe we have a very competitive RF front end portfolio, and we have been really delivering unique features across the modem RF, especially on power. I -- as a general comment, not related to AI, but as general comment. I think as you look at RF AI running on device and AI running on the cloud modem becomes more important, especially things like latency of response or hybrid AI models has a new importance of real-time connectivity.

Operator:

Our next question is from the line of Samik Chatterjee with JPMorgan.

Samik Chatterjee:

Got it. And for my follow-up, maybe Akash, this is more for you. I mean when you talked about the seasonality into the June quarter, handset seasonality is sort of the typical seasonality that you see and the aggregate results or revenue being better than seasonal is really being driven by autos here with the low double rate growth that you talked about.

Akash Palkhiwala:

Yes. From an automotive perspective, as you know, we've given out a target of greater than $4 billion revenue in fiscal '26. And what you're seeing is really our design win pipeline materializing into revenue on our way to that number. And so that's the framework as to how I think about it.

Operator:

Our next question is from Mike Walkley with Canaccord Genuity.

Akash Palkhiwala:

Yes. So as you'll recall, Mike, we had said earlier that we expect the third quarter to be the low quarter from a financial perspective, just given the seasonality of our business. That still holds true. So as we go from third to fourth quarter and then into fiscal first quarter, which is the December quarter, we expect growth as new launches of phones happen across all major OEMs.

T. Michael Walkley:

Great. That's very helpful. And maybe just for a quick follow-up on the IoT business. It sounds like March is the bottom, as you laid out. Can you maybe update us on the 3 segments, just what you're seeing in terms of the inventory correction?

Operator:

Our next question comes from Stacy Rasgon with Bernstein Research.

Cristiano Amon:

Stacy, thanks for the question. We have a lot of product momentum right now and especially with all the launches, I would encourage everybody to go watch the Microsoft Build event, especially or what is happening with on device AI. There's a lot of product momentum and launches. As those devices started ramp up in volume. And since a lot of them are going to be back to school, it's going to be more of a fiscal '25 event in terms of being material within the IoT segment. Anything you'd like to add, Akash?

Cristiano Amon:

One thing we're going to do -- sorry, just real quick. One thing we're going to do, like we provide an update on auto this quarter. We're going to provide a more detailed update next quarter on PC, especially as we're going to have those devices are launched.

Akash Palkhiwala:

Yes. So Stacy, if you look at Huawei, as you've seen, they have launched multiple tiers of 5G devices already with their own chips. And clearly, we don't participate in those devices. What we are shipping at this point is the license that we have is for 4G chips. And as you rightly pointed out, it's at the low end of the spectrum. What we outlined in the Q is since the devices will eventually transition all to 5G, we don't expect any revenue from Huawei product business in '25.

Christopher Caso:

Question is on QTL. And it sounds like that you're starting to see some degree of improvement particularly among the China OEMs in the QCT business. But that has thus far hasn't translated to the QTL business. Can you talk about sort of the lag between the recovery in those segments and what your level of optimism or not is -- for sort of breaking out of this range in the QTL business. .

Christopher Caso:

Got it. That's helpful. As a follow-up, with regard to the AI handsets, a lot of the questions that we receive on this is, sort of why? And what are the applications, what are the reasons for a consumer to upgrade their handsets to AI. Cristiano, you talked about the developer hub that you're running, perhaps that gives you some insight into what the developers are doing, what's going on in the pipeline that will drive these AI handset sales?

Timothy Arcuri:

I wanted to ask about the mix of the business. And as you said, Akash, China is holding up quite well. It's up 40% year-over-year in the fiscal first half. But it's within shouting distance of kind of where it peaked on a quarterly basis back in fiscal '22 when they were obviously over building at that time. So can you talk a little bit about what's happening there? How much of the year-over-year growth is units versus pricing?

Akash Palkhiwala:

So of course, we'll not talk about any specific customer here, but I think I'd go back to the very first question that Cristiano answered. The key thing for us is the modem-RF architecture and how when we develop the end-to-end together, it creates an advantage for us in terms of performance, in terms of time to market for our customers as well. And that's a sustainable advantage that will stay going forward for us.

Tal Liani:

When I look at your numbers, you bid the numbers mainly on handsets. It's both for QTL and QCT, of course. And I'm trying to understand how much of the outperformance is just China versus the rest of the world. So when you look at the rest of the world, what were the trends when it comes to your QCT shipments and QTL? And then within China, where are we in the recovery cycle, right? There is ongoing growth, but there is -- what we are seeing now in the first half of the year is mainly recovery from last year. So are you now at normal levels? And from here, it should trend normally based on demand? Or are we still recovering from the low of last year?

Cristiano Amon:

A lot of people who [indiscernible]. But let me try to give you maybe an answer to help explain this. In first step, a lot of the increased content in ASP on QCT chipsets, including premium has been driven by the compute part. And it's more performance on the compute, CPU, GPU, the NPU.

Christopher Muse:

I guess I was hoping you could speak to QCT gross margins. They impressively held flat despite revenues down 5%. And I guess the real question here is not just how you did it this quarter, but how should we be thinking about as you bring on non-handset revenues to the model, what incremental gross margins might look like for QCT, particularly as we think about the AI PC and IoT as well as auto, given that growing backlog.

Christopher Muse:

Great. As a quick follow-up, on the auto side, you talked about the higher reiterated the $4 billion plus. Should we be thinking about kind of amortizing that 26-plus percent growth equally into fiscal '25-'26? Or might that come in sooner with faster growth.

Operator:

That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call?

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm First Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, January 31, 2024. Playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13743224. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mauricio Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q1, we delivered non-GAAP revenues of $9.9 billion and non-GAAP earnings per share of $2.75 above the high end of our guidance. Revenues from our chipset business of $8.4 billion reflect healthy Android demand and continued strong momentum in automotive. Licensing business revenues were $1.5 billion. We're pleased with these results, and I will now share some key highlights from the business. In handsets, the Snapdragon 8 Gen 3 mobile platform is setting a new standard for on-device gen AI experiences for premium smartphones and powers all through flagship Android devices launched and launching this fiscal year. Notably, the Snapdragon 8 Gen 3 mobile platform for Galaxy is featured in the recently announced Samsung Galaxy S24 Ultra globally, in addition to the GalaxS24 and S24 Plus in multiple regions. The GalaxS24-Series includes on-device AI features such as live translate, interpreter, chat assist, nitography and more. This marks the beginning of how gen AI will evolve the overall smartphone experience and highlights the significant opportunity for Snapdragon platforms. We're also announcing that we extended a multiyear agreement with Samsung relating to Snapdragon platforms for flagship Galaxy smartphone launches starting in 2024. The extended agreement demonstrates the value of Snapdragon 8, our technology leadership and our successful long-term strategic partnership with Samsung. In the quarter, we also announced the Snapdragon 7 Gen 3 mobile platform, which brings leading gen AI capabilities to high-tier Android smartphones and is a category leader in both experiences and performance. In our QTL business, we're pleased to share that we recently extended several key license agreements. First, Apple exercised its unilateral option to extend its global patent license agreement for an additional two years, taking the existing agreement through to March 2027; second, we have renewed long-term agreements with two significant Chinese smartphone OEMs. In addition, we continue to negotiate new agreements or renewals with other key licensees and OEMs, including some whose current agreements are set to expire in early fiscal 2025. Automotive continues to be an important pillar of our growth and diversification strategy. Notably, 75 new models launched commercially in 2023 were for technologies, highlighting Qualcomm's grown scale in automotive and execution of our design wins. Earlier this month at CES, we announced our collaboration with Bosch to have our Snapdragon Ride Flex SoC power their new central vehicle computer. As a reminder, Snapdragon Ride Flex enables the fusion of infotainment in ADAS functionalities on a single SoC enabling automakers to realize a unified central-compute and software-defined vehicle architecture that scales across tiers. Additionally, we demonstrated digital cockpits connected services and advanced driver systems enabled by gen AI models running locally on the Snapdragon platform. This new capabilities can be enabled on a number of existing designs via a softer upgrade. This represents significant new opportunities for Qualcomm and our partners. In PCs, we're driving towards the launch of Snapdragon X Elite in mid-2024 and are pleased that our design win traction continues to increase since the platform was announced last October. We expect Snapdragon X Elite to set the industry benchmark for on-device gen AI and copilot experiences in addition to leading performance and battery life for next-generation Windows PCs. We recently expanded our mixed reality solutions with the announcement of the Snapdragon XR2+ Gen 2. Our new platform supports 4.3k per eye resolution and 90 frames per second in 12 or more concurrent cameras to deliver crisp immersive mixed reality and virtual reality experiences. We are proud to partner with Samsung and Google to provide leading XR experiences to Galaxy users by utilizing Snapdragon XR2+ Gen 2. In edge networking, we announced the Snapdragon X35 5G Modern-RF system, the world's first commercial release 17 5G RedCap solution. The Snapdragon X35 brings a new class of purpose-built 5G for Internet of Things devices. Devices powered by Snapdragon X35 are expected to launch by the first half of 2024. We continue to believe that industrial edge devices with connectivity, high-performance computing and on device AI will become one of our largest addressable opportunities fueled by the secular trends of digital transformation. As such, we're accelerating our investments in solutions, ecosystem and broad channel enablement to position ourselves for growth while we navigate the industry-wide inventory draw down. One key area of focus is to enable our customers to unlock the potential of gen AI at the enterprise using our chipset solutions. As an example, Zebra Technologies and Toshiba recently demonstrated on-device gen AI capabilities for enterprise workflows and inventory management at retail self-checkout, respectively. Additionally, Honeywell showcased a Qualcomm-powered edge AI box for warehouse applications. As we complete the first quarter of fiscal '24, ahead of our expectations, I'm very optimistic about Qualcomm's trajectory and the opportunities ahead. The fundamentals of our growth drivers remain unchanged, our diversification strategy is working, and we're making significant progress across mobile, automotive, computing, XR, edge networking, industrial IoT and more. At the upcoming Mobile World Congress in Barcelona, we will provide an update on our seller modem and connectivity leadership as well as on our overall scale of Snapdragon gen AI. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Samik Chatterjee:

Hi. Thanks for taking my questions and congrats on the results here. Maybe if I can start with AI and particularly the launch of the Samsung S24. Now you have some incremental sort of experience in terms of devices launching in the market and the performance and consumer reception you're seeing to that. So I know you outlined adoption of 3G, 4G, but any way of giving us some flavor of what you're thinking in terms of adoption of these AI devices or AI on edge in terms of the smartphone market? How similar or different will that curve look like relative to 5G adoption? And any insights from the sort of pipeline you're working on will be helpful for us? Thank you and I have a follow-up.

Samik Chatterjee:

Yeah. Okay. Got it. And maybe just as a follow-up, the -- and the Android OBX customers of the Chinese OEMs you work with, they exceeded your expectation in the fiscal first quarter -- but as you're looking to the second quarter, you're guiding to a more flattish trajectory here? I know the industry has sort of been looking at inventory refill from those customers as well, driving some of the momentum. So just wondering if you can give us an update in terms of what you’re seeing from those customers? And if at all, Huawei and their reemerges in the market is starting to have an impact in terms of volume or market share for these customers as well in the context of your flat guide for them for quarter-over-quarter? Thank you.

Operator:

Our next question is from the line of Matt Ramsay with Cowen. Please proceed with your question.

Cristiano Amon:

Thanks for the question, Matt. The agreement that we announced at this earnings call, it is a multiyear agreement. We're not disclosing the duration, but there are several years into that agreement. And I think your observation is correct. I think it starts in 2024. I think as you look at the launch of GalaxS24 is a good proxy on how we should think about the agreement between us and Samsung. But most important is the thing that you outlined. Our road map is getting stronger over time, especially with our custom CPU coming to mobile, and we're aiming to have the leadership position in the mobile performance on CPU. And our NPU continue to expand as we -- as I mentioned before, we're just at the beginning of the gen AI transition. I think in summary, we're very pleased our relationship with Samsung, and it's a very long-term relationship with this customer.

Akash Palkhiwala:

Thank you, Matt, and thanks for our wishes. I'm looking forward in this new role to working with Cristiano and the executive team to kind of deliver on our long-term priorities. And of course, I'll continue to remain committed to my CFO role, working closely with the team here and maintaining consistency and transparency and looking forward to seeing a lot of you at upcoming events. On the margin side, what you saw in the first quarter is really the fact that our gross margins were stronger because the mix was richer (ph). We had a higher set of premium tier launches coming through and that impacted our volume, and we benefited from that mix -- richer mix. And if you look at our second quarter guide, we are guiding largely in line with how our first quarter came in. So that was obviously great to see. From an operating margin perspective, it's -- in addition to the strength in the gross margins obviously, the revenue scale and the actions we took on the OpEx also benefited. And so we were happy to -- extremely happy to deliver 31% operating margin in QCT and really focused on delivering to the long-term target we’ve outlined to the investors.

Mike Walkley:

Great. Thanks for taking my question and congrats on extending some of the licensing deals. I guess, just want to jump a little bit into the IoT business, the three segments, I assume, consumer is still weaker. But can you update us kind of how the inventory bleed is trending for the three business within IoT? And then within that question too, just on the recovery of IoT, share with us the X Elite ramp and how material this might become for IoT, say, in the next one to two years?

Cristiano Amon:

Look, your question about X Elite and in PC. It's too early. We're tracking to the launch of products with this chipset tied with the next version of Microsoft Windows that has a lot of the Windows AI capabilities. We're still maintaining the same date, which is driven by Windows, which is mid-2024, getting ready for back-to-school, what we're excited about it is since we announced that Tech Summit showing the performance of the product and the AI capabilities, design traction continue to increase. So we had increased the number of designs since last quarter. and we continue to march forward towards the launch. We like that everybody is now talking about on-device AI on PC. That's where we started this journey with X Elite. And I think that proved to be a tailwind to the opportunity for us in PCs.

Cristiano Amon:

No, absolutely. Thank you for your question. Look, let me step back a little bit and say we're extremely pleased with our performance in auto, especially when you look at the overall market. Right now you can look at Qualcomm results with record revenues and very strong, I think, year-over-year growth. In 2023, in this year that just closed, we launched 75 models with our silicon with a significant improvement in silicon content as it relates to those immersive cockpit and in many cases, processing for safety. So we're very happy with the business. And I think the answer to your question is, we are on track to meet our target that we said on the Auto Investor Day of $4 billion and $9 billion, respectively, I think for ‘26 at the end of the decade. So we’re on track for that. And the next quarter, we’re going to give you an update on the design win pipeline that continues to grow.

Stacy Rasgon:

Hi, guys. Thanks for taking my question. So given that you've got Android, Android was pretty strong in December, and it's flat into March. How are you thinking about June seasonality given all these trends and moving pieces? I know it's usually down a bit for March, but I guess in the current what are you thinking about June seasonality.

Stacy Rasgon:

Got it. Thank you. And so my follow-up, I just want to ask about Huawei -- was Huawei still completely out of the model in December? And is it out of the model in the March guidance?

Operator:

Our next question is from the line of Chris Caso with Wolfe Research. Please proceed with your question.

Akash Palkhiwala:

Yeah. So as we outlined for our handset market, when you look at calendar '24, overall market, we expect it to be flat to slightly up. But within that, 5G, obviously, is our target market, especially for the chip business, we expect that to be high-single digit to low double-digit up on a year-over-year basis. Within QTL, I will stick with the guidance we have given before. We think there's a scale to the business that's aligned with the handset market and the 2 will move in line. And then on the extensions of the license, I just wanted to make sure that I said this in my prepared remarks, but just to confirm, as a result of the extension, we do not expect any material change in our QCT licensing revenue run rate. So it's consistent with the program. In the QTL licensing revenue run rate, it's consistent with the program.

Cristiano Amon:

Thank you, Chris, for your question. Look, it's consistent, I think, with the strategy we outlined, I think, following the acquisition of Nuvia. In the past, Qualcomm has been designing now its own custom course. And I think the first instantiation of that was for PCs. Actually, if you remember, in the past, that was the key motivation as we embark on this journey to create a leading SoC for laptops for the Windows ecosystem. We needed to have the performance leadership and we needed to design our own CPU to deliver the results that we did with X Elite. Now we're taking that across the entire road map. Your observation is correct. As we take that into mobile next, we're seeing significant interest from our partners as it truly becomes a leadership position in the marketplace now across all course, not only graphics and AI but also CPU. And we’re not stopping there, following smartphone that’s going to go into our automotive business, and we’re excited about what the team has accomplished to date. Orion is really well positioned to be the leading CPU core in the industry.

Timothy Arcuri:

Thanks a lot. Can you talk about restocking in China? It looks like the China Android obviously, it was up a ton and it's being guided flat. Your peer was a bit cautious on this. Can you talk -- do you think you're shipping that to consumption? And do you think you're going to ship to consumption through the rest of the year? And then I had another question.

Timothy Arcuri :

Got it. And then now that you have the modem for longer for this one flagship customer, one can envision a scenario where maybe you can leverage that into some new RF content that you have not had in the past. Is this a scenario? I mean, it seems like it could add $1 billion maybe. I mean you were sort of running to $4 billion a year in your RFFE business prior to stopping to tell us what that is. So it seems like that is something you could potentially leverage the reliance on your modem business? Thanks.

Operator:

Our next question is from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Akash Palkhiwala:

Yeah, Ross. Thank you very much. From an OpEx perspective, really, the way we think about it is any hiring that we do will be very selective and focused on really acquiring new skills that are required for diversification. But other than that, we've gone through a reduction recently. We think we're at scale to a large extent, and we're committed to operating discipline.

Akash Palkhiwala:

I think the you framed it in your first theory is a reasonable way of thinking about it.

Tom O'Malley:

Thanks for taking the question. Just passing on my congratulations to Akash as well. I just wanted to ask on the ASP side for Android. You're obviously kind of characterizing the market that's flattish into March, kind of the bottom in June and then improving from there. But you benefited from some good mix in the beginning of the fiscal year here. Could you talk about what you would expect from a mix perspective as you go to the back half? Would you see the same kind of strength on the ASP side that you've kind of seen over the past year? That would be really helpful to understand. Thank you.

Tom O'Malley:

Helpful. And then just on the auto business, you've clearly seen some weaker data points just out of the ecosystem. Can you explain why your auto business may not be levered to some of like the ADAS areas where you've seen the particular weakness of late? And like when do those ADAS and win start layering on? Is that more of like a '25 story for you guys or '26. Just can you talk about the pipeline and when you see those more advanced wins kind of layering into the to the revenue stream? Thank you.

Tom O'Malley:

Thank you.

Tal Liani:

Thanks. I have two follow-ups on answers or questions you had before. The first one is Samsung. On one hand, there is a new contract. On the other hand, Samsung is going to use their own more in '24 versus '23. So net-net, are you expecting revenues of Samsung to go up or down in '24 versus '23? What are your expectations of share losses within -- can you frame it for us? And the second question is on the auto business. You had a phenomenal quarter. It's very different from the other auto companies, most of the other (ph) companies had weakness. What is the strength related to meaning is it share gain with certain customers? Is it new product or can you just put some color on the strength, the relative strength versus the others? Thanks.

Operator:

Thank you. That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call?

Operator:

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to Qualcomm’s Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded November 1, 2023. Playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 137-41-657. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q4, we delivered non-GAAP revenues of $8.7 billion, and non-GAAP earnings per share of $2.02 above the high-end of our guidance. Revenues from our chipset business of $7.4 billion reflect a more stable Android handset environment. Licensing business revenues were $1.3 billion. During the quarter, we also made significant progress on our leading technology and product road maps while improving operational efficiency. We remain fully focused on our future growth and diversification opportunities. Let me now discuss key highlights from the business. As we enter the age of generative AI, we're seeing an unprecedented pace of innovation. On-device Gen AI is evolving in parallel with Gen AI in the cloud enabling entirely new use cases. It has the potential to change how we interact with our devices making the user experience more natural intuitive, relevant and personal with increased immediacy, privacy and security. We have quickly established Qualcomm as a leader in on-device Gen AI for smartphones, next generation laptops, XR and automotive, and we are well-positioned to benefit from this opportunity. We expect high performance on-device AI to become a requirement over the next few years, driving content, units, or both. Our Snapdragon platform is highly differentiated from its competitors. First, we significantly increased the AI processing performance in power efficiency of our best-in-class NPU, CPU and GPU. Second, we are collaborating with multiple partners in ecosystems to enable a host of consumer and productivity based AI models running natively on our platform. Third, we're enabling multibillion parameter Gen AI models to run continuously and concurrently for multiple use cases, including multimodal. For example, in the latest Snapdragon 8 Gen 3 smartphone platform, state-of-the-art large language models, such as Llama and [Vicuna] (ph) up to 10 billion parameters are running at up to 20 tokens per second. And large vision models such as stable diffusion can generate images from text in less than one second with ultra-low power consumption. As always running on-device Gen AI becomes pervasive we believe it will create one of the most significant changes in user experience similar to the transition from the feature phone to the smartphone and the introduction of the graphical user interface for PCs. Snapdragon will play a significant role in this transformation. We also reached an important milestone in our expansion into PCs with the announcement of our Snapdragon X Elite platform. It is the result of a relentless pursuit to create the ultimate intelligent computing experience and establish Snapdragon as the industry leader in performance and power efficiency. The Snapdragon X Elite includes our first implementation of the custom Oryon CPU, which exceeds the multi-threaded CPU performance of any x86 or ARM competitor in its class. It also matches the single-threaded CPU peak performance of the leading x86 CPU competitors at 70% less power. Additionally, our premium integrated Adreno GPU delivers up to two times faster performance than the competition at ISO power or matches competitor peak PC performance as 74% less power. Snapdragon X Elite also features our newest Hexagon NPU. With 45 tops of performance, the Hexagon NPU is capable of running Gen AI models with over 13 billion parameters on-device. In total AI performance of the Snapdragon X Elite across CPU, GPU and NPU is 75 tops, the highest in the industry. Microsoft is redefining the entire Windows experience with the AI Copilot and the Snapdragon X Elite is built from the ground up for this opportunity. We look forward to PCs powered by Snapdragon X Elite from leading OEMs starting mid 2024. The merging of physical and digital spaces remains a significant future opportunity for Qualcomm and we recently launched a Snapdragon AR1 platform, our first dedicated platform for smart glasses. AR1 Gen 1 was developed in close collaboration with Meta and powers the new Ray-Ban Meta smart glasses. It features a dual ISP camera system for premium photos and videos as well as powerful on-device AI for image enhancement virtual assistance, real-time translation, visual search, and more. Together with Meta, we're developing next generation technologies to create the future of spatial computing. The AR1 Gen 1 along with a previously announced Snapdragon XR Gen 2 are a testament to the strength of this long standing partnership. Across the industry, Snapdragon remains the platform of choice for all leading VR, MR and AR designs. In networking, we continue to be a global Wi-Fi leader across enterprise and home networks as well as broadband gateways. Our Wi-Fi 7 solutions are seeing strong traction with more than 350 design wins across all categories to-date. We recently announced several new collaborations, including with Charter Communications in the U.S. and EE in the UK, both of which are preparing to roll out enhanced next generation Wi-Fi 7 connectivity to the residential and small and medium size business customers. We’re excited about the launch of our Fiber Gateway Platform which adds 10 gigabit passive optical network capabilities to our portfolio. With Fiber, in addition to 5G and Wi-Fi 7, we're now positioned to lead in next generation broadband solutions. Additionally, our unique service defined Wi-Fi technology signature feature introduced with our Wi-Fi platforms offers a unified data flow management architecture from cloud to device. It delivers orchestration, classification, scheduling, and insights to enable the end-to-end management of home networks in real-time optimizations across devices. In automotive, the digital transformation of the industry continues to bring new levels of computing, intelligence and cloud connectivity to the vehicle. These trends are driving new user experiences, advancements in driver assistance, autonomy, and safety. They also offer the potential for new revenue opportunities as vehicles gain the ability to evolve with over the air updates in digital services. The vehicle is becoming software defined and the Snapdragon Digital Chassis remain at the center of this transformation. We are pleased that our Digital Chassis solutions will bring advanced capabilities to the upcoming Cadillac ESCALADE IQ, which is planned for commercial production in 2024. The Cadillac ESCALADE IQ will be equipped with the Snapdragon Cockpit, Snapdragon Auto Connectivity and Snapdragon Ride platforms. Additionally, we're proud of our partnership with BMW for all vehicles as well as the upcoming Neue Klasse. We're also excited that the Snapdragon Digital Cockpit and Connectivity solutions now powered the new Mercedes Benz User Experience starting with the 2024 E-Class sedan. We recently expanded our Digital Chassis offering with the launch of two new platforms for two wheelers and other vehicle classes such as motorcycles, e-bikes, scooters and all-terrain vehicles. Our new platform design wins and launches with Gogoro Harley-Davidson and others are receiving positive feedback from the ecosystem on their ability to advance technology development and bring new user experiences to these vehicles. Finally, we announced a new long-term relationship with Amazon Web Services to enable automakers to integrate cloud technologies into their vehicle development lifecycle. The offering combines the Qualcomm Cloud AI 100 solution our Snapdragon Ride platforms as well as AWS breadth of services and capabilities. This will advance the future of software defined mobility and change how vehicles are designed and developed. In handsets, we announced our latest premium mobile platform the Snapdragon 8 Gen 3, which delivers industry leading performance and extraordinary experiences to consumers for the upcoming Gen AI era. Some key features include intelligent capture with the world's smartest AI powered camera, console level gaming with ray tracing with global illumination, studio quality audio, the world's first XSPAN technology, best-in-class connectivity, and the world's fastest on-device AI processing on a smartphone. We look forward to flagship device launches powered by the Snapdragon 8 Gen 3 by global OEMs and smartphone brands, including Xiaomi, Honor, OPPO, Vivo, OnePlus, Sony, and More. In addition, we recently entered into an agreement with Apple to apply Snapdragon 5G Modem-RF systems for smartphone launches in 2024, 2025 and 2026. This agreement reinforces our track record of sustained leadership across 5G technologies and products. We are proud of our ongoing relationship with Apple. As we look forward, our technology roadmap has never been stronger and the fundamentals of Qualcomm's growth drivers remain unchanged with significant opportunities in the coming years. We continue to focus on stockholder returns in executing on our ongoing diversification opportunities while maintaining operating discipline. I would now like to turn the call over to, Akash.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Samik Chatterjee:

Yes. Hi. Thank you. Thanks for taking my questions and, congrats on the results here. I guess if I can start with Cristiano your comments about on-device AI becoming pervasive in a few years, I think investors are largely looking for more sort of evidence and validation that this is going to be a key focus area for a lot of OEMs smartphones and other device OEM. So, as you look over the next sort of 12 to 18 months, what should investors look at in terms of more validation of either wins or revenues that you expect from the monetization of the trend, in relation to what investors can really look to as milestones to validate that this is actually going to be sort of playing out over the next three to four years. And I have a follow-up.

Samik Chatterjee:

Okay. Got it. And for my follow-up, I guess, you're sounding a lot more positive around the recovery in the Android OEMs, sort of the smartphone market. I think investors at the same time are grappling with the potential sort of puts and takes, particularly when it comes to your primary or a large, Android customer Samsung using more in house solutions going forward. So, when we think about sort of, seasonality beyond the December quarter, particularly around the launch periods, how should we think about your market share with Samsung progressing and what impact does that have on relative to your typical seasonality from December to March? Thank you.

Operator:

Our next question is from Matt Ramsay with Cowen. Please proceed with your question.

Cristiano Amon:

Thank you for the question, Matt. I think maybe separate and first, as we indicated in the last earnings call, I think we indicated that we don't have any more projection of selling our 4G, I think, SOCs to Huawei. And, going forward, we don't expect to have any significance, it's going to be a very small, I think, contribution from Huawei. I think the more interesting answer to your question, and that's the reason I provide the 35% data point, is as Huawei launched the device, we what we are seeing from our customers is continue, I think, growth from our customers on the Android side. We see a mix improvement of our customers moving towards flagship and, it's kind of reflected in our numbers. So it does not change, I think, the trajectory that we have with our Android customers in China. And there is a possibility that I think that Huawei is upgrading their existing customer base. You know there was a data point, there's about a 100 million Huawei former customers with a four to five year old Huawei phone, and that could have an impact on increasing the TAM.

Cristiano Amon:

Look, there's a lot to unpack here. I can speak about this for a whole day, but I'm going to try to be succinct. First thing, we're incredibly proud of the accomplishments of our team. I think, Snapdragon X Elite took the leadership position in this space for any mobile computing device. We're incredibly happy with performance of the new CPU, both single-threaded and multi-threaded performance. But not only that, I think it's important to highlight the AI processing capability because that's key to answer your question. If you look, versus announcements on NPU or some of the other ARM competitors. We had 45 tops performance on the NPU with a total tops performance on X Elite of 75. And that aligns with the transition that Microsoft is making towards a Windows AI future, especially the new services with the Copilot and everything we're doing with Microsoft, on-device working together on-device AI with the cloud and with the Azure endpoint. We're excited about that. And you should start thinking about the PC business, almost like the auto business. We're focused on next generation PCs, not existing PCs, and as those windows started to switch to Windows AI and our platform launches. it create opportunity for us to start gaining scale. Specifically to your question. Microsoft has been very active together with us of bringing a lot of applications natively through the platform. I think we had, a significant progress made across consumer in commercial applications. You continue to see announcements and Windows 11 can also run every, x86, 32, and 64 bit to the Microsoft emulation. We also made significant strides in the emulation performance. So, I think Snapdragon X Elite represents the results of this Microsoft Qualcomm collaboration. And I'll finish the answer by saying, if you look at the announcements of other computing companies talking about having an ARM based PC preprocessor, that is validation that that's our TAM now. It is going to be part of the expansion of TAM for Qualcomm. We're a new player and we look at this as a growth opportunity. We’re excited about it.

Mike Walkley:

Great. Thanks. A quick question for Akash. I think a strong cost execution coming in ahead of plan for exiting the fiscal ‘23, and flattish into the start to Q1. How should we think about OpEx level plan for the year? Is there more areas to cut or you think your main kind of flattish for the year from the good start?

Mike Walkley:

Great. Thanks. And kind of building on that, my follow-up question to you, Cristiano. Just to follow-up on the on-device, Gen AI opportunity, how should we think about the increased dollar content per device for Qualcomm or increased ASPs relative to your high-end Snapdragon shipped today? Thank you.

Akash Palkhiwala:

Well, and maybe just the other thing to keep in mind is outside handsets as we talk about PC opportunity. Of course, our AI leadership becomes extremely important there. And then also within IoT, we think about Gen AI as something that's going to be a key technology going forward. It'll expand our addressable market, expand the dollars we make per device on, in that area as well. So, it's a much broader play for us, including automotive with ADAS, IoT and PC.

Stacy Rasgon:

Hi guys. Thanks for taking my questions. For my first one, I want to ask the March quarter seasonality question a little more directly. And Akash, can you just give us some of the puts and takes on that March quarter seasonality? I mean, we've got a strong Apple quarter presumably in December that rolls off. We've got Samsung that launches, although we can question what the share is. We've got other things going on. Just how do we think about that seasonality in the context of everything that's going on, which we'll be expecting?

Stacy Rasgon:

Got it. That's helpful. For my second question, I want to ask about the new Apple agreement. So you put that out a little while ago. You're modeling 20% share now in the phone that launches in ‘26. So that'll be primarily a fiscal ‘27 issue. How should we think about, the shape of that in ‘24 and the launches that happened in ’24 and ‘25? Do we assume that you've got close to 100% of the majority of the units there and then it drops down for modeling purposes to 20% on the ‘26 launch or like, what does that look like?

Operator:

Our next question is from the line of Ross Seymore with Deutsche Bank. Please proceed with your questions.

Akash Palkhiwala:

Sure. So, the financial guidance we gave is that the year over -- the quarter-over-quarter trend from September quarter to the December quarter in automotive and IoT will be consistent with last year. So if you look at last year, automotive was down, I think, 1% or 2%. And so we're guiding effectively down 1% or 2% or flat for automotive. We obviously had a very strong quarter in the September quarter. The business traction continues to accelerate for us. The product roadmap is great. As Cristiano outlined in his prepared remarks, the relationship with the customers was very strong as well. So, we continue to be optimistic and we're well on our way to execute on the financial targets we have given long-term. From an IoT perspective, again the same guidance that it's consistent with last year, what the trend we saw between the September December quarter. And really when you think about IoT, we're seeing some of the same factors that other players in the industry are seeing, some demand weakness coupled with channel inventory. As we look forward, we think our first quarter as the bottom for the year for IoT. We expect to strengthen from that point on, and especially as we get into the second half of the fiscal year, with the environment normalizing, but then also very increasingly strong traction for our products. We think we'll have a strong second half in IoT.

Akash Palkhiwala:

Sure. So, from a shorter term perspective, as you'll see from our guide, we did we did very well in September quarter, we are guiding in-line for December quarter. I think your question is more of a longer term opportunity of the expansion of our gross margin as we get into these new areas. And we definitely agree that I think as we scale in outside handsets especially in automotive and IoT, we have an opportunity for margin expansion.

Operator:

Our next questions are from the line of Christopher Rolland with Susquehanna. Please proceed with your questions.

Akash Palkhiwala:

Chris, it's Akash. So, as we mentioned on the call, we’ve seen kind of early signs of stabilization in the handset market, including in China. And for calendar 2023, we now expect mid to high single digit versus 2022, which is an improvement from what we had before. As we look at 2024, the recent demand stabilization obviously provides a positive setup as we go into the year. So we are cautiously optimistic on how 2024 plays out. But specifically on 5G units, which is really our target market, we expect high single digit to low double digit growth from 2023 into 2024. So that's kind of the market that we pursue and we think there's growth opportunity there going into next year. From an ASP perspective, because of all the factors we discussed earlier in the call with the chips becoming way more capable, especially with GenAI, we think we are on a good trajectory to continue to expand our ASP consistent with the last three year trend. So if you look at our last three year trend, we've added, approximately 10% increase in any tier of chipset every year. And we think as we look forward, we have the opportunity to do that, going forward.

Alex Rogers:

Yes. So thanks for that question. This is Alex. We've been tracking these developments in the European Union. There's actually a, variety of parks to this proposed regulation ranging from wanting more transparency and ownership of SEPs and essentiality of SEPs to, to other issues relating to kind of pre-legal processes and, and other sorts of regulations that would affect the licensing and go to court process. The European Union right now is in what they call a trialogue process. It's going to take a while to get through, parliament, and the member states are going to weigh in. The commission's going to weigh in. The European Patent Office is actually opposed to parts of the regulation. Erickson and Nokia, of course, weighing in as well. So this is going to be a fairly, messy just call it legislative process that will take some number of years to sort out. It's being followed in other jurisdictions. We're following it here in the US. The US Patent Trademark Office has weighed in somewhat negatively I think. And it's being followed in China as well. So this will kind of play out over some years. It's not that unusual to have a variety of different SEP related, policy initiatives underway in different jurisdictions.

Chris Caso:

Yes, thank you. Good evening. The first question is regarding the overall handset demand and understand the comments you made about 5G units going into next year. I guess one part of the question is with the increase that you saw in the China business. How much of that do you believe was associated with just inventory normalization as opposed to actual more end market units. And then what does that mean for QTL, which has also been somewhat depressed because of the lower handset market, what should we expect on that as we go into next year?

Chris Caso:

Got it. And with regard to QTLN, I guess I'd assume to see the QTL numbers to come back closer to where we've seen them in the past. That's going to require some more, improvement in end market demand, is that accurate?

Operator:

Our next question is from the line of Brett Simpson with Arete Research. Please proceed with your questions.

Akash Palkhiwala:

Brett, we're not, we're not guiding the full year at this point. We gave you the guidance for first quarter and I gave you an outline as well of how we expect the shape of the year to play out for the overall company. And I think those pointers should give you a sense of our view into the year.

Akash Palkhiwala:

Yeah. So, Brett, as you're aware, through calendar, through fiscal 2023 we took, action on cost reductions a couple times. And as I also mentioned, this quarter we've taken additional action. So the idea is how do we maintain operating discipline while continuing to invest in the diversification initiatives that are so important for the company going forward. And what you're seeing in our forecast is a representation of those factors.

Tal Liani:

I want to ask about market share. Next year, MediaTek is saying that they're doing great and they're gaining share, Huawei published now their target for 100 million units versus 60 million that they had before. And the question is, how do you feel about your market share for handset sourced within China? What are the areas maybe that you are strong at? What are the areas that you think you'll see more competition? Thanks.

Akash Palkhiwala:

No, I'll just say, this competitive environment is no different than what we've had in the past. And really, if you look at our current products and going forward, we think our competitive differentiation is actually accelerating both with our custom CPUs coming into our handset product line. And with GenAI in addition to kind of other factors that differentiate us. So, we're pretty confident as we go forward, we're in a good place from a competitive positioning perspective and content increase.

Operator:

Thank you. That concludes today's question and answer session. Mr. Amon, do you have anything further to add before adjourning the call?

Operator:

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, August 2, 2023. The playback number for today's call is (877) 660-6853. International callers, please dial (201) 612-7415. The playback reservation number is 13739729. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In our fiscal Q3, we delivered results consistent with our guidance with non-GAAP earnings of $1.87 per share, above the midpoint of our guidance. We recorded fiscal Q3 non-GAAP revenues of $8.4 billion, including $7.2 billion from our chipset business and $1.2 billion from our licensing business. This quarter also marked our 11th straight quarter of year-over-year double-digit percentage growth in QCT Automotive revenues. We are pleased with our technology, product and design win execution, positioning us well for continued leadership enhancements and future growth and diversification in automotive and IoT. I will now share some highlights from across the business. Our Snapdragon Series mobile platforms continue to set the benchmark for premium tier mobile experiences. Smartphones powered by our Snapdragon 8 Gen 2 represent the top devices according to Antutu benchmarks in Android Authority. We are also pleased that the Snapdragon 8 Gen 2 for Galaxy will again power Samsung's newest flagship device lineup globally. The Galaxy Z Flip, Galaxy Z Fold 5 and the Galaxy Tab S9 series. Our fastest Snapdragon ever for Samsung defines a new standard in smartphone computing capabilities AI experiences, desk top-level gaming features, professional-grade photography, enhanced mobile productivity and more. This launch underscores Qualcomm and Samsung's mutual commitment to delivering premium consumer experiences for flagship Galaxy devices. We are extremely proud of our successful partnership with Samsung Mobile. We are also pleased to extend Snapdragon experiences to mass market 5G smartphones. The redesigned Snapdragon for Gen 2 mobile platform will bring premium experiences at reduced prices to help drive 4G to 5G migration, especially in new 5G deployments worldwide. We're looking forward to device announcements in the second half of 2023. In automotive, we hosted our first Automotive Summit in Suzhou, China, with more than 1,000 automotive OEMs, Tier 1s, ecosystem partners, media, analysts and government officials in attendance. The broad participation at the event demonstrates Qualcomm's strong position as a technology partner to the growing automotive ecosystem worldwide, especially EVs as well as Snapdragon digital chassis technology and product leadership. We also won more than 10 new designs with leading automakers across the globe for next-generation digital cockpit and telematics systems. In Consumer IoT, the recently announced Meta Quest 3 is the first virtual and mixed reality headset to be powered by a next-generation Snapdragon XR platform developed in collaboration with Meta -- the Quest 3 features 2x the graphical performance, higher resolution and a slimmer, more comfortable form factor than the Quest 2. We're also helping to drive the growing ecosystem of VR and MR developers in China. Oppo recently announced their Oppo MR Glass Developer Edition, powered by Snapdragon XR2. And in compute, our next-generation PC platform with integrated custom Orion CPUs in a significantly upgraded AI engine remains on track for commercial readiness. We look forward to sharing more information at our Snapdragon Summit in October. In networking IoT, we continue to gain momentum with WiFi 7 customer design wins. As an example, TP Link expanded its retail small and media business lines by launching 5 new routers spanning indoor and outdoor deployment scenarios, all based on Qualcomm networking Pro WiFi 7 platforms. Lastly, we're very pleased to share that we have begun shipping our fixed wireless access solutions in support of Reliance deals upcoming 5G FWA service in India. In industrial IoT, we launched a video collaboration platform suite, which provides OEMs choice and flexibility for the design and deployment of immersive video conference devices across conference rooms, health care settings and at home video calling with friends and family, enabling Windows, Android and Linux on our platforms offers the ability to customize and deploy videoconferencing products across diverse environments. Additionally, our platforms offer industry-leading AI-based noise suppression and dynamic framing. We also launched the QCS 8550 and QCS 4490, our first software-defined IoT solutions at Hannover Messe. These solutions enable next-gen smart cameras, drones, robotics, cloud gaming, industrial handhelds, panels point-of-sale devices and more. Lastly, together with Arrow Electronics, we announced a strategic collaboration to accelerate edge and AI adoption to the formation of Edge Labs, an aero center of excellence designed to help customers alleviate IoT development challenges while increasing adoption of edge AI across a variety we have an update on our progress in Generative AI since the last call. We're very pleased and encouraged by the rapid acceleration of Gen AI at the edge. This presents a significant opportunity for Qualcomm across our end markets. Use cases at the edge are evolving differently than the cloud given the inherent context, immediacy, privacy, security, application reliability and personalization capabilities available on device. For example, in handsets, models such as Stable Diffusion and Control Net or changing user experiences for content creation and photography. Large language models embedded in the user interface can also enable enhanced virtual assistance. In personal computing, real-time copilots can bring significant enhancements to productivity and creativity, the benefits of which are well understood and very compelling for enterprises across industries. We believe the automotive industry will use some of the most advanced edge AI capabilities from large language models for personalized and curated content and services driver and occupant monitoring and AI virtual assistance to contextual search. ADAS and autonomy applications can be enhanced by the fusion of data from cameras and other sensors for combined real word perception, drive path prediction and more. We're helping enable this capabilities and expect Gen AI use cases to extend to XR, edge networking and industrial IoT. Within the quarter, we expanded our collaborations across the ecosystem, and we are engaged with multiple hyperscalers, OEMs and ISVs. Notably, we recently announced a collaboration with Meta on Llama 2-based AI implementations on flagship smartphones and PCs that will enable developers to create new and exciting Gen AI applications using the AI capabilities of Snapdragon platforms beginning in 2024. Together with Meta, we're working to optimize the execution of Meta's Llama 2 large language models directly on device. We also announced a focused collaboration with Microsoft to scale AI capabilities and bring best-in-class AI experience to users across consumer, enterprise and industrial devices. At the Microsoft Build Developer Conference, our own device, Stable Diffusion, was showcased on a Windows on Snapdragon power laptop. We're also working with them to enable a host of productivity-based applications with multiple large models running on the device. As part of this collaboration, our AI engine direct SDK is now available to Windows developers to easily accelerate their AI apps on Snapdragon compute platforms. This marks a significant milestone. In summary, we are uniquely positioned to help shape and capitalize on the upcoming on-device Gen AI opportunity. Our AI technology is highly differentiated with best-in-class high-performance, low-power heterogeneous computing across our CPU, GPU and NPU. And a multibillion parameter Gen AI models run pervasively and continuously on device, we believe our NPUs unparalleled AI processing performance and power efficiency will become a requirement. We look forward to sharing more about our Gen AI capable products at Snapdragon Summit in October. Before I turn the call over to Akash, I would like to provide an update on how we are managing our business in the current macroeconomic environment. We remain focused on executing our strategy and prioritizing capital and resource allocation on our future growth and diversification opportunities. Simultaneously, we are focused on long-term operating margin targets, all while maintaining technology leadership across wireless connectivity, high performance, low power processing and artificial intelligence. To that end, we're taking a conservative view of the market, and we'll be proactively taking additional cost actions to ensure Qualcomm is well positioned to deliver maximum value for stockholders in an uncertain environment. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan :

Thank you, Akash. Operator, we are now ready for questions.

Matt Ramsay :

Akash, I guess for my first question, you were kind enough to give us a little bit of color in your prepared script just now on December and went through a few things there pretty quickly. So I wanted to double-click on a few. Maybe you could recap for us, just the trends you expect in handsets versus IoT and auto that you gave. And in particular, you talked about some seasonality being better in the fourth calendar quarter in the handset market, but that inventory burn was still going to be part of the dynamic. So if you could talk through that in a little bit more detail, what kind of magnitude are you expecting for the industry in the fourth quarter? What's built into your estimates? And is the inventory burn just an Android dynamic? Or do you think that the prepurchases from Cupertino are still an effect in the December quarter?

Operator:

The next question is from Samik Chatterjee with JPMorgan.

Akash Palkhiwala :

Yes. So Samik, maybe no additional comments to what I just said. I think if you look at our history, with the growth in the smartphone market, we see QTL grow with it. And so we expect a similar gain this year. And then I'd probably say similar to on the modem customer side as well, we'd see something similar to what we've seen in the past. So I think using historical trend as a way to model it going forward is a reasonable way of doing it for those 2 factors.

Akash Palkhiwala :

Yes. So Samik, obviously, our analysis is reflected in our results. We think you will understand the drivers that got us to the industry, the inventory balance. It's the overall industry being weaker. And with 6 months lead time, you're planning for a different market. And what we're comfortable with is that we have the inventory on the right parts. There is long lifetime on it, and there's demand for it. So our latest analysis on the topic is reflected in our results.

Mike Walkley :

Great. Cristiano, I just want to talk about the Snapdragon for Gen 2 that you talked about. How is the initial uptick in terms of Android demand from your customers looking at that? And do you think, given the supply-demand imbalance that you'll be able to now make gain share in 2024 as you move downstream on Android?

Mike Walkley :

Just a quick follow-up, just on the IoT business. Can you give us just an update on the 3 segments or any of the segments doing better than others in terms of the inventory believe or the outlook that you provided?

Cristiano Amon:

Maybe the only thing I was going to add, Mike, as we indicated multiple times, there's a lot of things in our IoT segment. And there are some of those things that they have yet to materialize. I think we talk about our PC space, which we're excited about the new product we have been developing with our custom CPUs. We're still in the beginning of virtual reality. We're encouraged by now other players entering the market, which will ignite develop our ecosystem. And I think lastly, on networking. We like the WiFi 7 design win pipeline that could materialize in a new cycle into the future. So as we outlined, there's a number of different things within that segment.

Stacy Rasgon :

Hello. Sorry about that. I wanted to ask about tip gross margins. They seemed reasonably strong in the quarter even with revenues down. They seemed like maybe they were implied up a bit sequentially the guide seems pretty stable into September. Can you give us any feeling for drivers of the margin pricing mix? You talked about some additional cost dynamics. I don't know if there's anything in there on the cost of goods side. some of the dynamics there? And how should we expect that to evolve? Is it just mix that drives it going forward? Are there other things that we should think about?

Stacy Rasgon :

If I could ask one more briefly. Cristiano, you're talking a lot about AI and how that's going to contribute. How does AI actually contribute to the model going forward? Like are you anticipating that venture drives an upgrade cycle? Or is it more content? Or is it ASPs for the chips fall less than they would otherwise? Like how do we think about how that actually drives the model as adoption happens?

Operator:

Our next question comes from Ross Seymore with Deutsche Bank.

Akash Palkhiwala :

Yes. So from an Android perspective, we expect the quarterly trend to be consistent with history. If you look at what typically happens for us in Android as we launch our new chips in the in the March quarter, and that's when the new premium tier chip comes out, and that's typically the stronger quarter for us. So it's really driven by timing of product launches. But fundamentally, when you look at our position within Android, even within '23, we've actually grown share of sell-through from '22 to '23. So we continue to be in a very strong position, and it's just the market dynamics that's kind of driving the cyclicality in the business.

Akash Palkhiwala :

Sure. So let me give you the framework of how we're thinking about it, and I don't have quantification at this point. But we've -- in '23, we exceeded the target we set. And as we've said before, we'll continue to look at additional reductions as the environment evolves. So given that what we're planning to do is proactively implement additional actions in first half of '24. And the framework for it is we're going to preserve our strategic priorities. We're going to reduce in certain areas, but then also have the capability to invest in new technology, especially AI and continue to invest in our diversification plan. So it's really an effort to get our investment portfolio right as consistent with the priorities going forward for the company.

Chris Caso :

Yes. As a first question, if perhaps you could talk a bit about mix, where is your mix sitting as compared to where it was last year? And obviously, the mix has skewed higher during times of supply constraints and now there's greater availability. So how is that affecting margins and revenue? And as things go forward, how do you expect that to change as well? I guess there's some concern that mix shifts down to perhaps some lower end of the portfolio as the 5G cycle matures and emerging markets tend to become a bigger part of the 5G mix.

Chris Caso :

That’s helpful. Just a follow-up question about geographic revenue in particular to the handset business. And we’ve been hearing about perhaps greater macro concerns in China as compared to elsewhere. In terms of normalizing the business and getting the global handset market back to where it once was. Is this mainly a situation where we need to see China come back and normalize? Or is more of a global trend. What needs to improve in other words, to get back to what used to be normal?

Operator:

Our next question is from the line of Brett Simpson with Arete Research.

Akash Palkhiwala :

Yes, Brett. So I'll start with your first question. If you -- let me break it down into Android and Apple in 2 parts. Within Android, two comments to keep in mind. First is we don't think there has been any significant shift in share between the players over the last few months. However, what has happened is when you look at our total share of sell-through for '23 relative to '22, as I mentioned earlier, we've actually gained share within Android. So we continue to have a very strong position and the kind of the seasonality across the quarters for Android is really a reflection of when devices are launched and which tiers we play in, which is the premium and high tier, which they center around the holiday season versus midway through the year. So that's how I would think about the Android market. On Apple, as I've said before, we expected muted seasonality in the fourth quarter due to the timing of chipset purchases. We did see them buy additional chipsets earlier in the year. And so what we are forecasting now is expected demand, expected shipments into the next quarter. So it's -- that really just speaks to timing again rather than some fundamental trend. As you know, we expect to be a majority of the share in the new upcoming launch, and so it's not really a share question.

Operator:

Our next question is from line of Tal Liani, Bank of America.

Akash Palkhiwala :

I understand. I understand. On the handset side, really largely in line with what we had expected. So no trend one way or the other. Auto, in our actuals, came in slightly below our expectations. However, if you see what we guided for the upcoming quarter, quarter-over-quarter growth, we're guiding low double-digit growth. So it's just timing between the quarters that's impacting it. Within IoT, I'd say very consistent with comments earlier in the call, it's really the overall environment and how it impacts demand and impact on inventory is what's reflected in our numbers, very consistent with what some of our peers have seen as well.

Akash Palkhiwala :

If you break it down into parts. I think you look at QTL growth, we've consistently seen QTL grow as a result of mix of devices and total market size. So that would be part one. The second is we've seen the handset market grow primarily due to the launch of a flagship device by a modem-only customer. And so we would see that as well. So those are the 2 factors that would drive a majority of our growth into the December quarter.

Timothy Arcuri :

I had 2. So Akash, I'm wondering if you can provide more color just on these channel headwinds. You gave a $2 billion number, I think, for December and then that came down to $1 billion or it was supposed to come down to $1 billion in March. And it was supposed have been gone by June. Obviously, it's not gone. Can you kind of quantify what the headwind is? And maybe also talk, is that component inventory at your customer is still coming down? Or is that handset sell-in still being above the handset sell-through? And then I had a second question as well.

Timothy Arcuri :

Got it. And then just last thing. So do you have any data on the refurbished market? It seems that it has gotten pretty large and maybe it's affecting the new Android market. Sort of what portion of the handset TAM this year do you think is used or refurb? Could it be -- I mean, we've seen numbers in the $350 million unit range, something like that. So the market is flat to down, but the market for new phones is really actually down quite a bit. Can you actually talk to that?

Operator:

This concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call?

Operator:

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm’s Second Quarter Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, May 3, 2023. The playback number for today’s call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13737571. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In a challenging macroeconomic environment and broad downturn across the semiconductor sector, we're pleased to deliver fiscal Q2 results consistent with our prior guidance. We delivered fiscal Q2 revenues of $9.3 billion, non-GAAP earnings of $2.15 per share were at the midpoint of our guidance. Our chipset business delivered revenues of $7.9 billion near the high end of our guidance range. Our licensing business delivered revenues of $1.3 billion at the low end of the guidance range on weaker demand for handsets. The evolving macroeconomic backdrop has resulted in further demand deterioration particularly in handsets at a magnitude greater than we previously forecasted. As a result, we're operating under the assumption that inventory drawdown dynamics remain a significant factor for at least the next couple quarters. Additionally, while expectations are for a rebound in China demand in the second half of the calendar year, we have not seen evidence of meaningful recovery and are not incorporating improvements into our planning assumptions. While the challenges we are facing are impacting the semiconductor industry, we remain focused on managing what is within our control and will continue to execute on our diversification strategy in leading technology and product roadmap. As market visibility remains limited, we're actively managing operating expenses, and we'll continue to evaluate additional opportunities to drive greater operating efficiencies without losing sight of the automotive and IoT growth opportunities ahead. Let me now provide key highlights from across our business. In handsets, we extended our 5G technology and product leadership with the Snapdragon X75 5G modem RF system. The world's first 5G advanced ready modem RF platform that will drive the next phase of new 5G capabilities globally, starting in 2024 across segments, device types and networks. The X75 modem is now the benchmark for 5G performance and features for all flagship smartphone launches next year. Our Snapdragon 8 Gen 2 mobile platform is the standard for Android flagship devices globally, with launches across leading OEMs, including Samsung, Xiaomi, Vivo, Oppo, OnePlus, Honor, Motorola, ASUS and ZTE. Additionally, our Snapdragon 7 Series is redefining the high tier. Our recently-launched Snapdragon 7+ Gen 2 mobile platform outperform its competitors' premium-tier solutions, winning multiple accolades for its superior power and performance. We are seeing excellent adoption across Chinese OEMs, resulting in share gains. OEMs are also reporting strong initial sales for products powered by the 7+ Gen 2. In automotive, we see continued traction across global automakers and Tier 1 customers, driven by the increased adoption of our Snapdragon digital chassis. We are very pleased to be partnering with Mercedes-Benz on our next-generation Snapdragon Digital Cockpit platforms. This is a result of our long and close collaboration with the MBition Mercedes-Benz Software Factory and engineering teams and various partners to create an industry-leading MBOS premium cockpit experience. The new platforms will be featured in Mercedes vehicles beginning in 2023. Additionally, our OEM partners recently launched vehicles with our third-generation Snapdragon Cockpit platform, including the Xpeng P7i and Lotus new Eletre SUV. Notably, during the quarter, we won 12 new designs across our Snapdragon Cockpit and Snapdragon Connectivity 5G platforms with automakers across the globe. We remain on track to execute on the milestones outlined during Automotive Investor Day. In consumer IoT, we continue to be encouraged by the positive momentum with Windows on Snapdragon. Dell recently launched the Inspiron 14-inch laptop powered by the Snapdragon 8cx Gen 2 Compute platform. In addition to OEMs, we're expanding our ecosystem across bios, hardware, software, ODM and channel partners. We're also launching the Windows on Snapdragon developer portal to enable consumer and enterprise ISVs to test, port and optimize their applications directly on Qualcomm Silicon. Our next-generation Snapdragon Compute platform, with custom Orion CPUs and industry-leading AI acceleration, is on schedule to enable commercial device launches in 2024. As a reminder, we remain the platform of choice for all significant ecosystem players for XR, notably Meta, the joint partnership with Samsung and Google and broadly in China. While still in its early phases, we believe the merger of physical and digital spaces will become a significant opportunity for Qualcomm. We also continue to win designs for home robotics, smart appliances and smart camera applications with household names such as Bosch, LG Electronics, Panasonic, Samsung and Sony. In Edge Networking IoT, we're very pleased to share that we're now collaborating with Reliance Jio on rolling out 5G FWA across India, servicing millions of residents. We also recently announced the Qualcomm 5G Fixed Wireless Access Platform Gen 3, offering operators the ability to expand their service coverage to new areas while lowering cost and enabling faster deployment. Additionally, we continue to lead the transition to Wi-Fi 7 with more than 175 cumulative designs across all product categories. Access points account for 89 of these designs, with 16 launches in the quarter. In Industrial IoT, we announced the Qualcomm Aware platform to empower developers and enterprises to easily build real-time intelligence and visibility solutions. The platform combines simple, secure and scalable cloud-based services with power optimized and precise location tracking and an extensive hardware ecosystem to deliver tailored edge solutions across many industries. Additionally, we led the Bluetooth SIG working group to help establish a new standard for electronic shelf labels that are scalable, ultra-low power and highly secure. This will help enable large retailers to accelerate the digital transformation of the store with electronic labels that can interact with both store and consumer devices. Our OEM partner, SES-imagotag, recently announced an agreement with Walmart to deploy electronic shelf labels across 500 stores over the next 12 to 18 months. I would now like to provide a perspective on the disruptive trends in the artificial intelligence space and the significant opportunity for Qualcomm. Demand for generative artificial intelligence models is growing at an exponential rate. Generative AI models such as ChatGPT, Stable Diffusion and DALL-E have already scaled to millions of users in a short period of time. We believe that this model will evolve quickly, continue to grow in popularity and change user experiences across mobile, personal computing and automotive. Beyond changing Internet search, this model will have an impact on content creation such as text, images, audio and video for both entertainment and productivity. It will also transform many industries. For these models to realize their full potential and scale, they will need to run locally on devices at the edge. At Mobile World Congress, we demonstrated the world's first on-device Stable Diffusion, a greater than 1 billion parameter foundational model for text-to-image applications running completely on a Snapdragon-powered Android smartphone. In the coming months, we will significantly improve performance and be able to run models in excess of 10 billion parameters locally on the device, and we will increase this capability substantially for our products in 2024. Qualcomm is uniquely positioned to enable the proliferation of AI use cases on edge devices. We're advancing AI to make core on-device capabilities ubiquitous such as perception, reasoning, action and now, content creation. With millions of AI-enabled platform shipments per year, unparalleled AI processing performance per watts in the broadest range of device categories from smartphones to PCs, automotive and IoT, Qualcomm is firmly at the forefront of this upcoming transformation. Further, very large AI models are placing significant incremental demands on energy-intensive and expensive cloud computing infrastructure. As such, a hybrid AI architecture leveraging accelerating computing at the edge can offload or support cloud processing by running AI inferencing directly on the device. Beyond cost optimization, additional benefits of running generative AI on device include improved latency, security, privacy and the ability to meet data compliance requirements. This is a new and exciting opportunity for Qualcomm in one of our priority investment areas. As I close my prepared remarks, I would like to reiterate that the secular technology trends driving the long-term growth opportunities for Qualcomm remain unchanged. Despite the disappointing macroeconomic environment, our investments in technology leadership, our best product road map and history and strategic customer relationships across multiple industries position us well to execute on our strategy and expand across new and diverse end markets. I would now like to turn the call over to Akash.

Mauricio Lopez:

Thank you, Akash. Operator, we are now ready for questions.

Samik Chatterjee:

Hi, thanks for taking my questions. Thanks for all the details in the prepared remarks. I had one on smartphone and one on auto, so if I can just start on the smartphone one. I think I know you're sort of taking down your guidance for the overall market outlook today for 2023. But if I look at your QTL guide, it does sort of imply that you're looking at more of a stabilization in the sell-through at an absolute level. So when I look at your QCT guide rate there, it does suggest that most of the headwinds you're seeing or expecting there are inventory and timing of the purchases. Maybe just sort of confirm if that's the way sort of -- if I'm interpreting that right? And what's the maybe magnitude of the timing and the inventory headwinds to the QCT revenue guide for fiscal third quarter? And I have a follow-up.

Samik Chatterjee:

Yes. Okay. Good. And on the auto side, Cristiano, you talked about the 12 design wins, but you mentioned them being in Cockpit and Connectivity. So I wanted to check if you have an update on ADAS and the engagement from your customers on that front and your product road map? And related to auto, I think there's been some concern about exposure to China volumes in terms of your pipeline. If you can sort of maybe just some ballpark estimate about how much of your pipeline is reliant on China electric vehicle volumes? And how should we -- how are you thinking about sort of the risk around those production numbers.

Operator:

The next question is from the line of Matt Ramsey of TD Cowen. Please proceed with your question.

Akash Palkhiwala:

Matt, it's Akash. In terms of China sell-through, I think if you're looking at any of the analyst resources that's sizing the scale of the market, we're seeing pretty much the same number. So if you're -- that's what you're quoting, I don't have the exact numbers in front of me, but that's what you're quoting, it'd be consistent. The way we are thinking about the inventory drawdown is, of course, it's a near-term phenomenon. We're going to get past it. The strength of our design win pipeline is very strong, so if you -- if one way to measure it in our minds is we look at our share of sell-through. And we've seen that share grow from '22 to '23, so that should give you a sense of our position going into the next year.

Matthew Ramsay:

As my follow-up, mid-single digits up, I think, in the guidance you mentioned for IoT. There are sort of three different segments of the business there. If you could -- that there's been an inventory correction across the IoT business, and I think many of us have less visibility on a granular basis there than in your handset business. So if you could just talk through the dynamics of that business recovering a bit in June, that'd be helpful.

Operator:

Our next question is from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

Cristiano Amon:

Mike. Thanks for the question. I will say we are no longer in -- and that's probably an understatement, right? We're no longer into a supply-constrained environment. So as the supply constrained environment got resolved, we have the ability to gain share. And I think as Akash outlined, if you look at our share of activations and sell-through compared to '22, you see a very positive picture for us in China. We've been gaining share on what we call the high tier. The 7 -- the new 7 Series, we made a lot of investment including leveraging the Snapdragon brand and the position of the 7, very well received in the market. Our 7+ outperformed, I think, the competition premium tier, and we like because it sets the floor. And then you have Snapdragon very uniquely positioned in the 8 series. And I think as outlined from a share perspective, we're gaining share. Just the whole markets to go into the dynamic that we just outlined on inventory, but we like our position in the marketplace.

Akash Palkhiwala:

Yes. So from a gross margin perspective, as we've consistently said, and I said this in the last call -- last earnings call as well. Once we get past supply constraint, we expected some pressure on gross margins, so you're seeing that come through. But if you step back from that and just look at mix of devices and how that drives margin 1 way or the other, there isn't anything that's significant enough to discuss. It's really the current environment playing through. And then as we look forward, as remaining disciplined with pricing as we grow in a mature market.

Stacy Rasgon:

Hi, guys. Thanks for taking my question. For the first one, I was wondering if you could define what you mean by muted seasonality for September quarter. I think you're usually up. I mean, it's not uncommon for you to be up double digits. What are you thinking now? And I guess maybe if you could talk a little bit about the different drivers, Handset, IoT, Auto into Q4?

Stacy Rasgon:

Thank you. For my follow-up, like, I know you said you expect the inventory drag in the last next couple of quarters. But I guess, into June, given the magnitude of the drawdown is better or worse or about the same as what you saw in March? I'm just trying to gauge directionally, is it getting at least better or worse even though we know it's still there?

Operator:

Next question is from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Cristiano Amon:

Thank you, Ross. Look, there are inorganic opportunities that we continue to look into the market. We've been clear. We have been focused in identifying M&A opportunity to help us to accelerate diversification. We've been very careful just because in the current environment, we wanted to do something that is actionable and we'll continue down this process of identifying, but we are looking at inorganic options as well to accelerate diversification. And we're also very excited about -- what I mentioned into the prepared remarks, I think this incredible opportunity that we now have. We're very uniquely positioned to do AI in a very high performance and low power and all the devices at the edge, and I think that's going to accelerate our diversification strategy across all the new segments. Even though it could create a new upgrade cycle in phones, but it's going to be relevant to all of the other segments of diversification as well.

Akash Palkhiwala:

Yes. I assume your question, Ross, was related to QCT?

Akash Palkhiwala:

Yes. Yes. So if you think about our historical kind of trend between these two quarters in the Android business, we're staying very consistent with that -- this quarter. I mean, if you look at last year, second quarter to third quarter, our Android business was roughly flat, and we're guiding the same this year. So it's just following the same trend and the factors, the market and inventory drawdown exist in both quarters.

Joe Moore :

Great. Thank you. I guess as you look at the year-on-year decline in Handsets, how much of that would you attribute to inventory build in a year ago, inventory depletion now or any kind of change in kind of like-for-like pricing? Can you just kind of separate out those 3 factors?

Joe Moore :

Okay. And then you mentioned you always sort of felt like as you came out of an allocation mode that there be a little bit of a gross margin headwind. What causes that? Is it just that -- are there expedite easy we're getting before? Is it more promotional now? And has there been any change in kind of like-for-like pricing as you've kind of moved out of that type of supply environment?

Operator:

Our next question is from the line of Blayne Curtis of Barclays. Please proceed with your question.

Akash Palkhiwala:

Yes, Blayne, so I'll address the first part and then Cristiano will address the second part. On gross margin percentage, I think it's a reasonable way of thinking about it. Our gross margin dollars per device continues to grow, and that's the strength and it kind of adds scale and profitability to the business, but we have seen gross margin percent get impacted by the couple of factors I just outlined. But again, those are, to me, kind of ins and outs of the business. It's better to kind of step back and look at the broader longer-term opportunity for us to continue to add content to our chips, which we have done very successfully over the last 3 years. And we have an opportunity to do that, especially with our new custom CPU course coming into play into all of our product lines, including Handsets. And then with the AI that Cristiano just outlined, that will create an opportunity for us as well.

Cristiano Amon:

No, I'm sorry, I'm just going to add a couple of comments to your specific questions. Look, the way we see this, we have done, I think, the right choices of investment. We feel pretty good about the road map and we took this very, very focused strategy and make sure that our 7 tier outperforms the competition premium tier. And that changes the landscape, which means we are very well positioned above that in the 8, as I outlined. Our design traction is very good especially within all of the OEMs, no exception. I remind you that we are globally with Samsung. Our agreement with them, we have the launch of GS 23, that just happened, then we have the Fold and Flip. And then we have the GS24. It's going to be a number of years of association of Samsung with Snapdragon brand globally. And the size of the market is not good, but our position is very strong. And as I outlined before, we're gaining share.

Cristiano Amon:

No, it has nothing to do with the transition. The further transition, I think we said a number of earnings calls ago that we're expecting to be in the product that they launched in '23. And in '24, we have no change to our planning assumptions.

Brett Simpson:

Thanks so much. Cristiano, I wanted to ask about the state of the Android market. There seems to be a sort of consistent structural share loss here. And I guess, even going back pre-COVID, Apple has been growing their business since COVID and Android just seems to keep losing share. So what do you think is going on? And how much of the structural decline in Android, do you think, is the secondhand iPhone market? And then I don't know whether you can size this, how big do you think the secondhand market is and how it's affecting Android? And what do you think the Android value chain is going to do to reboot their business?

Brett Simpson:

Do you think the secondhand market is growing structurally? I mean, just to understand the dynamics because some of the data we've seen, it would suggest that this is starting to have an impact on the Android volumes.

Operator:

Our last question is from the line of Tal Liani with Bank of America. Please proceed with your question.

Akash Palkhiwala:

Sure. For QTL, typically, the market size is relatively flat between the June and the September quarter. There is a slight change in the market and our revenue is relatively flat as well, so you should think of that as a proxy based on historical trend. There isn't something specific going on this year that I'd say is different than last year, pending a recovery in the market. From a QCT perspective, on the fourth quarter, we typically have seasonality, seasonal growth. And what I said in my prepared remarks is that we expect muted seasonality this year because of all the factors that we've been discussing on this call and have been outlined in the prepared remarks as well. So that would be a framework to come up with number for September. And then obviously, as we go from there, you go into holiday season, that's typically a strong quarter for us and we would realize benefits as we go there.

Akash Palkhiwala:

Well, I would say if you look at last year, you would probably come with a number that would be normal, and we don't expect to be close to that. We'll see a lot of different factors. We don't have, to be honest, that clear insight into quarters at this point to give a forecast. So if you can wait for the next call, we'll definitely be updating you on that.

Cristiano Amon:

Yes. Thank you so much for listening to our call. Here's the summary. Like from our perspective, while the market conditions remain challenging, we're very confident to reach our Q3 estimates at this point. We're taking action where we can control as we navigate the near-term headwinds, but it's -- most important, we'll continue to execute on our strategy. We like our strategy. I think we're investing in the right technologies for growth and diversification, especially in the IoT and Auto. I feel we have a very competitive road map, so we're well positioned to benefit when the market returns to growth. And I think the last comment is we are going to become very relevant in AI. As you look at the speed of new models appearing new companies investing, new use cases, the ability to run those things locally. I talk about having ability to run 10 billion parameter models on the phone without compromising battery life and be able to demonstrate that very shortly in this year, and you can see how that creates an even larger opportunity for us in Automotive as well the entering of next-generation personal computing. So excited about that, we'll continue to invest in this area. In summary, we're very focused on our long-term success and we're steadfast in our commitment to drive maximum value for our stakeholders. And I want to thank all the employees for their dedication and contributions to Qualcomm and also our many partners and suppliers. Thank you.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm First Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, February 2, 2023. The playback number for today’s call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13735295. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q1, despite the ongoing macroeconomic headwinds and short-term challenges impacting the semiconductor industry, we delivered revenues of $9.5 billion and non-GAAP earnings of $2.37 per share, including year-over-year growth in QCT Automotive in IoT. QCT revenues of $7.9 billion were down 11% year-over-year as a result of weaker handset demand and inventory drawdown. In the current quarter, combined auto and IoT revenues represent 27% of total QCT revenues, reflecting continued progress on revenue diversification. QTL delivered $1.5 billion in revenues within Q1. As the handset industry continues to experience reduced demand, we are now expecting elevated channel inventory levels to persist at least through the first half of calendar ‘23. In addition, multiple end industries within IoT are also experiencing weaker-than-expected demand and elevated inventory levels. Given the current macroeconomic and demand environment, we’re implementing further spending reductions and streamlining operations without losing sight of the significant growth and diversification opportunities ahead. This is consistent with our commitment to actively manage operating expenses as indicated during our last earnings call. Combined with the actions we have already taken in the quarter, we expect to reduce non-GAAP operating expenses by approximately 5% relative to a run rate exiting fiscal ‘22. Despite near-term headwinds, our long-term growth opportunities remain unchanged. Our leading technologies, such as advanced wireless connectivity; high-performance, low-power compute and on-device intelligence are enabling the ongoing trends of digital transformation across industries. From a product and technology perspective, we believe we are in the strongest position in our history. Our strategy is working, and we remain focused on expanding our addressable market to approximately $700 billion in the next decade and firmly establishing Qualcomm as the connected processor company for the intelligent edge. I will now provide key highlights from across our business. In automotive, the industry continues to evolve at an unprecedented rate, driven by the adoption of digital technologies. The software-defined vehicle is at the core of this transformation, offering automakers a significant opportunity to deliver enhanced connectivity, improved safety and security features, increased levels of autonomy as well as new business models and revenue streams. We believe the Snapdragon Digital Chassis is the industry’s preferred purpose-built platform to help drive this innovation for the next generation of vehicles. At CES, we announced Snapdragon Ride Flex, which enables digital cockpit, advanced driver assistance systems and automated driving functions to coexist on a single SoC, a first for the automotive industry. Automakers and Tier 1s can now scale a unified center compute and software-defined vehicle architecture across their portfolio. We also demonstrated our expansion into two-wheelers with the latest infotainment and cloud connected digital services to enhance safety and deliver a more personal experience for riders. Our solutions also enable OEMs and fleet providers to deliver over-the-air updates, subscription services, remote diagnostics, geofencing, theft protection and more. We are very proud of the progress we have made in automotive, and we believe that we are the best positioned technology partner to help drive this industry into the future. In handsets, our recently announced Snapdragon 8 Gen 2 mobile platform begins a new era of AI accelerated experiences for smartphones. The Snapdragon 8 Gen 2 includes our first ever AI-powered camera processor that enables real-time semantic segmentation for photos and videos. A dedicated 5G AI processor that can enhance 5G data speeds, coverage, latency and battery life and an updated general purpose AI engine with a larger tensor accelerator for increased formats. We are also pleased to enable the world’s first satellite-based two-way capable messaging solution for Android smartphones. Snapdragon Satellite will provide global connectivity for messaging, utilizing Iridium’s weather-resilient L-band spectrum and will initially be available on next-generation premium smartphones using Snapdragon 8 Gen 2 within the second half of 2023. Yesterday, I was pleased to join Samsung’s Unpacked event, where they launched the Galaxy S23 family of smartphones, powered by the Snapdragon 8 Gen 2 mobile platform for Galaxy globally. This premium platform features accelerated performance and unique customizations made possible by our expanded strategic partnership with Samsung. The Galaxy S23 represents the first smartphone announced from this partnership. In IoT, which is poised to become our largest addressable market, our revenue stream spans across three categories

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Samik Chatterjee:

I have a couple. Maybe for the first one, I hear you on the inventory digestion. But maybe one of the other concerns that investors have had for this year on the handset side is sort of delay, if any, in terms of launch plans from the Android OEMs about sort of related to their new handsets or any changes in their pricing strategy and sort of the chips that they intend to then sort of prioritize or sort of the high-end versus maiden chips that they want to prioritize to achieve those pricing strategies in the market. Maybe if you can give us some color in terms of what you’re seeing from the OEMs on that front outside of the inventory digestion? And I have a follow-up. Thank you.

Samik Chatterjee:

Okay. And maybe just for my follow-up. On the IoT side, you mentioned the weakness that you’re seeing in that broader market, but maybe if you can delve into that a bit more. Are you seeing sort of more weakness just sort of being higher on consumer IoT, or is that more worsening across industrial IoT and edge networking as well? And if you can quantify what -- how to think about the edge networking opportunity relative to India in 2023? Thank you.

Cristiano Amon:

This is Cristiano. Samik, just to add one thing, you ask about India. Yes. We -- as we said in our prepared remarks, we’re excited about that opportunity. It’s probably likely it’s going to be one of the largest opportunity for 5G as fixed wireless access. And as we mentioned, the opportunity will be across all the operators to connect in the order of 100 million homes. So, that could be very significant. What we like about it is that millimeter wave has been utilized as well for fixed wireless access. So, that’s a great opportunity for us.

Matt Ramsay:

Akash, I wanted to ask a little bit of question -- a couple of questions about margins. You talked pretty explicitly about OpEx, but we’re seeing no surprise maybe with the dynamics in the macro and the inventory correction that the QCT operating margins have come down some. And maybe you could just walk us through the puts and takes on margins from here. Is March the bottom? And how should we model sort of gross margin in QCT as we go forward, given the mix of the segments might be a bit different during this inventory correction? Thanks.

Operator:

Next question is from Mike Walkley with Canaccord Genuity.

Cristiano Amon:

Thank you, Mike, for your question. Actually, it’s a great question. What we have seen in this current demand environment as well as the inventory drawdown, actually, the premium tier had done a little bit better than what the mass tier has been impacted, I think, consistent with our expectations. I think you saw that in some of our customers’ earnings call as well. However, we expect that as you get to the second half of the calendar year, we hope that the inventory drawdown situation improves as well as China reopens. And we will see an opportunity for the mid and the low tier to come back and our design traction is good in those tiers with the OEMs, and we’ll see what happens. So, we’re not -- we’re not factoring that better second half yet in our planning assumptions. I think we’re waiting. But, I think there’s optimism just because of the inventory drawdown as well as China reopening.

Stacy Rasgon:

I have two. For the first one, Akash, you’re talking about the inventory correction, March as well as in June. You’re guiding handsets kind of flattish in March. I was wondering if there’s any sort of like preliminary color you could give us on the June quarter trajectory. Like, do you guys think March quarter in general is the bottom? And then, I have a follow-up.

Stacy Rasgon:

Got it. If I could ask a quick follow-up. In your Q, you talked about you had a $344 million tailwind from higher average selling price year-over-year in the quarter, and that was for the overall chip segment. But you used to give that number strictly for handsets. Can you give us some feeling for how pricing has been trending in the handset business relative to that overall benefit you see in QCT?

Operator:

Our next question is from Ross Seymore with Deutsche Bank.

Akash Palkhiwala:

Yes, Ross. So, from a handset perspective, what we’ve assumed in the March quarter is a standard seasonal decline, and I said this in my prepared remarks from December into March. So, it’s what you would expect seasonally happens once you go between the quarters. And so, that’s what we’ve assumed, and that informs our QTL forecast for the quarter as well.

Akash Palkhiwala:

Okay. So I understand the confusion. So, the -- what I talked about was the total handset market, which we are expecting to be down quarter-over-quarter, consistent with seasonal trend. What we said was flat was QCT handset revenue, we expect to be flat. And of course, that’s a function of mix of chips and also inventory drawdown differences.

Joe Moore:

Going back to how much inventory you’re reducing in handsets. What’s your visibility into that? And I mean, are you -- are there certain customers where they sort of didn’t take anything in December and so you know that they’re coming back? Just can you give us a sense of are you sure this is all inventory reduction and not end demand?

Joe Moore:

Okay. Great. And then specific to the China region, I think you mentioned some new launches in the March quarter, but it sounds like the situation there is pretty challenging in terms of visibility. Like, is China different than the rest of the world for you right now?

Cristiano Amon:

This is Cristiano. Let me just add one thing. If you look at the China handset market, the majority of sales, even though they have a big online component, the majority of sales is offline market. So, as we have -- saw, with the lockdowns and the COVID situation, there was a big impact in the handset market in China. Common sense, and that’s how some of our OEMs are also thinking is as the COVID gets behind China, you should expect the markets to open up. And what we have visibility right now is a lot of the new device launches preparing for that and some of it, which is going to be announced at Mobile World Congress. It’s too early to draw a conclusion. So, let’s go back to that conversation that there is optimism that second half could be better.

Blayne Curtis:

I guess kind of a combination of the two. I’m curious inventories are up on your balance sheet, Akash. Just kind of curious whether you need to work those down as well? And then I guess for Cristiano, just going back to a prior question, on the midrange. I’m curious about the pricing environment. I mean, MediaTek is having a tough first half as well. Can you just comment on what that environment is? And then, your kind of just thoughts in general about pricing and moving for share within the modem business? You did a good job navigating at the high end during the shortages, but just kind of curious, favoring profitability versus share? What are your thoughts? Thanks.

Cristiano Amon:

Hi Blayne, Cristiano, I’m going to take your second question. Look, it’s probably clear, both us and the other chip supplier in the handset market, dealing with the same challenges, which is the demand weakness and inventory drawdown. In the areas that we have more competition, which is mid- to low-tier, we also saw that’s the one that’s most impacted by the demand weakness. So, as we think about the market open up, our view is we’re very well positioned from a competitive perspective. We have visibility into the design pipeline. And we will remain disciplined on pricing, which is consistent to how we have behaved over the past few years.

Brett Simpson:

I wanted to ask about fixed-wireless access. And I think you talked about in the prepared remarks that you saw a big opportunity in India playing out over the next couple of years with fixed wireless access. But can you maybe just talk a bit about the ASPs that Qualcomm gets from a typical device in fixed wireless access? And how do you see the business evolving in the next couple of years as you start to attack that in the opportunity and you can see some of the success you’ve had in the U.S. so far here and maybe other markets? Just maybe help us understand how this really plays out for Qualcomm? Thank you.

Brett Simpson:

Okay. Did you say -- sorry, Cristiano, did you say you booked that in mobile systems, or is that an IoT business?

Brett Simpson:

Okay. Okay. Fantastic.

Brett Simpson:

Okay. Maybe just a follow-up. I wanted to ask about the recent U.S. restrictions around Huawei. Are you seeing any impact in this at all? I mean, it looks like Huawei has been shipping quite a lot of 4G devices recently. Have you been shipping components to Huawei? And if so, can you maybe just help with the impact of the latest restrictions on the business? Thank you.

Akash Palkhiwala:

Nothing to add. Thank you.

Tal Liani:

Two questions. Inventory days doubled and it has been going up every quarter in the last 4 quarters, 5 quarters. Can you talk about inventory days? And what is it composed of if there is any anything special we need to discuss just because of the high value? And second, more qualitatively, I want to understand what is the lag or what should be the lag on sales in China from inventory levels versus demand recovery as China reopens? Meaning, from the time that China reopens and there is demand for handsets, how should we think about the lag from that to being translated into demand from you?

Tal Liani:

Got it. Last question. I’m getting a repeated question on your licensing part. I saw today the -- what you said about Nokia and Ericsson. Can you discuss licensing portion in terms of any forthcoming discussions, negotiations or anything that we need to be aware of, or is it as stable as it was the previous year?

Operator:

Your next question comes from C.J. Muse with Evercore ISI.

Akash Palkhiwala:

So, on your first question, C.J., from an inventory perspective, there are a couple of drivers to it. So, first is the weaker market; second is inventory drawdown. And both are significant factors. And then the third, I’d say, is we’ve also seen IoT having the same sum of the characteristics. And so, you’re seeing a combination of those factors impacting the time period for which the drawdown lasts. Again, as we look at it, this is a shorter-term thing that when you step back, it doesn’t necessarily -- the drawdown doesn’t impact the strength of the business. And so, as the recovery happens, we’ll be in a position to benefit from it. Can you repeat your second question? I’m not sure I understood it well.

Akash Palkhiwala:

Yes. So, a lot of our commitments were more in the form of prepayments rather than volume commitments. So, that just means you get the prepayment back over a longer period of time. But we’re navigating through those and nothing to report at this point.

Cristiano Amon:

Yes. Maybe just to summarize, I think how we see the earnings call. I think beyond 2023 for Qualcomm, we see many of our growth initiatives, increasing scale, including auto, PCs, XR and 5G FWA, we’ll talk about it in industrial. When we look at the current environment, we remain very confident in our ability to navigate the economic downturn and the short-term challenges, given our strong balance sheet and consistent history of strong free cash flow generation. As you can see, we’re taking action where we can control, and we believe we’ll emerge even stronger as we continue to execute on our strategy. We’re focused on Qualcomm’s long-term success, and we’ll work diligently to continue to drive growth, especially auto and IoT, diversify the company and deliver value for stockholders. I’d like to thank all the employees for the dedication and contributions to Qualcomm as well as our many partners and suppliers, and thank you all for attending the call. I know it was a popular earnings day today. Thank you.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Fourth Quarter and Fiscal 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded November 2, 2022. The playback number for today's call is (877) 660-6853. International callers, please dial (201) 612-7415. The playback reservation number is 13733389. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon :

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. Fiscal '22 has been a strong year for Qualcomm with record performance in our chipset business and a strong execution of our diversification and growth strategy. We remain focused on continuing to transition Qualcomm from a wireless communications company for the mobile industry to a connected processor company for the intelligent edge. We're driving the transformation of industries and growth of the digital economy by powering the billions of smart connected devices at the edge, utilizing our One Technology Roadmap with leadership in wireless connectivity, high-performance, low-power computing and on-device AI. While the semiconductor industry is being impacted by significant macroeconomic headwinds and other short-term challenges from which we're not immune, the fundamentals of Qualcomm's growth drivers remain unchanged with significant opportunities in the coming years. In Q4, we delivered record revenues of $11.4 billion and non-GAAP earnings per share of $3.13, reflecting record revenues in our chipset business and solid performance in licensing. QCT revenues of $9.9 billion were up 28% year-over-year, including record performance across handsets, automotive and IoT. Fiscal '22 revenues of $44 billion were up 32% year-over-year. QCT, the growth engine of the company, contributed revenues of $37.7 billion, up 39% year-over-year with combined fiscal year IoT and automotive revenues growing 38% year-over-year. QTL delivered $6.4 billion in revenues. Let me now summarize a few highlights from the fiscal year. In handsets, we entered into a new multiyear agreement with Samsung, expanding the use of Snapdragon platforms for future premium Samsung Galaxy products globally. We also executed on the changing OEM landscape opportunity, securing key premium and high-tier design wins with our customers in China. Snapdragon has become synonymous with premium mobile experiences worldwide. In automotive, our design win pipeline across connectivity, digital cockpit and ADAS is now greater than $30 billion. We also completed the acquisition of Arriver, which enhances our ability to deliver open, scalable, fully integrated and competitive ADAS solutions. Importantly, we have firmly established ourselves as a key strategic and technology partner for the automotive industry, and the Snapdragon Digital Chassis is now the preferred platform for next-generation vehicles. In IoT, we extended our chipset road map to capitalize on trends driving the connected intelligent edge, notably, the conversions of personal computing with mobile; the intersection of physical and virtual spaces; the enterprise transformation of the home; the expansion of broadband; and the ongoing digital transformation across many verticals. In consumer IoT, we increased OEM design wins in ecosystem traction for our next-generation Windows on Snapdragon solutions, which incorporate our custom CPUs. The game-changing AI capabilities of our Snapdragon compute platform recently demonstrated at Microsoft Ignite 2022 developer conference will redefine user experiences on Windows 11. We also announced a multiyear agreement with Meta to develop premium virtual reality and mixed reality experiences starting with next-generation devices powered by custom Snapdragon XR platforms. We continue to be a leading platform provider for virtually all commercially available and announced XR devices and remain well positioned as XR develops. In edge networking IoT, we have seen positive share traction related to the rollout of WiFi 6 and 6E solutions for enterprise access points and retail mesh systems. And we are seeing strong interest in new design wins for our WiFi 7 solutions. Additionally, our 5G fixed wireless access broadband solution is now the industry's platform of choice for wireless fiber globally. In industrial IoT, we built a strong foundation for growth with significant wins across industrial handhelds, robotics, payments, gateways, smart camera, enterprise collaboration and edge processing. The growing diversity of these end markets position us well to benefit from durable and margin-accretive growth opportunities in industrial. In licensing, we extended our agreement with Samsung through 2030, establishing an important benchmark for the long term and for future renegotiations. In addition to delivering record financial results, our fiscal '22 achievements validate our strategy and have provided a strong foundation for long-term growth. As we look to fiscal '23, further deterioration of the macroeconomic environment and extended China COVID restrictions have resulted in demand weakness and temporary elevated channel inventory across the industry. As good stewards of capital for our stockholders, we are committed to managing our business in light of the current environment without losing sight of the significant growth opportunities ahead. To that end, we're being very disciplined in managing operating expenses while optimizing our R&D investments to prudently focus on growth within automotive and IoT. We have already implemented a hiring freeze, and we have planned spending reductions across our mature product areas and SG&A to fund our diversification. We are continuing to evaluate additional actions, and we are prepared and committed to making further reductions to operating expenses as needed. It is important to note that the current inventory drawdown is a cyclical adjustment that has no impact on the underlying growth and earnings power of the company in the long term. And we are in a strong position to manage the near-term headwinds. Beyond 2023, we see a number of our strategic growth initiatives increasing in scale. We anticipate automotive revenues will grow consistent with our auto Investor Day projections as the design win pipeline materializes. We expect to see an inflection point in Windows on Snapdragon PCs in 2024 based on a significant number of design wins to date. XR is just at the beginning of its growth curve. 5G wireless fiber presents significant opportunities in regions such as India and other developing economies that have just started to deploy 5G networks. Lastly, the digital transformation of industries will continue to gain momentum, driving connectivity and intelligence at the edge. In summary, despite the short-term challenges, the fundamentals of our growth strategy remain intact. We remain confident in our ability to navigate the current economic downturn given our strong balance sheet and consistent history of strong free cash flow generation. We will continue to focus on stockholder returns and executing on our ongoing diversification opportunities. The powerful secular tailwinds driving multiyear demand for our One Technology Roadmap across multiple end industries are unchanged and resilient. We remain on track to expand our addressable market by more than 7x to approximately $700 billion in the next decade and firmly establish Qualcomm as the connected processor company for the intelligent edge. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan :

Thank you, Akash. Operator, we are now ready for questions.

Matt Ramsay:

I guess my first question, Cristiano, has really 2 parts to it on the smartphone market. No -- I guess you guys were really clear in the prepared script about what's going on with channel inventory with customers and a deterioration of the macro. I guess that's -- maybe the magnitudes are different, but directionally, no big surprise. So I guess the questions are, are you guys seeing the weakness that's been there in global and low mid-tier Android? Are you seeing that worsen? Or are you seeing that weakness now moving into the high-end, premium tier? And the second part is we get questions from investors about when things do weaken, do some of the ASP -- really strong performance that you guys have had in your wireless business over the last year or 2. Do those ASPs starting rolling over? Or is this a unit dynamic and you're seeing ASPs hold up well?

Akash Palkhiwala :

Just maybe quickly, Matt, on your first question. What we saw in the September quarter through our licensee reporting is weakness across tiers and regions. So it was -- it cut across all tiers in that case. And then that's what we are projecting forward in the December quarter as well. And then clearly, on the ASP side, as Cristiano said, the content is increasing and we have opportunity on upside in that case. And also, you've seen us manage through the last couple of years of foundry price increases, and then we'll be able to keep gross margin strong.

Akash Palkhiwala :

Sure, Matt. So if you look at the first quarter, there are really 2 factors that are kind of inconsistent with current -- recent trend. The first one is this inventory drawdown that we are seeing in the quarter. Impact of that is approximately $0.80 within the quarter. And that's really the primary impact. Of course, there's a little bit of impact that also comes in from the weaker market environment as well. So when you take that impact in the first quarter projected forward for the rest of the year, we were very clear that the OEM inventory drawdown, we see that as a couple of quarter issue. And it's not something that's a long-term challenge for us. It's a short-term cyclical issue. So that should inform how you project it through the year. And then on the market side, given the uncertainty at this point, our planning assumption is that the weakness in the market lasts through the fiscal year. Clearly, if the market improves, we'll see that as upside. But at this point, we're going to plan based on current scale of the market. So if you take kind of current expectations and apply that framework to the year, that should hopefully inform how we do the forecast for the second quarter and also for the full year.

Samik Chatterjee:

I guess I had two as well. And if I can start on IoT, so smartphone. I guess, Akash, you mentioned smart IoT revenues as well moderating sequentially. And I wanted to see if you can now provide a bit more color. You've broken out the sort of IoT business previously into consumer, industrial and edge networking, calling it roughly sort of 1/3, 1/3, 1/3. Now as we start to sort of see some moderation there, can you now talk about the trends in terms of the different sort of subsegments there? And where are you seeing more resilience versus sort of maybe more weakness? And how should we really be sort of projecting that forward? And I have a follow-up.

Samik Chatterjee:

Okay. Okay. And for my follow-up, I mean, I think Cristiano and Akash both sort of talked about the content opportunity in -- around Snapdragon and even sort of around fiscal '23 in the handset market. A lot of the pushback that we get from investors around that could really drive out, particularly as you think about a weaker macro setup, is OEMs opting to use sort of previous generation Snapdragon chipsets and continue to sort of prioritize price in the market to make it much more affordable for consumers to buy smartphones to -- as to trigger sort of volumes or help volumes in the market. I mean, when you think about sort of the fiscal '23, what are your planning assumptions when it comes to content gains or market share gains and how confident a few of OEMs not sort of sticking to prior generation chips just to be able to optimize the price/cost equation here?

Operator:

Mike Walkley from Canaccord Genuity.

Akash Palkhiwala :

Mike, it's Akash. For fiscal '23, our market assumption is that the kind of the weak market we're seeing in the September-December quarter carries on to the rest of fiscal '23. And so we're not using the first half calendar '22 as the basis but really kind of the current, say, scale of the market carrying forward. So that's our base assumption. And clearly, there is unpredictability and variance around it, but that's the planning assumption we're using for now. On the OpEx side, as we deal with the short-term headwinds, we're clearly taking this is of action on things that we control. As Cristiano mentioned, we've implemented a hiring freeze. We're reducing our spend in mature businesses, including handsets and SG&A. And then we're optimizing our R&D investments to increase focus on automotive and IoT, which is obviously the core of our strategy on diversification. And then finally, the way to think about fiscal '23 OpEx is we expect it will come in below fiscal '22 exit run rate. So we're clearly taking action on OpEx from that perspective.

Stacy Rasgon:

I want to ask a little bit about March quarter. So you're saying that the inventory flush lasts a couple of quarters. You said more than half of it is done in December quarter. It seems like there's a good chunk that's still coming in March. But at the same time, you also -- Cristiano just talked about the incremental Samsung volume starting to ramp in March. How do we think about the interplay of those 2 things? Is the Samsung volume enough to offset some of that channel flush that we're still seeing in March? I mean you said big customers are changing some of their inventory plans. Are -- is Samsung one of those big customers? Is it -- it doesn't sound like it's just isolated to China. Just anything you can give us about like some of those drivers, both positive and negative, as they're going to the market would be helpful. And then I have a follow-up.

Stacy Rasgon:

Right. That's helpful. For my follow-up, I wanted to ask about the QTL run rate. So I get the market is weak. But presumably, Apple should be stronger than the rest of the market into December. And usually, that gives a pretty big lift. It implies that Android must be really bad in the December quarter, unless there's something else going on. Can you just verify there's nothing else going on, no collection issues or anything like that? Is it just purely sort of Android market-related that's driving the run rate down? So I think it used to be around $1.7 billion in December quarter, and you're guiding about 150 million light.

Operator:

Ross Seymore from Deutsche Bank.

Akash Palkhiwala :

Yes. So first, Ross, on your direct question, there isn't a set of charges that are included in the number that's anything significant. So that's the base assumption. The second thing I would say is if you look at where we guided our fourth fiscal quarter and where we came in, we actually did significantly better than our guidance. And then where we are guiding the first quarter is really in line with the guidance we had given for fourth quarter. So nothing specifically to look at there. We're kind of navigating through the environment. And then over the last couple of years, as I said earlier, we are pretty happy with the way we've navigated through foundry price increases as well. So focus for us is staying disciplined on the pricing side and kind of taking advantage of the technology and products we have to improve our market share.

Cristiano Amon:

So let me give you the first answer. The way you should think about our auto, we have been -- you have the telematics business. Then you have the digital cockpit that was a big component of the design pipeline, and those are turning into revenue. And then the next one after that is ADAS. So we expect the story of Qualcomm automotive has been about the pipeline materializing into revenues and continue to generate growth, less impacted by the short-term markets. I don't know, Akash, if you want to add anything.

Ross Seymore:

And it will be up sequentially in the first quarter? Just to clarify your guidance.

Operator:

Joseph Moore from Morgan Stanley.

Akash Palkhiwala :

Yes. So it's Akash. That's a fair question. So if you really think about our last earnings, one of the things we said was we expected customers to be cautious with their purchases in second half '22. But since then, what has happened really is the macroeconomic environment deteriorated, and we went from a period of supply shortages to demand declines. And it's kind of an unprecedented change over a short period of time. And what you're seeing is really OEMs responding to that and making a change in their inventory policy and now drawing down on inventory. So that's the impact that we're seeing in the December quarter that we sized at approximately $0.80. If you also think about the seasonality, you typically expect December quarter to be a growth quarter as people build inventory going into the holiday season. And what we're seeing is the opposite. So it does kind of come as a surprise in terms of how quickly the environment changed.

Akash Palkhiwala :

No additional comments to what I just said. I mean gross margin question that I answered kind of really factored. It's more of a pricing question than anything else, and those comments still apply.

Louis Miscioscia:

This is a longer-term question. I guess some news came out a little while ago from Ford and GM that they're closing down Argo. And also one of the big self-driving ADAS pioneers, Levanduski, actually seems to change his view. Realize that you guys just had the auto day, which is great, and you're really looking out to 2026. But just any comments on this and that how difficult it will be actually to stick to the prior time frame that you had originally talked about at the auto day?

Operator:

Blayne Curtis from Barclays.

Akash Palkhiwala :

Yes. I think the adjustment we talked about is primarily Android. So that's how you should think about it.

Akash Palkhiwala :

Sure. So when you look at our RF front-end business, it's kind of an end-to-end modem-to-antenna development cycle. And because of that, we've become the #1 player in handsets already. When we look forward, the way we think about the growth in the business is it's driving 5G further into handsets and WiFi 7 but also into automotive and IoT. In one of the new disclosures we gave, and you'll see this in our web slides, in fiscal '22, we had $137 million in auto RF front-end revenue, and we have a design win pipeline of greater than $900 million. And then within IoT, we have RF front-end revenue of $405 million. So those numbers are becoming of scale. And generally, still, it was mostly handsets. We kept it separate. But I think we're getting to a point where there -- it's becoming at scale within automotive and IoT. And so we thought the change in the revenue streams was -- this was the right time to do it.

Timothy Arcuri:

I had 2. I guess the first one is on Apple. You did update that you now expect the vast majority of the launch in 2023 for you to be in the product. That's not a big surprise, I think, to most people. And you said that by 2025 that you'll be out of the products, but you used the word product. So I just want to clarify that you are still assuming that once they don't need your modem anymore that they will still pay you a royalty for said patents?

Timothy Arcuri:

Perfect. And then I guess also, Akash, I had a question on the financial model for QCT. I know you gave it a year ago, and things have changed a lot since then. At the time, you were sort of implying if you sort of ran the growth rate out to ‘24, it was sort of implying a $40 billion QCT revenue out in 2024. You’re now down to sort of $8 billion a quarter, so you’re now run rating more like $32 billion. Do you still feel confident that you can get back next year into the $10 billion a quarter that would get you to that $40 billion financial model next year?

Operator:

Brett Simpson from Arete Research.

Akash Palkhiwala :

Yes. Brett, from an inventory drawdown perspective, we definitely see first quarter as the bottom. As we said, more than 50% of the inventory drawdown, we think, happened in the first quarter. And so that hopefully answers the question you were asking.

Cristiano Amon:

Thanks for the question. Look, we -- the latest set of restrictions, we were not in impacted by those. And we have seen our business in China to continue to expand, especially as we grew into auto and IoT. We see corresponding expansion of those business in China as well. I think we have a global position. I think we -- it's one global standard, especially when you think about the mobile market in 5G. And we look at a position that we have in China as one that is pretty stable right now. It's very difficult to predict this environment. But so far, I think, continue to be a strong business from Qualcomm with growth opportunities. And we're hopeful that the extended lockdown will end soon, and that's going to have likely a positive impact on the size of the phone market.

Cristiano Amon:

Yes. Thank you, everyone, for listening to the call. I just want to say a big thank you to all of our employees and partners that are helping us to the incredible fiscal '22 and how we navigate to fiscal '23. Just a few comments. When you step back from the current short-term macroeconomics and this temporary cyclical inventory drawdown, we feel that Qualcomm is very well positioned. A lot of the trends continue to point to our technology road map. You need connectivity, advanced processing and artificial intelligence at the edge. And as we outlined in the script, we see that everything is on track, including expanding design for our Windows on Snapdragon with our custom CPU. The ability to continue to materialize the auto as well as IoT and industrial IoT and the digital transformation has proven to be overall resilient in the long term. So we will be decisive in managing operating expenses and especially if the downturn gets steeper or more prolonged than we expect. But I would like to remind everyone that the current inventory is a cyclical adjustment that has no impact on the underlying long-term earnings power of the company. And we're have -- we're well on our way, executing our growth strategy and all the fundamentals remain in place. Thank you so much.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter Fiscal 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded July 27, 2022. The playback number for today’s call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13731134. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. I’m very pleased with our performance in fiscal Q3 and how we continue to execute on our long-term vision of enabling a world where everyone and everything is intelligently connected. As we continue to scale our One Technology Roadmap across new industries and applications, we are transforming Qualcomm from a communications company for the mobile industry into a connected processor company for the intelligent edge. This quarter, we delivered revenues of $10.9 billion and non-GAAP earnings of $2.96 per share, driven by solid results in both our chipset and licensing businesses. In our chipset business, revenues of $9.4 billion were up 45% year-over-year with record revenues in IoT and automotive, demonstrating the success of our diversification strategy. Before I highlight a few notable milestones this quarter, I would like to update you on an important development in our relationship with Samsung. We’re very pleased to report that Qualcomm and Samsung have entered a new multiyear agreement starting in 2023, expanding the use of Snapdragon platforms for future premium Samsung Galaxy products globally. This validates the Snapdragon is the technology platform of choice for premium Android experiences. In addition to Galaxy smartphones, the agreement includes PCs, tablets, extended reality and more. We have also agreed to a seven-year extension of our patent license agreement with Samsung, taking the license through the end of 2030 with the same royalty terms. The extension encompasses 3G, 4G and 5G technologies and devices and will also include future 6G standards and products. This license agreement is a significant QTL milestone event. Samsung is the world’s largest smartphone supplier by unit volume with a well-developed portfolio of patents. The extended license agreement with Samsung demonstrates the tremendous ongoing value of our patent portfolio, our innovation and our longstanding leadership in driving the important and foundational elements of the mobile road map. The extended Samsung license agreement is an important benchmark for the long term and adds significantly to the stability of the QTL program going forward. Let me now share some of the key achievements from the quarter. In automotive, the Snapdragon Digital Chassis is fast becoming the industry’s platform of choice and is enabling the transition to next-generation vehicles. We are very pleased with the continued traction and design wins across global automakers and Tier 1 partners. Our automotive design win pipeline is now over $19 billion, up approximately $3 billion since fiscal Q2. This includes the design win with the Volkswagen Group’s software company, CARIAD, to power Volkswagen’s future automated driving solutions. In consumer IoT, we continue to execute on our opportunities across tablets, XR, PCs and smart consumer devices. For personal computing, we are continuing to drive the inevitable transition to ARM. We are on track to deliver Windows on Snapdragon compute platforms for next-generation PCs powered by our custom CPUs while redefining mobile productivity and on-device AI. To support the accelerating transition to ARM-based computing, Microsoft recently announced Project Volterra, a new developer kit powered by the Snapdragon compute platform featuring the Qualcomm AI engine. They also announced a comprehensive end-to-end ARM native toolchain for Windows application developers including Visual Studio, Visual C++ .NET and more. In edge networking, we launched four new networking Pro Series Wi-Fi 7 platforms, the world’s most scalable Wi-Fi 7 portfolio, initiating a new era of 10 gigabits per second Wi-Fi for enterprise access points, Wi-Fi mesh, carrier gateways and premium home routers. We also continue to see strong momentum in industrial IoT and recently announced two new 5G connected robotics platforms with enhanced AI capabilities, computer vision, 5G connectivity and a comprehensive customizable SDK, to power next-generation robotics and drones, including autonomous mobile robots, AMRs, highly automated manufacturing robots and more. These achievements demonstrate our ability to continue to grow across automotive in the broader IoT categories in addition to RF front-end and handsets. Our One Technology Roadmap is the cornerstone of the strategy with unparalleled leadership across not one, but multiple technologies required for the connected intelligent edge. This includes on-device AI, low-power, high-performance compute, computer vision, advanced connectivity and more. Importantly, as we expand into new growth areas, we’re driving our technologies to meet the highest performance requirement for each application and serve as the industry design point. For example, our dedicated automotive SoCs and accelerators for Level 3 and Level 4 autonomous driving can deliver up to 700 trillion operations per second, TOPS of AI processing. Our RB6 robotics platform brings advanced edge AI and video processing capabilities support for up to 7 concurrent cameras and up to 200 TOPS. And we believe our upcoming custom-designed CPUs will redefine computing performance for Windows PCs. Of particular note is our significant momentum in AI. We recently launched the Qualcomm AI Stack, which unifies our existing best-in-class AI software solutions into a single package that works across all Qualcomm platforms. The Qualcomm AI Stack is positioned to become the platform for AI at the edge. The Qualcomm AI Stack supports all AI frameworks, including TensorFlow, PyTorch and ONNX as well as AI runtimes such as TensorFLow Lite, TensorFLow Lite Micro and ONNX runtime. We also have a rich variety of OS support, including Android, Windows, Linux, QNX, Ubuntu and others. With this new offering, OEMs and developers can now develop and optimize AI models once, then move the same model across different Qualcomm products and tiers for true develop once, deploy anywhere model. We believe the Qualcomm AI Stack portfolio is a revolutionary step in scaling high-performance, low-power on-device AI processing. These solutions demonstrate how our One Technology Roadmap is transforming Qualcomm from a wireless communications company for the mobile industry to a connected processor company for the intelligent edge. Lastly, as we continue to move forward and execute on our strategy, we’re mindful of the challenging economic environment, and we remain disciplined on investments that drive sustainable differentiation and stockholder value. We are focused on customers and industries that drive stable long-term growth. We believe the industry trends that are driving demand for our technologies remain unchanged and continue to validate our strategy, positioning us well for the long term. We’re still on track to expand our addressable market by more than 7 times to approximately $700 billion in the next decade. Before I turn the call over to Akash, I would like to invite you to join us in New York on September 22nd at our first ever Automotive Investor Day event. Qualcomm is the leading automotive technology platform provider for next-generation vehicles. We will demonstrate how the Snapdragon Digital Chassis is enabling the transformation of the automobile and continuing to drive growth in our design win pipeline. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Matt Ramsay:

Yes. Thank you very much. Good afternoon, everybody. Cristiano, maybe you could give us a little bit of a breakdown in how you’re seeing the handset market right now. And particularly, we’ve -- and you guys just discussed it in your prepared script, some weakness in mid-tier Android. But I’d like to sort of double-click on that a little bit. If you could contrast what you’re seeing maybe with premium, with the mid-tier Android market, specifically in China and then the mid-tier and low-tier Android market globally? And if there’s any differences in the trends that you’re seeing there, that would be really helpful. Thank you.

Akash Palkhiwala:

Yes, Matt. So to add to that, in the third quarter, what we saw was lower handset units in the mid, low tiers. And of course, there was an impact in China, but the rest of the impact was largely in rest of the world with some limited impact in the developed economies. And what we are forecasting going forward is really that to continue forward in second half of calendar ‘22, the adverse trend that we saw exiting the third fiscal quarter extending forward. So, we are updating the overall calendar year forecast to down mid-single-digits versus ‘21, and we’re also updating the 5G forecast to be in the $650 million to $700 million range for the year.

Akash Palkhiwala:

Sure, Matt. As you know, December quarter is seasonally a strong quarter for us, both up for the QCT handset business and the QTL business. So that remains unchanged. We’re still going to see flagship device launches and holiday season increases that will benefit our financial performance. And we’ll see -- we are forecasting growth from third fiscal to fourth fiscal quarter, and we’ll see growth again going into the first fiscal quarter. We do expect it to be calibrated by some of the same factors that we saw impacting us in fourth quarter, but still expect strong growth rates as we look out to the December quarter.

Tal Liani:

Hi, guys. First question is on balance sheet. Cash and equivalents went down by $4.5 billion, if you can give us some data there? And second, I want to talk about RF. RF on a sequential basis is slowing down. And the question is, it’s basically down on a cumulative sequential basis, it’s down already. And the question is whether the share gain story is over and now it’s going to trend in line with the market. Can you take us through kind of the trends, but also the ASP trends that you’re seeing in the RF segment, RF of QCT, of course?

Cristiano Amon:

So Tal, this is Cristiano, just going to add a couple of things. So, we have been very focused on the entire portfolio continue to drive leadership across every single component. And one thing that we have been very focused now started to bring RF front-end to auto IoT and Wi-Fi. And we’re starting to track that. As an example, the RF front-end design win pipeline, right now, it’s in the excess of $900 million in automotive. We also see opportunity with Wi-Fi. We announced our next-generation Wi-Fi and Bluetooth for RF front-end modules to go over chips as well. So, we expect to be focusing on driving growth in auto and IoT. And as Akash said, it’s an attached story on the Snapdragon. It tracks the mobile market, and we grow faster than front-end in mobile because of processor content.

Samik Chatterjee:

I had a couple. Maybe if I can start with the China smartphone market. I know Akash, you referred to assuming that the global smartphone market sort of remains the same way as it is with exiting June. I sort of remember that some of the government data and that regional market data show positive signs in the June month -- the month of June, I think, after the reopening. Any sort of comments given you’re sort of seeing many cycles here, what are you thinking in terms of how to -- when does the market trough rate up to the China smartphone market? What gets it to sort of reach a trough or rebound from there on because at least I think the month of June did show some positive signs? And I have a follow-up. Thank you.

Samik Chatterjee:

And just for a follow-up, for the September quarter guide, if I can ask you to unpack that a bit more. You typically have a high-end North American customer launching their product, and you’ve driven sort of double-digit quarter-on-quarter QCT growth in the past on account of that. The more modest seasonality that you’re guiding to now is that primarily then sort of weaker mid-tier Android -- mid and low-tier Android, or are you expecting some softness on the high end as well with your primary North American customer there?

Cristiano Amon:

Maybe if I can just add one thing. This is Cristiano. So, the way to look at our Q4 guide, including the macroeconomic environment that we size at $0.20 of EPS, we see us growing 24% year-over-year. The way I will unpack that is, we have the macro, we have the reduction in the mobile market, but if you break that down, in addition to what Akash said about the premium tier being resilient even as we have less units in mid and low, we have sequential growth in auto. We had record auto Q3. We see sequential growth in QT. And in the IoT, I think consistent what we have been in the conversation throughout this earnings season is any offset in -- any consumer weakness has been offset by strength in industrial and enterprise. And so, when we look at those numbers, a 24% year-over-year growth is actually faster than some of our peers, they have even less consumer exposure than we do because of mobile. Thank you.

Rod Hall:

I’ve got two questions for you guys. One is going back to kind of the high end and not necessarily September, not that particular high end, but the Chinese high end makers in the back end of the year. I know that as the supply chain, Cristiano, has been kind of short, I think there was some original thinking, those guys might preorder chips, and that might affect your September quarter. And I’m just curious if that is happening, are you seeing some impact on the September quarter from those anticipated Android launches in, I guess, the late October, November time frame? And then I have a follow-up on that.

Rod Hall:

So then Akash, just to clarify, most of that impact would probably come in the December quarter. Is that correct, on that comment?

Rod Hall:

High-end Android launches, mainly in China.

Rod Hall:

Great. Okay. Thank you for that. And then, I also wanted to just ask you guys on channel inventory. We’ve had spotty indications of inventory clearance. Verizon is saying they’re going to clear inventory in high end, I think all levels of smartphones as we look into the fall. And there’s a lot of inventory clearance going on in retail. We see some abnormal high-end promotions in China occurring as well. So, I’m just curious what you think the status of inventory is out there, and whether you think some of this inventory clearance might pull some demand forward out of the early part, at least of the fall season?

Operator:

Thank you. Our next question is coming from the line of Michael Walkley with Canaccord Genuity.

Alex Rogers:

Michael, this is Alex. Thanks for the question. On the Samsung licensing deal, the way this works is we have a current agreement that’s been in place since 2009, was set to expire at the end of 2023. Instead, what will happen is we’ve agreed to extend that for seven years through to the end of 2030 at the same royalty rate. So, that’s it, it’s pretty simple, pretty straightforward. We see it as a very, very significant milestone event for the QTL licensing program, validation of our portfolio, validation of our innovation leadership. And it’s a very important benchmark for future renewals as well. It really contributes a lot to the stability of the QTL program going forward.

Operator:

Our next question is coming from the line of Ross Seymore with Deutsche Bank.

Akash Palkhiwala:

Yes. Sure, Ross. It’s Akash. As I said in my prepared remarks, the other factor on the QTL side is device mix being stronger and maybe a portion of it is inflation helping the ASPs, but also we’ve seen kind of people upgrade devices as they buy new ones. And so, the mix is what is offsetting the volume on the QTL side.

Akash Palkhiwala:

Sure. Happy to. So, when you think about QCT gross margins, the key things for us is, one, our diversification strategy as we use the technology we have created for handsets and apply it to other markets. That helps our gross margin profile and op margin profile as well, but also gross margin profile. The second is, as we sell more premium tier devices, that is also a helpful trend for us. And so, you’ve seen the benefit of that even in the face of increasing pricing from foundries, we’ve been able to do pretty well on the gross margin side. We did see a mix change as we went through the quarter where we ended up slightly lower than we had forecasted at the beginning of last quarter. But when you look forward, our mix is shifting up again, and it’s maybe a balance of the previous quarter that allows us to guide very strong on the gross margin side. If you look forward, really no change. I think, we’re very comfortable with where we are at. We’ve given a long-term operating margin guidance, which contemplates a strong gross margin profile. And we’re comfortable with that guidance, no change there.

Joe Moore:

On a similar note, can you talk a little bit about your pricing strategy in the handset part of the business? You saw the gross margin benefit during a period of tight supply. And I think some people have worried that as that period comes to an end, you’ll see more price competition. Can you just generally talk about how you see that dynamic?

Joe Moore:

Great. And then you talked about inventory in the context of the sort of end market retail. Can you talk about component inventory of Qualcomm parts, I mean, the fact that you had a shortage until relatively recently. Does that -- is that the reason why you haven’t had some of the same inventory correction in China that maybe some of the RF guys have?

Operator:

Our next question is coming from Blayne Curtis with Barclays.

Akash Palkhiwala:

Yes, Blayne, generally, we feel like we’re in a relatively good place. Now of course, there are pockets of nodes or parts that we’re still dealing with shortage on. But overall, we feel like we’ve reconciled to a reasonable place. I’ll say just when you look at our inventory balance, just we’ve more than doubled our revenue over the last couple of years. And we’re also heading into a stronger seasonal quarters for us, September and December. And so, what you’re seeing on the balance sheet is really a reflection of what’s coming up.

Cristiano Amon:

Yes. The way you should think about it is Snapdragon low power, they’re Galaxy product line, they are Galaxy flagship products. And what I can say at this point is we were 75% on Galaxy S22 before the agreement. You should be thinking about we’re going to be much better than that on Galaxy S23 and beyond. It’s a multiyear agreement. And it’s -- that’s probably what I can tell you. You should think about us powering their devices globally.

Brett Simpson:

Cristiano, I wanted to ask about the Apple guidance that was laid out by Akash at the Investor Day. I think, Akash, you mentioned that new iPhones in the second half ‘23, you would expect about 20% share of those new iPhones. Now that we’re getting closer to that time line, has your view changed at all by that share? And if we were to see more demand for Qualcomm modems at this account, can you secure the foundry capacity? And would you need to negotiate a new long-term agreement for modems? Thank you.

Brett Simpson:

Okay. That’s clear. And maybe just a follow-up for Akash. I just wanted to ask about free cash flow. You’ve had a lot of moving parts, I guess, looking at fiscal ‘22 with prepayments for foundry and some of the working capital increases. But can you talk more broadly about the ability of Qualcomm’s free cash flow margin targets, what’s the business really capable of achieving? And when might we start to see higher levels of free cash flow from the business? Thank you.

Operator:

Thank you. Our final question is coming from the line of Srini Pajjuri with SMBC.

Cristiano Amon:

Thank you for your question. Actually, a very good question. Maybe I’ll answer breaking down in two parts. Look, it worked very well for us to be focused on share of wallet and especially in the supply-constrained environment to make sure we secure the sockets and had supply for the sockets, really important for this strategy, which is premium and high. It does not mean that we’re not going to be serving opportunities in the mid and low. And it’s now an environment as supply gets normalized as we predicted for the second half, we have an opportunity to win a lot of the sockets in the mid, low and that’s definitely an upside to our model.

Akash Palkhiwala:

Yes. Hi, Srini. We’re going to continue to have a discrepancy. I think if you look at a couple of web slides that we included this time around, it shows how the content is increasing at the premium tier for us. And that’s just an example, obviously, that applies to really all tiers. There’s a lot more demand for processor content, whether it’s CPU, GPU, camera, AI, security, audio video, we are increasing content across the board. And so, we do expect that that will drive stronger revenue growth on the handset side. As Cristiano mentioned on RF front-end, of course, we’ll benefit from the transition to 5G, which as markets like India start deploying 5G later this year, we’ll see the benefit of expansion of SAM since 5G is where we really play there, and then also for auto and IoT expansion opportunities there. So different vectors for growth in that area.

Cristiano Amon:

Yes. I just want to start by thank you to our employees and our partners for really a great quarter. A couple of things that I’d like to message. None of our growth driver has changed. All the fundamentals of strategy are in place. We’re really focused on things we can control, but our strategy is working. We are transforming Qualcomm in a company that was communications for the mobile industry into a connected processor company for the intelligent edge. We’re very excited about the Samsung agreement. It is the way to think about stability and growth in our handset business. And one of the things we mentioned in the script that we didn’t talk much about it is the incredible progress we’re making in AI and really building very a competitive development platform for the edge. That’s where we see a lot of the growth silicon opportunities in the other devices. And don’t forget to tune in for Auto Investor Day. Auto is a success story for the company, continues to be, and we’re going to have some exciting things to share with you in our Investor Day later in the year. Thank you very much for your support, and talk to you also.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Second Quarter Fiscal 2022 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded, April 27, 2022. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13728288. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. As we shared at our Investor Day last November, Qualcomm is at the intersection of transformative trends that are generating demand for our broad technology portfolio across virtually every industry. This is creating strong growth and diversification opportunities beyond handsets. These trends, which include the enterprise transformation of the home, convergence of mobile and PC, merging of physical and digital spaces, the digital transformation of industries, connectivity and processing at the edge, the automotive digital chassis and 5G have only continued to accelerate. They are driving our financial outperformance in a greater-than 7x addressable market expansion to approximately $700 billion in the next decade. As you can see from our results, we delivered record revenues of $11.2 billion and non-GAAP earnings of $3.21 per share, representing year-over-year growth of 41% and 69%, respectively, both exceeding the high end of our guidance. In QCT, our chipset business and the growth engine of the company, we saw strength across the entire portfolio. Revenues of $9.5 billion were also a record and reflect our continued diversification. Our automotive design win pipeline is now over $16 billion, up more than $3 billion since fiscal Q1. IoT revenues grew 61% year-over-year with strong growth across all 3 categories of consumer, edge networking and industrial. RF front-end revenues grew 28% year-over-year, and handset revenues grew 56% year-over-year. These results demonstrate that our growth drivers remain unchanged and our strategy is working. Our one technology road map across wireless connectivity, advanced edge processing and power-efficient AI is incomparable across our peer group. In fact, advanced processing and artificial intelligence are the fastest-growing silicon content areas for Qualcomm. As such, we can no longer be defined just as a communications company serving one industry, rather, Qualcomm is a leading connected processor company for the intelligent edge serving multiple new end markets and enabling the growth of the cloud-connected economy. As we continue to expand, we remain on track to meet our Investor Day financial projections, and I will now provide an update on our progress to date. In automotive, our horizontal platform, the Snapdragon digital chassis is a significant driver of our growing design win pipeline and is increasingly becoming a key asset for automakers. Our digital chassis comprises a full suite of open, flexible and scalable platforms for telematics, connectivity, digital cockpit, ADAS and autonomy and cloud services. With leading system solutions expertise and capabilities across multiple domains, Qualcomm is fast becoming the preferred industry partner for the auto industry and is well positioned for continued growth. Since our last earnings call, we significantly expanded our Snapdragon digital chassis capabilities. First, the Arriver acquisition enhanced our ability to deliver open, fully integrated and competitive ADAS solutions to automakers and Tier 1 suppliers at scale. As a result of the acquisition, we are incorporating Arriver's computer vision, drive policy and driver assistance assets into Snapdragon Ride. Second, we recently announced a long-term cooperation with BMW to jointly develop and extend BMW automated drive software to the Snapdragon Ride platform. The co-developed solution is scalable and customizable and can be offered by Qualcomm to other automotive OEMs across all tiers. We also pleased with our multiyear technology collaboration with Stellantis, which will be utilizing our Snapdragon automotive cockpit platforms across the automaker's 14 brands. Upcoming Stellantis vehicles will also be featuring 5G capabilities for telematics systems based on our Snapdragon auto 5G modem RF platforms. In consumer IoT, Android tablets are becoming collaboration tools and increasingly demand is shifting from entry-level commodity tablets to premium connected computing devices, a clear validation of the convergence of mobile and PC. We are pleased that Snapdragon 8 Gen 1 is powering the newest flagship tablets such as the Galaxy Tab S8 series globally. Additionally, we are growing in premium and high-tier devices with OEMs such as Lenovo, HP and Opel. We're also pleased to see the announcement of the first-ever premium Windows on ARM enterprise focus laptop, the Lenovo ThinkPad X13S powered by the new Snapdragon 8CX Gen 3 compute platform. This new ThinkPad features 5G millimeter wave AI accelerated experiences, advanced camera and audio technology, an ultra-slim, fanless design and up to 28 hours of battery life on a single charge. We're encouraged by the broad interest in our upcoming products, utilizing our industry-leading CPUs designed by our NUVIA team. We continue to drive the inevitable transition to ARM-based computing while redefining the future of mobile productivity. In edge networking, we continue to benefit from the demand for global connectivity required for remote work, school and play, and we provide industry-leading solutions, enabling the migration to WiFi 6 and WiFi 6E mesh technologies. We also recently announced the world's first and fastest WiFi 7 commercial solution, which we believe will further extend our leadership position. With multi-gigabit WiFi performance, ultra-low latency and unmatched spectrum versatility, we believe our WiFi 7 solutions will unlock a new era of advanced consumer and industrial applications. Our 5G fixed wireless access solutions also continue to gain traction as a last mile broadband solution. We now have more than 125 fixed wireless access designs announced or in development by more than 40 OEMs. We also introduced next-generation features such as standalone 5G millimeter wave support in our RF sensing suite to enable operators to extend their 5G service offerings to the home and enterprise. Industrial IoT experienced the fastest year-over-year revenue growth within IoT this quarter driven by continued demand for both connectivity and advanced processing at the edge. Notably, this quarter, we saw accelerated demand for ruggedized handheld devices for warehousing, logistics and health care industries as well as for robotics platforms. Going forward, we're actively building an ecosystem of system integrators and channel partners to support the scale of our industrial IoT platforms as they become critical for the digital transformation of multiple verticals. In handsets, we had record revenues of $6.3 billion driven by continued traction with leading smartphone OEMs such as Samsung, Xiaomi, Oppo, Vivo and Honor, where Snapdragon continues to be the mobile technology platform of choice for premium and high-tier Android. We now have approximately 75% of the premium tier processor volume for Samsung's Galaxy S22 smartphones, up from approximately 40% in the Galaxy S21. Samsung's strategy to adopt Qualcomm for the majority of volume is significant and validates our platform leadership as well as consumer preference for the Snapdragon brand. Our Snapdragon mobile solutions continue to define premium smartphone experiences. Let me highlight a few examples from our Snapdragon 8 GEN-1. In imaging, devices enabled by this platform achieved the highest DxOMark ever, making it the best smartphone camera in the world. In connectivity, our solution features the world's first 5G AI processor in a modem RF system, enabling AI-based performance enhancements, antenna tuning, network selection and more. In AI, our 7 generation AI engine doubles the computational performance versus the previous generation. Our handset strategy, as outlined at Investor Day, is enabling share gains and enhancing our ability to capture the most significant portion of the revenue opportunity. In RF front end, we continue to drive 5G modem RF leadership. Our fifth generation modem RF system now implements advanced features such as AI integration, millimeter wave and sub-6 dual connectivity in 5G sub-6 care aggregation with FDD and TDD spectrum. Looking forward, in addition to growth in handsets, we're expanding RF front end into automotive and IoT. In our licensing business, revenues of $1.6 billion were above the midpoint of our guidance driven by the most valuable patent portfolio in the industry, and we continue to develop and patent new essential innovations for future releases of 5G and beyond. Lastly, demand remains strong across all our technologies and continue to exceed supply. We believe our multi-sourcing and capacity expansion initiatives will continue to provide incremental improvements towards supply throughout the year. With our One Technology road map and demand for our products and solutions across virtually all industries, we are in an incredible position to continue providing high-performance, low-power computing on-device intelligence and everything wireless. Our plan remains on track, and I'm very excited for the future of Qualcomm. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Matthew Ramsay:

Congrats, guys, on the strong results. Cristiano, my first question comes on the automotive business. Obviously, there's a lot going on with the Arriver acquisition, the Stellantis deal and you guys talking about a $16 billion pipeline now. I wonder if we could go back and revisit some assumptions from the Analyst Day. I think you guys had talked about getting to $3.5 billion in revenue on sort of a 5-year basis. You're running maybe 1/3 of that now, but the pipeline is expanded dramatically. So maybe you could talk a little bit about the visibility on revenue and how you're thinking about the numbers that you laid out at the Analyst Day for that strong automotive growth.

Matthew Ramsay:

As a follow-up, just on the handset business, I think it's notable that the significant, I guess, share expansion that you guys are highlighting at Samsung. And if you go back to the Analyst Day, I think you guys talked about growing QCT handset revenue sort of in that 12% range either -- even while Cupertino came out of share in the 2023 phone in a pretty significant way. So I guess there were some questions at that time about the ability to grow through the next 2 or 3 years Android revenue in such a significant way. So Cristiano, are you thinking about the content and share expansion at Samsung as being sustainable? And how is the RF attached on that expansion and share at Samsung trending?

Operator:

Our next question is coming from Mike Walkley with Canaccord Genuity.

Cristiano Amon:

Thanks for the question, Mike. There's a lot in there. I think both how we think about the design as well as supply. So in handsets, it is a good story. I think Akash outlined, we're growing year-over-year for fiscal '22 in the order of 50%. We grew 56% in the quarter. And it's a story of share gains with Samsung as well as if you look at fiscal '22 compared to fiscal 2021, share gains in China as well. And it's -- and we continue to see Snapdragon as probably the synonymous with premium and high Android flagship. The design pipeline is very strong. We've been reporting that as we talk about the number of designs. And I'll let Akash talk about the market. Even though the market -- it is a little bit more soft, we're not that exposed to lower-tier units because of our strategy to be really focused on premium and high and in the value share of the market. Maybe Akash, if you can comment?

Cristiano Amon:

So the second question, Mike, on supply. The supply situation is going as we planned. I think contemplating our guidance contemplated into our projections that we made back in Analyst Day. Having said that, you're going to hear the same thing that you're probably hearing from us consistently. We still have more demand than supply across all business.

Samik Chatterjee:

Congratulations on a great quarter here. I just want to start with Cristiano and Akash, you both mentioned the 50% QCT handset growth for the year. If you can put that in context, we all know the overall market is either flat or down for handsets this year. Just wondering if you can quantify how much of that 50% growth is share versus content growth on apples-to-apples basis. I'm just trying to think about how you would try to sort of capture what -- how much of that growth is sustainable into next year. Then I have a follow-up.

Samik Chatterjee:

And my follow-up, Akash, maybe how you're thinking or sort of baking in the impact of the China lockdowns here, both in relation to demand and any impact on supply that we should think of?

Operator:

Our next question is coming from Stacy Rasgon with Bernstein Research.

Akash Palkhiwala:

Sure. Stacy, it's Akash. We obviously take a consistent approach when we guide the quarters going forward. So we've taken the same approach as we have done in the past. Certainly, there is more things that we don't do, given the situation in China and then macroeconomic situation as well. But the demand signals are strong and supply is improving and a lot of the upside that you're seeing is those 2 factors coming together.

Akash Palkhiwala:

Yes. From a September quarter perspective, as you know well, it's kind of the quarter where we start seeing the second inflection point of the year for us, where we have flagship launches late in the August, September time frame going into holiday season. So we still expect that to happen, and that's going to help our performance as we go into those 2 quarters. Also, if you look at the September quarter, we're seeing strong demand across our diversification plan. So that's playing out as or better than we had expected. And so IoT, automotive and RF front end, we also expect strong year-over-year growth in those areas into the September quarter.

Tal Liani:

I have two questions. One is on margins. It's -- last quarter was record margin. This quarter, again, much better than expected. Can you discuss the puts and takes of margins and what we should expect going forward? That's number one. And number two, I just want to understand -- just kind of a follow up on China. Entering the quarter, we thought China is going to be weak. We are also hearing, and I want you to correct me if I'm wrong, that Huawei share loss in China is not materializing, meaning Huawei is still selling in the high end and many miles away from China. So I would like to know what are the kind of share dynamics in China and what is the overall demand and if you can just elaborate a bit on the Chinese market.

Cristiano Amon:

So Tal, this is Cristiano. I just want to add a couple of things. So first of all, the strategy for handsets for us, it's different. We're really focused on premium and high tier. We have been very disciplined how we think about pricing. And we're really building on our technology differentiation, preference for Snapdragon brand. And I think that has had a contribution on the gross margin on the handset business. But also, we pointed out that in China its represented 20% of the market. The premium tier devices, whether Vivo, Oppo, Xiaomi, Honor, Huawei for 4G as well as devices such as Samsung, they're all powered by Qualcomm. And that is why we've been benefiting of growth in a richer mix of premium and high. We're not that much impacted by the low-tier units. And we've been less interested in commodity units in the handset business. Having said that, regardless of what's happened in the China market, I think the story on IoT is strong. The story on auto is strong and all of the new business are accretive to margins that Akash outlined.

Roderick Hall:

I wanted to come back to the 50% growth in handsets. When we calculate what that implies for Q4, it's about $1 billion more than we had anticipated for QCT revenues. And I think we were above Street, so a very strong number there. I guess I want to try to ask the visibility question again, maybe in a different way, which is do you -- how much of that revenue is committed? And I'm assuming this would be mainly high-end Android buyers that would be interested in shipping new units at the end of the year given your prior commentary about Apple exposure and so on. But I wonder if you could just confirm that is Android and then talk a little bit about how much of that revenue is in the bag now and how much still needs to be kind of developed in the order book. And then I have a follow-up.

Roderick Hall:

Okay. Great. And then for my follow-up, I just wanted to -- you haven't touched on Europe at all. You talked about a little bit of weakness in China. We picked up some developing weakness in Europe. But I'm just curious what you're seeing there from a demand point of view. It doesn't sound like anything, but maybe give us a little bit of color on what you see going on in the European market from a demand perspective.

Operator:

Our next question is coming from Ross Seymore with Deutsche Bank.

Akash Palkhiwala:

Yes. Ross, it's Akash. So when we look forward on the handset side, we still think that there is opportunity to gain share, especially as supply improves. So that would be one driver. Second is 4G to 5G transition. We have some ways to go on that for the rest of the market. So we should see that play out, and that should benefit us as well. The third driver is what we discussed earlier, where the amount of processing that's needed. And this is whether it's CPU or GPU, AI camera, audio, video security, each of these vectors are being pushed hard in terms of performance and the competitive landscape between the OEMs. It is demanding that all these capabilities get added to the handset. So that is also helping us from a content increase perspective. And then those are the drivers as we look forward.

Akash Palkhiwala:

Yes. So I think in the quarter that we just reported, we guided gross margin at a certain level, and we came in even stronger than that. And so as we look forward, we're guiding kind of in line with our recent history, more in line with the way we had guided the March quarter as well. So that -- we could have a potential opportunity based on a mix of products. But the insight that we have right now based on the mix, we think that's a good number.

Joseph Moore:

Great. Obviously, you've seen this really healthy environment in the premium to your handset market. But you've also had a shortage. And I wonder, has the shortage contributed to the pricing and margin strength that you've seen in any way as that shortage eases? Do you see more competitive market? And you talked about as your supply gets better, you can take share. Does that imply the more price aggressive? Or are the prices going to be sticky and mix shift is the element to watch?

Joseph Moore:

Great. And if I could follow up on the royalty side. Nice to see that those numbers are solid in the first half of the year. Can you help us put that in the context of the overall supply chain issues that your customers are dealing with? And does that imply if they have pent-up demand, could that end up being better than seasonal royalty strength and just how should we correlate that with what we're seeing on the supply side?

Operator:

Our next question is coming from Chris Caso with Raymond James.

Cristiano Amon:

Condition is very high. And I'll point you to something that I would encourage, I think, you all to observe what's happening in the market. In many of those markets that are now new markets to Qualcomm, Samsung is actively advertising Snapdragon as an ingredient brand with the Galaxy S22. And I think that's a very significant data point. And as I said earlier, I think we're very confident that Samsung relationship is going to continue to be an expanding relationship for us.

Cristiano Amon:

No, absolutely. Thanks for the question. We are on track. We have been working with Microsoft for many years. I think Windows 11, as I mentioned before, is for the first time, you'll have full support, including 64-bit emulation on ARM. It's the first time that you actually have a platform, which is ready for commercial and enterprise deployments. We did -- within the quarter launched with Lenovo, the first enterprise ThinkPad. And we have a number of designs with our 8 CX generation 3. As we think about the next generation, we have been developing our own CPU that's been designed by the NUVIA team. And we are going after the performance tier for focus about high scale in the enterprise. And development is on track, and we expect to have that in late 2023.

Blayne Curtis:

I wanted to ask you, if you look at the first half of the year, I think the 50% growth in handsets, it's pretty much all higher revenue per chipset through your filings. So I'm just kind of curious, as you look at the second half, obviously, the compares on kind of the content get harder. Just how are you thinking about that mix between unit growth, which I think Android units probably went positive this quarter but were down as you -- you're starting with supply. But how are you thinking about the second half in terms of the kind of pull there to grow revenue units, i.e., share or more content?

Blayne Curtis:

Got you. And then maybe just as a follow-up, IoT, just curious the mix tailwinds you're seeing there, I mean assuming stuff like WiFi 6 is helping, but any color on the tailwinds within the IoT segment?

Operator:

That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call?

Operator:

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm First Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please limit your questions to one question and one follow up. As a reminder, this conference is being recorded, February 2, 2022. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13726028. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Cristiano Amon:

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. Based on our performance over the past several quarters and the strong fiscal second quarter guidance, it is clear that our strategy is working. Demand for our products and solutions continues to accelerate, as our one technology road map is driving the growth of premium Android smartphones, as well as enabling the connected intelligent edge, which is driving digital transformation for the cloud connected economy. As you can see from our results today, strong performance in our chipset and licensing business led to record fiscal first quarter revenues of $10.7 billion and record non-GAAP earnings per share of $3.23. Our chipset business had its second consecutive quarter of record performance with revenues of $8.8 billion, EBT of $3.1 billion and EBT margin of 35%. Notably, QCT revenues exceeded those of any fabless semiconductor company. These results demonstrate the continued success of our diversification strategy. In IoT, we continue to see strong momentum, with revenue growth of 41% year-over-year in the first quarter across consumer, edge networking and industrial. In consumer IoT, our early investments, collaboration with Microsoft and the recent acquisition of NUVIA, uniquely positions us to drive the PC industry transition to ARM-based computing for next-generation connected laptops. We recently introduced two new platforms, the 8cx Gen 3 and 7c+ Gen 3. And at CES, we highlighted broad support from ecosystem partners, including Acer, ASUS, HP, Lenovo and Microsoft as well as 200 enterprise customers currently testing or deploying Windows on Snapdragon laptops in 2-in-1 devices. We're also seeing strong growth in premium and high-tier Android tablets, further highlighting the convergence of mobile and PC. Notably, we have already doubled the total number of premium tier and/or tablet design wins launch or in the pipeline versus all of fiscal '21. Additionally, as the Metaverse opportunity materializes, we continue to build on our industry leadership position in VR and AR devices with key ecosystem players, including Meta and Microsoft. At CES, we announced a collaboration with Microsoft to expand and accelerate the adoption of augmented reality in both the consumer and enterprise sectors. This partnership includes custom AR chips to enable a new wave of power-efficient, lightweight AR glasses to deliver rich and immersive experiences as well as plans to integrate our Snapdragon Spaces XR developer platform into Microsoft mesh. We're also very pleased that Time Magazine named our Snapdragon XR2 platform as one of the best inventions of 2021. And we're seeing strong support for our VR and AR platforms from virtually all ecosystem providers, OEMs and content creators. In edge networking, we continue to lead in current and next-generation high-performance Wi-Fi 6 and Wi-Fi 6E solutions, which now make up more than 80% of our Wi-Fi access point revenues. Recently, we launched the world's first quad-band Wi-Fi 6E mesh system with NETGEAR, which was rated the best-in-class mesh platform by PC Magazine. Additionally, our Wi-Fi 6 immersive home platforms continue to gain momentum across regions, with significant growth now expanding into China, one of the fastest-growing markets for Wi-Fi 6 for both retail and carrier deployments. 5G as wireless fiber continues to gain scale and expand globally. In addition to our extended range millimeter wave platforms, we recently expanded our portfolio to include 5G fixed wireless access solutions with extended range sub-6, and we're seeing strong traction. In industrial, we're still in the early phases of digital transformation across many industries. And demand for our solutions continues to accelerate. As an example, combined smart utility meter, tracking robotics and retail revenues more than double over the last year. In robotics, specifically, we expect total fiscal '22 product launches using our platforms to increase by over 50% year-over-year, spanning applications from warehouse automation to public safety, delivery services and in-home assistance. The diversity of vertical segments and applications reflects our ability to provide a common platform that integrates advanced computer vision, on-device AI, high performance in low-power computing and industry-leading connectivity technologies. In RF front end, we successfully launched our latest 5G modules, which now include our ultraBAW technology. Our modem-to-antenna strategy is working, enhancing power and performance with average generation of Snapdragon. Notably, virtually all our Snapdragon 8 Gen 1 design wins now include Qualcomm ultraBAW filter technology. Building on our success in handsets, we're seeing traction with our modem-to-antenna solution across automotive and IoT. As examples, we're well positioned to address up to $30 of 5G RF content per vehicle, and we're also intersecting our RF front end road map with Wi-Fi 7. In automotive, Qualcomm is becoming the technology partner of choice for the industry, and we're enabling the transition of the automobile to a digital cloud-connected platform. Our innovative Snapdragon digital chassis is an open and scalable cloud-enabled platform for telematics, connectivity, digital cockpit and ADAS, and uniquely position us as the leading system solution provider for silicon, software, systems and services across multiple domains. As a reminder, General Motors, BMW and now Renault Group are cornerstone customers for our platform, including ADAS. At CES, we announced an addition to our ADAS and autonomy platform, the Snapdragon Ride Vision System, a new modular computer vision solution that combines our Snapdragon Ride SoCs with the next-generation vision perception software from Arriver. It supports the various compute functions needed for enhanced perception around the vehicle, and it scales across applications from entry-tier in-cap front camera to comprehensive front and surround view camera for enhanced autonomy. We expect the Snapdragon Ride Vision System to be available in production in 2024. In handsets, we recently announced our most advanced 5G mobile platform for flagship smartphones, the Snapdragon 8 Gen 1 at our annual Snapdragon Tech Summit. The announcement was viewed by more than 50 million people worldwide. The news Snapdragon 8 Gen 1 leads the way to a new era of premium mobile technology with category-defining enhancements across modern RF, camera, AI, gaming, security and more. Snapdragon 8 Gen 1 is the world's first 5G modem RF solution to reach 10 gigabit download speeds. It's the first to include commercial 18-bit mobile image sensor and the world's first platform compliant with the Android-ready Secure Element Alliance. We also announced new mobile platforms in every Snapdragon series to address global customer demand across every smartphone tier. In our licensing business, first quarter results reflect a favorable mix in the strength of smartphone shipments. With over 150 5G license agreements, QTL is well positioned for the future, and we continue to expect 5G to have a longer life cycle than prior generations due to its broad application across multiple industries. Lastly, demand remains strong across all of our technologies and continues to exceed supply. Despite ongoing challenges across the global supply chain, our multisourcing and capacity expansion initiatives will provide incremental improvements to our supply throughout the year. I would now like to turn the call over to Akash.

Mauricio Lopez-Hodoyan:

Thank you, Akash. Operator, we are now ready for questions.

Samik Chatterjee:

Thanks for taking my questions, and congrats on the results. I guess, if I can start with -- you talked about the strong launch with Android customers that you've had in both phones and tablets. And I think you mentioned doubling the pace of launches with Android. As we look to the -- beyond the first half, that is your fiscal first half December and March, how should we think about how much of the Android share gains for you or launches for you is already in the run rate? And how much of that is like weighted for the remainder of the year beyond sort of this first half of the year? If you can share some color on how to think about share gains continuing for the remainder of the year with Android. And then I have a follow-up, please.

Akash Palkhiwala:

Yes. Samik, I think this is something that'll sustain for us going forward. We are in a very strong position as you see in the numbers. Our product portfolio is very strong as well. So as we keep -- go forward, we continue to expect to see this benefit in our financials.

Akash Palkhiwala:

Sure. So overall, the demand, as Cristiano mentioned in his prepared remarks, extremely strong across the board. And so we are continuing to see demand outpacing supply. As you rightly mentioned, we had put plans in place very early in the process, anticipating some of these challenges. And you're seeing the benefit of that, right? We have three second sourcing parts, especially in the mid high tiers that are shipping at scale now, and that shows up in our financial performance. And we have additional parts coming up as well. So that's definitely something that's helping us. The second is we're seeing capacity builds from some of our suppliers, and that's playing a role as well. As you look forward, we expect supply to continue to improve gradually through the year, in addition to where we are at now. And this entire picture, obviously, as you'd expect, is factored into our guidance.

Operator:

Thank you. Our next question is coming from Chris Caso with Raymond James. Please proceed with your question.

Akash Palkhiwala:

Sure, Chris. Thanks for the question. So, overall, when you look at our fiscal year, we are tracking well ahead of plan. We're very, very happy with how the year is playing out for us. And that obviously puts us in a very strong position to meet and exceed our long-term Investor Day targets. If you look at the first half outperformance, beyond that, as we go into the third fiscal quarter, we are projecting EPS growth of at least 30%, an opportunity beyond that. And then as you get into the September quarter, as you know well, that's kind of the next inflection point for us with launches -- additional phone launches in -- across several major OEMs. So we're going to -- we're expecting very strong year-over-year growth in the September quarter as well. Also, when you look beyond handsets and we look at second half of fiscal 2022, RF front end, IoT and automotive all are poised to continue to show very strong year-over-year growth as we go through the year. So, generally, when you step back, we had a very strong second half fiscal 2021. Fiscal 2022 is shaping up just like that, very strong year-over-year growth rates.

Akash Palkhiwala:

Yes. Chris, that's the right conclusion. We're tracking well ahead of it. We're not updating that number yet. But I think based on the guidance that you have for second fiscal quarter and third fiscal quarter and the comments I gave on the fourth, what you're drawing is a very reasonable conclusion.

Rod Hall:

Yes. Thanks, guys. Appreciate the question. I was just taking a look and we've been looking at this for a while, the quarter-on-quarter marginal contribution. So the QCT marginal contribution, if I look at the change in EBT and the change in revenue, I'm calculating 58% there in this quarter. And I know some of that is scaling, but I wonder if there's any way you could maybe at least give us some color on how much of that is the new marginal sales in QCT being higher margin and how much of it is just scaling effect on the revenue? Thanks. And then I have a follow-up.

Rod Hall:

Yes. So Akash, what all I've done is taken the EBT of the December quarter less the EBT of the September quarter and put it over the revenue difference.

Rod Hall:

Great. Thanks. And then on my follow-up, I wanted to ask you, Cristiano, if you could maybe comment on the -- there's been a lot of noise in the high-end Android chip market about upcoming competition and so on. And I just wonder maybe could you comment on the competitive environment a little bit there, what you're seeing -- what you anticipate seeing in the next six or nine months? Thanks.

Operator:

Thank you. Our next question is coming from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

Akash Palkhiwala:

Yes. Mike, this is Akash. What's really happening with the $10 billion SAM opportunity is with the OEM mix change in China, all of our customers, Xiaomi, OPPO, Vivo, Honor, they're all picking up share. And as they pick up share and also go up tier, going into the high and the premium tier, as Cristiano just outlined, it gives us a tremendous opportunity to tap into it. So we've done a lot of it through, obviously, our products being great, but also working on the second sources that we mentioned in our prepared remarks. We still think that there is an opportunity to continue to expand into that SAM going forward.

Akash Palkhiwala:

Yes, Mike. We're definitely -- that's a decision that we definitely make where if we can bias the supply in certain directions based on the market demands, we take advantage of that. And so it's something that we'll definitely do as we get to the June quarter.

Operator:

Thank you. Our next question is coming from Stacy Rasgon with Bernstein Research. Please proceed with your question.

Akash Palkhiwala:

Yes. Stacy, it's Akash. So it's a combination of, obviously, the adjacent outside non-handsets businesses helping the gross margin. Within handsets, you're seeing the benefit come through, especially as premium and high-tier devices at the high end of Android are being consumed, and we're selling into that market. And as you'll see in the guidance that we gave, we are still continuing to be optimistic with the gross margin picture.

Akash Palkhiwala:

Stacy, no change on the framework that we've given on buybacks before. We're continuing to focus on prioritized anti-dilutive buybacks and opportunistically look for -- on top of that, if we can do additional buybacks. And so what you're seeing in the quarter is a portion of that showing up, but fundamentally, our framework doesn't change.

Tal Liani:

Hi. I have two questions. The first one is other suppliers of Apple noted that orders for March in -- were strong, but then at least one of them said that the guidance for June is very weak because there's going to be a reversion to the mean. And the question I have is, is there any concentration of QCT handsets this that gives you some concerns over any big customer that might be reducing orders that there is any abnormal behavior this quarter might be reducing orders later on? That's my first question.

Tal Liani:

Okay. The second question, and I don't know how to look at it, but when I look at handset revenues, we are well above the consensus estimates. But RF, auto and IoT, you reported below -- slightly below consensus estimates for the quarter. And I'm just wondering, is there any -- first of all, can you discuss the quarter for these non-handset markets or maybe RF as part of handsets? And then can you discuss seasonality? What -- these are new markets, relatively speaking. What should we think about seasonality here?

Operator:

Our next question is coming from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Cristiano Amon:

Thanks, Ross. This is Cristiano. Thanks for the question. Here's how you should think about it. One thing that probably separate us, we've been very focused in premium and high-tier devices, high-value devices, a lot of new technology. And, therefore, it's -- we're kind of less impacted by semiconductor cost increases. It's more about the value of the platform we offer. The second part of the answer is what we said, I think, earlier. Our one technology roadmap really scales. And as we use the technology in our R&D to serve more markets, we gained scale with our application processor in premium Android, and Android becomes the key story of mobile, not the modem. It's really the application processor. And the Snapdragon 800 is the key story. Plus, we have the processing and connectivity into automotive and IoT. It is accretive to margins. The business gains scale, and those are highly profitable, I think, product offerings. So those two things have a factor, and it's reflected in the QCT 35% operating margin.

Akash Palkhiwala:

Not really. It will be consistent with our historical seasonality. The one thing to keep in mind is as we closed the Veoneer transaction, they'll become a factor in our OpEx trend going forward. But overall, there's -- you should expect the trend to be consistent with historical.

Matt Ramsay:

Thank you very much. Good afternoon everybody. Cristiano, I wanted to -- a lot of the conversation here has been focused on supply versus demand for your products and the wafers and et cetera that takes to make your products. But a lot of the calls we all do in semis, we're hearing about match [ph] set issues and kitting issues for your end customers making devices. And what I've heard more about in the last six months and I expect to going forward is, is maybe a push by Qualcomm to use your scale to help your OEM customers get the remainder of the kit to make phones, pushing people more closely to be strictly aligned around the reference design where you can control more of the components in those reference designs. I wonder if you're finding your scale to be an advantage, one. And number two, does that have implications on attach rates of RF and other types of components that might generate revenue for Qualcomm in those designs? Thanks.

Matt Ramsay:

Very helpful. Thank you for that. Just as a follow-up. On the auto business, you guys presented a very compelling story around ADAS at the Investor Day, but I was a bit surprised that the Ultra Cruise announcement so quickly. Congrats on that. Maybe if you could give a little bit more details behind that relationship with GM and if you have other irons in the fire of similar profile. Thanks.

Operator:

Thank you. Your next question is coming from Joe Moore with Morgan Stanley. Please proceed with your question.