Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Qualcomm fourth quarter and fiscal 2019 earnings conference call. At this time all participants are they listen only mode. Later, we will conduct a question answer session. If he would like to ask a question. During this time press Star then the number one on your telephone keypad to withdraw your key.
Question Press Star then that number two if you're using a speakerphone. Please pick up your handset before precima numbers. Please limit your questions to one question and one follow up as a reminder, this conference is being recorded November six 2019. The play back number for today's call is 87766 068.
Fivethree International callers. Please dial 20161 to seven for one five they play back reservation number is 13695634 I.
I would now like turn the call overtime or you feel though pets Hawaiian Vice President of Investor Relations Mr. Lopez <unk>. Please go ahead.
Thank you and good afternoon, everyone. Today's call will include prepared remarks by Steve on coffee in the cost POC law. In addition, Cristiano Amon outs Rogers and Don Rosenberg will join the question answer session.
You can access our earnings release any slide presentation that accompanies this call on Investor Relations website. In addition, this call is being webcast on Qualcomm Dot com and the replay will be available on our website later today.
During the call today, we will use non-GAAP financial measures and to find regulation G.
And you can find related reconciliations to GAAP on our website.
We'll also make forward looking statements, including projections and estimates of future events business onto trends or business or financial results.
Two events or results could differ materially from those projected in our forward looking statements.
Please refer to our FCC filings include the most recent 10-K, which contain important factors that could cause actual results to differ materially going forward looking statements.
Now to common from Qualcomm, Chief Executive Officer, Steve Moore call.
Thank you Murray Seo and good afternoon, everyone. We're pleased to report strong results in the fourth quarter with non-GAAP earnings of 78 cents per share.
Above the high end of our guidance range on solid performance in our licensing business.
We're also pleased to see our licensing revenue returned to a seasonal pattern with fiscal Q1 as a high based on our recent licensing agreement with Apple.
Over the last several years, we have invested to establish Qualcomm as a leader in Fiveg as a reminder, fiveg. He brings a significant increase in complexity over fourg, such as new and dense network architectures high performance base band Advanced RF front end designs increased processing requirements. In addition to driving the leading edge.
Page process node.
We are actively focused on helping to define and standardized releases 16, and 17 features to support the expansion of fiveg into new large adjacent markets, such as enterprise industrial Aiotv and automotive.
The complexity and expansion of cellular technologies beyond the smartphone into in nearly every industry play directly to Qualcomm strength and and our why we believe fiveg will represent the single biggest opportunity in qualcomm's history.
Looking ahead to fiscal year 2020, the company remains focused on these three key priorities number one.
Continue executing on Fiveg with our partners around the world.
The number of Oems and operators launching fiveg products and services continues to increase throughout the year.
There are now over 40 Oems and over 30 operators launching we're announcing fiveg products were commercial service.
From approximately 20 Oems that operators, respectively at the start of the year.
Looking forward, we expect five GE to launch in all regions within the next two to three years.
On the product side in September we announced plans to accelerate Fiveg global commercialization at scale by expanding our portfolio Fiveg mobile platforms into the Snapdragon seven series and six series launching as early as calendar Q1 2020.
Our integrated Fiveg associates will support both sub six gigahertz and millimeter wave at the volume tears across all geographies.
As we continue to expand our fiveg product portfolio. Our design wins are also increasing we now have over 235, GE design wins launched or in development up from 150 in the prior quarter.
Virtually all of which are using our RF front end solutions for Fiveg sub six and a war millimeter wave.
Notably multiple Oems are now shipping or have announced their second or third fiveg device models using both our snapdragon fiveg core chipset and our modem to antenna RF front end solution.
In Korea, the migration to Fiveg continues at a strong plate pace. According to the Korean Ministry of Science, and I see T. Korean operators have already signed up 3.5 million Fiveg subscribers through September a pace that remains faster than its migration to fourg.
Additionally, fiveg millimeter wave services.
Our in planning stages by Korean carriers for calendar 2020.
In the United States, Verizon has committed to deploy fiveg ultra wide band millimeter wave in 30 markets by year end and T. Mobile separately announced plans to cover 200 million people with five cheap on 600 megahertz before the end of this year and in Europe . There are multiple fiveg launches across Switzerland, Italy, the United Kingdom and Germany.
In China, all three mobile operators commercially launched five GE services last week, bringing fiveg to the largest smart smartphone subscriber base in the world.
We now estimate that by the end of this year. The three operators will deploy a total of approximately 130000 Fiveg base stations. We further estimate that by the end of 2020 Fiveg base station deployments will increase to approximately 1 million.
Switched to put in context, it's 10 times the scale of the entire network of in March U.S. operator.
Lastly, TSMC recently attributed the significant increase in demand for their leading technology nodes tweet stronger outlook for Fiveg deployment next year. This is yet another significant indicator of the fiveg ramp into 2020.
Second priority to expand our technology platform into adjacent industry segments.
Automotive, we're very encouraged with the engagement and design win traction we are experiencing from automakers and tier one customers with our telematics and third generation Snapdragon automotive cockpit solutions.
Our design win pipeline has now increased to almost $6.5 billion up from 5 billion at the start of the fiscal year, giving us great visibility into strong growth in auto over the next several years.
Overtime as the technology roadmap in auto converges with the cellular roadmap, we expect to see and increased opportunity to lead in new product categories, notably Ada Es.
In compute we continue to build traction in the windows on Snapdragon always on always connected PC category.
In August Samsung announced the Galaxy book S. Based on the Snapdragon eight CX. This is that Samsung second windows on Snapdragon device and the first announced snapdragon eight CX always connected PC.
In October Microsoft launched the surface Pro X, our first design with Microsoft in this premium tier powered by a snapdragon eight see experience that is designed for the always on compute environment. The Microsoft S Q1 developed in partnership with Microsoft. This is the thinnest surface to ever and has three top.
Once per watt, that's the surface pro six.
Priority three drive revenue growth operating leverage and earnings per share.
Consistent with our comments last quarter, we continue to expect a positive inflection point as fiveg ramps beginning in our fiscal second quarter.
With the conclusion of our cost plan and significant share repurchases over the last year, we are poised to deliver margin expansion and outsized growth in earnings and earnings per share as revenue growth accelerates.
We're pleased with the progress we have made over the course of 2019 and believe the business is very well positioned for sustained long term growth as we benefit from the decisions and investments made over the last several years, including Fiveg. The return of Apple licensing and product revenues growth in RF front end and growth in adjacent businesses.
Before I turn the call over to a caution I'd like to congratulate him on becoming Qualcomm's Chief Financial Officer.
That's QC T finance lead for the past four years, a cost brings a deep knowledge base of our company, both operationally and strategically.
I'm looking forward to working closely with a cost as we enter this next chapter of our history I would now like to turn the call over to a cautious.
Thank you, Steve and good afternoon, everyone.
It does a very exciting time to become chief financial officer of Qualcomm and I'm looking forward to engaging with our shareholders and analysts.
I will begin with a discussion of our fiscal fourth quarter earnings.
We delivered strong results with non-GAAP EPS of 78 cents.
Three cents above the high end of our guidance range and revenues of $4.8 billion above the midpoint of our guidance range.
The outperformance in the quarter was primarily driven by Q deal.
On higher units and stronger mix.
Resulting in Qtr revenues of $1.16 billion NBP margin of 68%.
As a reminder, we did not regard any royalty revenues from wawa in our fiscal fourth quarter results.
You see delivered revenues of $3.6 billion, and 152 million MSM chip shipments inline with our expectations for the quarter.
Q Cps EBITA margin was approximately 14%.
Flat sequentially and at the midpoint of our guidance range.
Turning to fiscal 2019.
We recorded $19.4 billion in non-GAAP revenues and $3.54 in non-GAAP earnings per share.
During the year be achieved several key milestones that position us favorably for fiscal 2020 and beyond.
First our early investments in Fiveg played a key role in accelerating fiveg deployments and we have secured over 230 chipset design wins.
Second we completed the acquisition of the remaining interest in RF Twosixty Holdings and established a strong design win pipeline for RF front end products across five de sub six and millimeter wave devices.
Third we signed global patent license and multi or chipsets supply agreements with Apple.
Fourth.
We concluded our cost reduction plan announced in January 2018.
And lastly, since our July 20 had been announcement, we have completed approximately $23 billion in stock repurchase through fiscal 2019 at an average price of $65 per share.
Resulting in a 22% reduction of our shares outstanding.
Turning to our outlook, we're maintaining our estimate of 1.7 to 1.8 billion units for calendar 2019.
For global Threeg Fourg to Fiveg device forecast.
For calendar 2020, we're estimating 1.75 to 1.85 billion units up approximately 3% at the midpoint, reflecting flat handsets and low double digit growth in non handset.
We are estimating 175 to 225 million Fiveg handset units in calendar 2020.
Consistent with our comments on our previous earnings call.
Our business outlook is impacted by several factors, including weaker demand in China and certain developed regions.
While we share gain in China, and Oems managing Fourg inventory ahead of the transition to Fiveg.
Turning to our first quarter guidance for fiscal 2020.
We expect revenues to be in the range of $4.4 billion to $5.2 billion and non-GAAP earnings per share.
Of 80 to 90 cents.
We estimate fiscal first quarter Cubo revenues to be in the range of $1.3 billion to $1.5 billion, an EBITDA margin of 70% to 74%.
We expect Q deos revenues to be up 21% sequentially at the midpoint in our fiscal first quarter.
To normal holiday seasonality driven by timing of flagship phone launches.
Our fiscal fourth quarter forecast does not include any advisory revenues from wall way why do we continue to pursue a negotiated resolution of the licensing dispute.
With the completion of the global patent license agreement with Apple earlier. This year Q deal revenues will begin to reflect a seasonally high fiscal first quarter.
Following the seasonal uplift, we expect you'd be able to avenues to return to a range of $1 billion to $1.2 billion.
In our fiscal second quarter.
In Q3, D., we estimate fiscal first quarter MSM shipments of 145 to 165 million units.
And he BD margin in the range of 10% to 12%.
Do Cds EBITA margin guidance reflects lower volume in the premium and high peers.
Given by a pause ahead of the transition to Fiveg in early calendar 2020.
And the normal timing of handset launches by our customers in these two years.
As we look beyond our fiscal first quarter, we see significant inflection point for Q CP as we expect to realize the benefits from the ramp of Fiveg handset launches.
In the fiscal second quarter, we anticipate usage fee revenues to grow in the mid teens sequentially and Q C. D E. B D margin to return to the mid teens.
In our fiscal first quarter, we expect non-GAAP combined R&D and SGN expenses to be flat to down 2% sequentially.
As a reminder expenses are typically higher in our fiscal second quarter as it includes the normal calendar resets for certain employee related costs.
Interest expense net off investment and other income in the fiscal first quarter is expected to be approximately $100 million and is a reasonable estimate for each of the remaining quarters in fiscal 2020.
For our fiscal first quarter. We also estimate approximately 1.16 billion weighted average shares outstanding and a tax rate of 14%.
Looking forward 2020 is an exciting year for Qualcomm as we expect a financial upside off our fiveg strategy to begin to play out with multiple drivers of non-GAAP revenue and earnings growth, including the launch of Fiveg devices RF front end design win traction.
Growth. In addition sees combined with operating leverage and a substantially reduced share count.
We look forward to seeing you in New York at our Analyst day on November nine being where we will be providing additional details about our long term growth strategy.
Thank you and I will now turn the call back over to Maria. Thank you cost operator, we're ready for questions.
Thank you to Cuba question Press Star and the number one to withdraw your question press star to if you're using a speakerphone. Please pick up your hands up before passing the numbers one moment. Please for the first question.
Our first question comes from Chris Caso with Raymond James. Please proceed with your question.
Yes. Thank you good evening I guess first question would be on.
The pace of the Fiveg ramp as your proceed through the fiscal year, you've given some indications on.
We expect overall tourette revenue.
To be if you could talk about that in percentage terms of fiveg as percentage of the mix as it goes through the year on revenue terms or MSM terms, whatever you can do to give us some sense of how fiveg penetrates as the year goes on.
Hi, Thanks, Chris is Krishna.
You know a consistent I think what we just said in the earnings call I think timing or fiscal Q2 is that we started to see the inflection point as the devices or started to show up in volumes and the overall I think mix in a we expect.
That will be ramping in the in the high end the premium tier in some of the you know the Mark is that we've seen launching fiveg within within that we provide a metric before that we will see probably 1.5 times. The SP as we look at higher content, both the modem as well as do RF front end.
Okay. Thank you.
And as a follow on for that.
Maybe you could give us some commentary on how that impacts Q C.T. margins as the year progress is obviously, you've got that additional content.
Tons are depressed as you're making that transition now what should we expect us as the year goes on on those QC to margins.
Hi, Chris This is the gosh. The we believe you should think about the you're playing out for QC de with Fiveg is really there is going to be do inflection points in the chip business.
The first inflection point will be flagship launches.
In early 2020 by both our global in Chinese Oems and you should think of it does 3000, RMB and about handsets will start adopting fiveg. The second inflection point, we'll be in the fall timeframe. When another set of flagship devices will adopt fiveg, so that should be kind of the.
The.
Shape of for Fiveg adoption through the year.
And how this translates into margin is we give guidance for our second quarter margin. We were expecting from first to second quarter revenue will go up.
Mid teens and operating margins will also be in the mid teens range in the second quarter.
We're not guiding longer term margins of those point, but we will I will talk about it at analyst day as well.
Thank you. Our next question will come from James Fossett with Morgan Stanley . Please proceed with your question.
Thank you very much I wanted to ask kind of a follow up to that and maybe Christiana you can talk about where you see Qualcomm.
Worst, particularly strong position in terms of like if we look at flagships down through the different tiers of phones, where you've talked a lot about design wins, but where should we expect you to show up most strongly versus where might there be.
Bit more variety of suppliers.
Thanks for the question James well.
We updated our design pipeline the design pipelines about now 230 plus.
Oh Gee devices across now multiple tiers is up a substantially since six months ago and ill answer your question two ways first I.
I think it's been very clear that or early investments in millimeter wave.
Has provide qualcomm move a significant technology advantage in having that technology to maturity and we're optimistic about millimeter wave going from the United States initial launches into Korea, and Japan in other markets, a including being license already in Europe Telecom Italia was the first one happening throughout.
2020, that's a very good thing for Qualcomm, having said that I would probably say that every single lounge off of a flagship OEM today with exception of while way they used to hone silicon every other launch of every other OEM has been Qualcomm snapdragon platform and that position those very well above.
You know partner with Oems for Fiveg ramp, including Samsung, which we have not only lounge with the traditional markets, but also I'd point you to the E series, which is the second tier below the flagship that being launching with Qualcomm globally. In addition to the galaxy fold. So those.
<unk> positive things as we think you know fiveg transition for.
Great and then follow up question, maybe for Steve and Don You mentioned that you're an ongoing negotiations with walk away, but havent reached any agreement as of yet how do you think or what needs to happen to move an agreement across the line and are we going to.
I guess I'm wondering how China, U.S. trade relations and potential resolution or at least a trade agreement may factor into it to those to those agree negotiations and conversations with Wally.
James and Steve. So we continue to talk to walk away I would characterize the discussions is ongoing but really nothing to report on obviously, we don't have the numbers.
We don't have any revenue in the numbers right now.
For for licensing revenue.
In terms of how the trade.
Discussions between the two countries impact the the.
You know the of the probability or chance that we can get a resolution I think it's too early to tell I think it's pretty opaque.
At the moment, it's good that we're talking but there's really nothing to report on right now and you know that the product business for US is actually quite small we tend to be a little bit more insulated I think from the from the trade talks compared to maybe other companies but.
Too early to tell in terms of what it will mean to the to licensing discussions.
Thank you. Our next question comes from semi Chatterji with JP Morgan. Please proceed with your question.
Hi, Thanks for taking the question Oh I just wanted to start a philosophy on b, but focusing a bit on the auto frontend opportunity.
You mentioned that most of the design wins you are seeing we'll do more them and the audit front. Then go together. So just wanted to kind of get you all talked about how you're thinking about market share in auto front, then be overly generation fiveg phones today to do some of the incumbents in space and then how should we think works so standing back market share and kind of the second January .
Cogeneration Fiveg phones, and then a follow up thanks.
Thanks for your question.
So it.
We look at five D. as the key entry point for RF front end business and and we're very satisfied with the ability as as we started to look into the designs with the fiveg content, which I specifically sub six.
Spectrum as well as millimeter wave spectrum, we actually have seen a very high percentage were totally.
All of that 200 in 30, plus designs now for Fiveg content have Qualcomm more than two antenna design, we have seen in those devices. Some of our existing Cummins continued to support a improvised content for fourg, but the fiveg position a quote them is very strong what we were very happy, especially at this.
Time, as we head into the Q2 ramp of Fiveg, we see now as we go into second generation designs for four days for the second generation devices as well and lower tiers. We have maintained that pattern. So we're now going into.
Design number two and design number tree that maintain to five declines on the RF front end to end, we're very happy with that development.
Okay. If I can just follow up you've talked extensively about the opportunity on Fiveg and say Oh. If you can have quantified the revenue opportunity outside of handsets be like small said, it's all right.
Is also tied to fight you opportunity, but outside of handsets Oh, just looking for some color though.
Yes, So let me give you the first part of the answer and I'll ask a cash.
To it.
You know devices in smartphones are definitely going to be the vast majority of the earnings, especially as we head into 2020 is as how fiveg is going to ramp. However, we we are happy about the five detraction and all of our Jason's from upgrade of telematics a in automotive.
To Fiveg, we've seen a lot of industrial Iot applications, and even our small cell business is getting traction, including with traditional infrastructure vendors. So we expect to debt to be a growth story.
And as we head into 2021 at 22 in 21 don't want to single out is CPD for mobile broadband and that's part of a lot of the carriers deployment of Fiveg and fixed wireless.
Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Please proceed with your question.
Hi, guys. Congrats on the strong results and Fiveg color I just wanted to see about the seasonality the QC Teesside, Steve or Q TLC excuse me, Steve you mentioned that you were happy it was returning to a seasonal pattern you talked a little bit I think a cash about what it was going to do in the fiscal.
Second quarter can you just talk about the seasonality of that is the ranges that you've given in the past of kind of the 1.1 to 1.2 billion is that the new range and kind of the weak quarters in the stronger quarters be closer to the 1.4, you just did or how should we think about that as the year progresses.
Yeah, Hi, Ross. This is a gosh I think thats a fair amount of thinking about it we just reported actuals for the September quarter at 1.16 billion and we're guiding the December quarter to midpoint off 1.4 billion and the March quarter at 1.1, so that kind of gives us.
Sounds of the seasonality in the business on those are fair numbers do used to.
Project the business going forward.
Thanks for that as my follow up perhaps one for Cristiano on the revenue per MSM side of things just would hope to get a little more color on why is that going down sequentially in your fiscal first quarter guide and perhaps more importantly, it seems like it's up very nicely almost 12% year over year in fiscal 19.
I mean and still despite that sequential decline in your fiscal first quarter still up the better part of 10%. There I was wondering what's driving the sequential decline year over year increases and then if that's all pre five Gee, how should we think about the the lift off of this level.
Alright, Ross so our our ASP MSM has a very high sensitivity to high in premium tiers and as you know if you look at what happened in the quarter into guide for the next one of income system, where we said at the last earnings call that we're going to see the dynamic throughout the calendar year.
Yes, im a weaker market weaker demand in China.
And that combined with while we gained share in domestic China as well.
That's one dynamic dota dynamic as Oems or cancels or some of the fourg flagships and move their portfolio towards Fiveg getting ahead of the alone so that create a basically a change in that in the composition to MSM because of the high in premium tier units.
As we go to that transition. However, the inflection point for Q2 is where you started to see the effect when we talk about a 1.5 times.
If if if anything the the guide that we provided in Q2.
It contemplates the corn market environment typical seasonality of our business no significant changes in OEM share in does not include the had the ramp with Apple business. You will you see that change just with a 1.5, which in every she has higher ASP content on the modem plus the RF front end.
Thank you. Our next question comes from Matt Ramsay with Cowen. Please proceed with your question.
Thank you very much good afternoon, congratulation a cost I guess, Steve My My first question is around the five unit numbers that you gave for calendar 20.
I guess the midpoint that you guys have laid out is 200 million units, maybe you could give a little color on what you're assuming the geographic mix of those units is in particular, what percentage might be China versus rest of world and then I've a follow up thanks.
Yes, Hi, Matt this is the cash.
So the way we've talked about the Fiveg forecasts for 2020 is a a couple ways. We looked at the tops down of how transitions have typically happened in a in previous generations and the won the two things that are different with fiveg horses transition from Threeg to Fourg is China.
It is adopting Fived you had the same time as the other geographies worse is in Fourg. There were a couple of years late.
And then also within five do we are seeing multiple deals of products being long simultaneously.
Which which we did not have for Fourg. So that's why we think the intensity of the Fiveg rollout is actually faster and do you have China is a big portion of it.
Happening early in R&D in the lifecycle.
Of course in addition to that we are obviously, you're talking to all of our OEM customers and we have a very good sound. So how many devices, they're planning to launch over the next several months with Fiveg and at what price points on that also allows us to inform our drops down forecast.
Got it that's that's really helpful. As my follow up.
A quick one for for Alex on on the licensing agreements and obviously, we're encouraged to see the progress you've made on on Fiveg. There's also been this dynamic of Sep only licenses become a bigger piece of the mix and some some implications for the implied royalty rate I know that moves around a bit.
I think you.
You guys talked about and an answer to an earlier question about how to model to Q TL business going forward I Wonder if we're now at relative steady state for implied royalty rates as we go forward any comments there would be helpful. Thank you.
So I think that may be a fair way to look at it but I think what.
The way you you should look at it for for guidance is we're guiding revenue.
And so as we noted we're going to see seasonality and we're going to see I'm. The remaining quarters at the range that we identified and of course, that's without the.
While we numbers, but we have made really good progress with signing up Fiveg agreements. We have over 75 agreements now in place since we started our Fiveg licensing program.
So.
I think that reflects very strong IP position.
But I think again, if you look to our guidance on revenue, that's probably the easiest way to think about it.
And Matt. This is like I was just a quick reminder, that are our revenue guidance numbers does not include wallet. So as that gets resolved that would be incremental into the range.
Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question Hi, guys. Thanks, Jim Thanks for taking my questions.
Around the March quarter acute she guide so units in March quarter for MSM units are typically down seasonally you, obviously guiding revenues up mid teens on the Fiveg ramp so is that all or even maybe more than 100% Ted due to increases in revenue Paramus I'm like is it puts a fiveg ramp itself in content is enough to offset.
The normal seasonal decline in unit shipments or are you seeing kind of like our Oh I'd ending the the flush that we've been having and maybe a reversal of some fill in some of the new products get him. How do we think about that unit versus ASP trend in that embedded in that March quarter revenue guide for chipsets, Yeah, Hi, Stacy. So there are couple of factors. This was accomplished by the way.
A couple of factors that affect our second quarter numbers for units and ASP.
You are you're correct about the seasonal seasonally lower quarter, but that there's also offset by a stronger mix because we launch our new premium beer jump and new hardware dip during that quarter as well. So there is a mix implication before we get to the Fiveg benefit and then the third factor is is.
The what we have disclosed previously which is with fiveg devices and unlike like for like device basis, We expect to one point fivex monetization as a combination of the chipsets and the auto Frontend revenue on top of it. So those are kind of the three factors that impact the.
Volume and price revenue per MSM mix in that quarter, Thanks, and maybe just a follow up on that so you mentioned one of the half time this content increase but at the same time you also mentioned multiple tiers launching simultaneously, which is something that we didn't really see in fourg. So how do we think about that Pat I guess that that.
Differential those drivers on content increase overall versus the general a mix. It appears that are launching and do you think that is enough to keep revenue premise him rising through through 2020 through fiscal 2020 as fiveg becomes more mainstream.
Yes. So the we we think about the one point Fivex is really for a given deer device. So comparing a premium dared to a premium during the wise. When you go from Fiveg Fourg to Fiveg the revenue opportunity increases by one point Fivex and then this would also apply to the dealers as it penetrate further down and so you should.
I should think of that doesn't mechanism of modeling our business as the mix improves from Fourg to fiveg.
Thank you. Our next question comes from Mitch Steves with RBC capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my question I actually just wanted to circle back just on the.
The price you guys are getting so I really just to be down a little bit in December quarter, but it's hard to really clarification to fall where it does come back would you get an implied S.P., if it goes up or down.
And secondly, how do we think about that kind of ramping over the next 12 months I mean, I think most modest haven't going up a few dollars but.
Is that right still do you guys seem to need to be change after after seeing the mix come through.
So this Alex you are asking about the on the licensing side words or yep. Okay.
Okay.
You know Lucky again, the way we think about it is that's a good cost maybe will weigh in here, where we think about is that we're always incremental.
And.
<unk>.
I'm not sure what what more to say that other than what we've already provided by way of God.
Okay, I guess, maybe we should return to hallway piece that if that comes back I know that you're going to be increasing asps or anything 15, it's basically flattish.
Similar.
Yes, the where this is a cash went the way you should think about Wally is we don't have lobby units or revenue contemplated in that you'd be able guide at this point so when when Wally gets included into into the guide it would it would be based on what their device SP is and our.
Our licensing deal with them. So it will just fall out of the agreement that we end up having with Wally.
Yes.
Thank you. Our next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.
Hi, guys. Thanks for the question I wanted to just go back to.
The progress of Fiveg in particularly millimeter wave it Josh and I Wonder Cristiano if you could talk a little bit about of the 230 wins or maybe Steve you want to address this.
How many of those have millimeter wave.
Attached to them or at least some version of them and then as we get to the flagship launch at the beginning next year kind of proportionally how does it look and then as we get to the end of next year, how does that look do we.
We guide to most phones by the next year, having millimeter wave attach or you know some smaller proportion could you walk us through that and then I've a follow up.
Hi, Rob Thanks for the question so the way to think about it it's pretty much at this point by market for example, the United States market all of the devices. They have loans. There is a requirement for millimeter wave that suspect to utilize but all of the you know a three of the for carrier.
Yes, right now and and and that's where we have seen a deep the initial launches of millimeter wave going into.
It doesn't 20.
The core in planning assumption is you're going to start to see millimeter wave also coming into Korea market is going to come into the Japan market and ER and.
Let the later part of 20 and beginning in 2021, you've started to see that in Europe , and that's whos going to change the mix right. Now you should look at a somewhat they China launches that we're going to seeing 20, there are going to be sub six and the era in into into the first half will be sub six Japan Korea.
In the United States are going to have millimeter wave, that's how to think about it and is it your cristiano just to follow that up or is the your assumption that are our assumption should be that every market that has millimeter wave deployed in the.
In the wireless network, you would expect to see millimeter wave attached to most phones in that market is that correct.
That's correct in especially because.
You have in the wireless industry today, you have a probably a single SK you launch by an operator within their entire geography, even if you're going to have some markets. One millimeter wave. So mark it was up six that is that is being the requirement a millimeter wave comparability minimal fiveg devices.
Thank you. Our next question comes from C.J. Muse with Evercore. Please proceed with your question.
Yeah. Good afternoon. Thank you for taking the question I guess the follow up on the last question as you think about that 200 million Fiveg unit market.
Plus or minus in 2020, what percentage do you believe well have millimeter wave.
And then as part of that question.
Can you kind of talk free.
Tax rate that you're seeing on our front end.
For you guys at sub six versus millimeter wave I would assume a much higher rate there are millimeter.
Hi, Let me, let me answer in reverse order so.
On on this snapdragon platform today.
The attach rate on millimeter wave in sub six or this is the same I think we have modem to antenna designs, including Oh RF front end in in all of this Knapp track and they're very few exceptions and sometimes the exception is just a one or another band and is very small quantities.
We'll see the absolutely mature the devices, we've been winning RF front end across millimeter wave and sub six is not unique to millimeter wave. However, millimeter wave drives a little more content because unlike unlike some six you need multiple antenna modules and multiple or have chains of millimeter wave so the content.
As disproportionately higher on the millimeter wave side.
It's easier on the a mix of sub six was millimeter wave within the 200 million.
It does point, we're not disclosing a mix really but the way to best think about it is what as Keshav mentioned earlier is by market and so there are certain markets a U.S. and then Japan and Korea next year, where millimeter wave would would be required from an operator perspective and so those.
Markets would or would have millimeter wave so the best way to think about a dozen mix up markets.
Thank you very much.
Thank you. Our next question comes from Timothy Arcuri, what do you be yes. Please proceed with your question Hi, Thanks, I wanted to just clarify the answer that you had to a prior question on the March guidance for Q C.G. So are you basically implying that units are going to maybe be seasonal plus just a smidgen most of the increase in QC too.
Revenue in March is a ASP is that right.
Yeah, I think the units will have kind of the regular a regular cadence of seasonality maybe with some some increase that's driven by a five do launches, but primarily it'll be a mix of the DRD mix within within the chips. We have and then also the forward you was as Fiveg.
Okay, and then I guess just following on to that then.
If you're not getting much of the unit benefit yet in March obviously, you're going to eventually have to see that unit benefits. So how sustainable is the grossing CCT revenue into fiscal Q3.
When you would I would think seem much more the unit.
Growth in that quarter. Thanks.
So from a market perspective, the way we are planning our business going forward is we're assuming the corn market dynamics hold.
And within that our benefit as a transition happens happens to fiveg.
And then so that's that should be the basis for the assumptions. When next year now as we have both kind of initial set of five to launch has happened and then additional five doing all launches happened across across flagships auto models later in the year, we'll see our operating margin ramp in addition to.
In addition to revenue per MSM as we as we see the benefit of Fiveg I'm going to our portfolio.
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Thank you. Our next question comes from Brett Simpson with Arete Research. Please proceed with your question.
Yes, thanks, very much Cristiano I just have a quick couple of questions maybe first off on the on the Fiveg outlook for calendar 2020.
You're talking about 200 million units at the midpoint and I know other chip makers have reported in the last week or so we're talking more like 300 million units globally for Fiveg next year I'm I just want is it sort of delving a little bit into your assumptions are are you expecting the large the large flagship.
Launches next year to be only five GE or do you expect.
Global flagships to also be Fourg and not outlook and anything you can tell us about what your assumptions are for China within that Fiveg outlook, you've given would be very helpful. Thanks.
Excellent question, So let me break that down.
In Oak is as we said earlier in this earnings call I think a cash also mentioned this we are assuming existing market dynamics and I think thats why you probably see us on a more conservative estimate if you believe that.
There is a pent up demand for Fiveg devices in a it's kind of consistent with order transitions you could have a changing replacement rates and that's going to drive a bigger market bigger market is even better news for Qualcomm. So so were just a would just assuming existing market dynamics in our projections now going back to Delta.
Look and 20, we talk a lot about other dynamics on Q2, but you know maybe to add to two to the prior question. You know you should expect as we get into the second half of 20, then we're going to see the addition of Apple volumes and the and so that's you should think about really a five.
Gee ramp for Qualcomm into 2020 year last questions about China, the order of magnitude.
Well if a deployment in China is significant in Oh, we said during the script that its no. The the projection is 1 million in there would be or base stations by 2020, that's going to drive a very aggressive migration. So China could also be upside upside if the market dynamics.
Don't hold and you have heard replacement rates and and also you know if you assume the decor and while we share gains in China, which were assuming this is or going assumption if that change it didn't get get to fill more normal levels, that's upside as well.
And maybe if I can just ask a quick follow up here just to clarify on the RF front end side. When you talk about modem to antenna and Fiveg are you also including Fourg modules Fourg RF modules and like low by mid mid high band et cetera.
Or are we really talking about ultra high band RF and also just on on millimeter wave because I know, there's a lot of investors sort of questioning the viability of millimeter wave at the moment. What are you doing in your second generation millimeter wave platforms to improve.
Things like battery life for or how do we think performance is going to its going to pick up here. Thank you.
Okay, maybe oh two questions. Let me try to go a quickly to them. So the first one is we have been very focus in fiveg as the entry point. So we have been a winning RF front end and to Fiveg Mead bands or in the 3.5 bands in some cases in some of the reform band.
As as well and Louis frequencies as well as millimeter wave. It's both a we continue to see the incumbents, providing to four g., but I point I point to where we're going to see into 2020, especially with dynamic spectrum sharing it's going to be the re farming off existing for GE bands and we expect the depth to be an expense.
One of our existing Fiveg RF front end solution.
So that with the the first question. If you did can you remind me the second question on the millimeter wave performance, yes. So yes, as we launch a new technology. There. So there's a lot of features that come across the device and the infrastructure and they don't come all the day one so somebody initial.
I think battery life, where even terminal that was experienced by millimeter wave in the first generation chipsets. They already been addressed with ER with softer updates and we've seen a food they a battery life when existing first generation chipset as we go to to the second generation I Snapdragon Oh, we see.
With a with across process node and and a evolution over more than technology also significant improvements in battery life area for the millimeter wave or you know footprint as well as terminals.
Thank you. Our next question comes from Srini Pajjuri with SMBC. Please proceed with your question.
Thank you couple of follow ups actually I guess first on the Fiveg.
Speed boost there has been a lot to talk about you know the chips or data speed boost but I'm. Just curious I mean do you see any benefit on the Q TL side I know I think most of the Fourg premium phones are probably already hitting your cap, but as we as we transition to fiveg whats. So we're sort of benefit if any do you see on the Q tail side.
It's really this is a cautious.
When you again kind of going back to history, what has happened from threeg to fourg in previous generations.
We have seen typically an increase in replacement grades and an increase in Sps.
When when we go to a new generation. So that is certainly something that is a possible and maybe even likely with fiveg.
For our planning business planning purposes, we are as we said earlier, we we're planning based on a on a market being consistent and then within that having a transition to fiveg, so that could be an upside opportunity for us that's a that's not imputed.
And then then you could also see users with low in mid tier devices upgrade and by higher devices because of the increase capability that fiveg brings.
And that could help a few deal is speeds as well, but again that does not modeled into our business at this point and one quick point with our early R&D in IP leadership, it's just a really good context for driving new agreements.
Got it and then I'll caution on the margin front.
You should do you I know you said the margins will improve over the next few quarters, but my question is on a like for like basis does Fiveg give you better margins, meaning if I go back to second half of 2017, I thinking that you hit your 2020, 1% EBIT margin for Ah QC TV Dot time your revenue run rate was close to a billion dollars. So one.
Very good back to that kind of revenue run rate do you expect the margins to be higher than that 2020, 1%.
Yeah, so streaming those point, though we're not disclosing gonna separate margins for our Fourg awards as our Fiveg business or a specific target for long term margins, but this is something we'll address at analyst day. So if you can stay tuned for a couple of weeks and we'll plan to address.
Thank you. Our next question comes from Vijay Rakesh with Mizuho. Please proceed with your question.
Yeah I ask just wondering just looking at the Atis a front end.
Vince said, you're seeing into next year should give us a exiting get into 20, what do you see would be the mix of RBC.
You too Ctr you have some dollar number and what do you think you're out if if he would be.
Thanks.
Hi, Thanks for your question, we're not really breaking that down, but we did provide that metric of 1.5 times that include both the D. S be increasing to five do modem as wells RF front end content in average for tier.
Got it and under QC decide I know you guys talked about a nice pick up with the mix going to Fiveg, what kinda PSP assumptions that you assuming on that as you go through pretty greedy, especially as you might have some other much of supplies into the market. Thanks.
We <unk> the way the way to think about it is a you know we always have competition and there's nothing that we see in the market on the competitive said that is different than we would expect it and that is factor in our projections.
Thank you. Our next question comes from the line of Patrick was with Oppenheimer. Please proceed with your question.
Mr. Wash. Your line is like you May proceed with your question.
Sorry about that I had a lot mute.
I just had two quick questions. So the first question on on the RF side. When you hear the traditional our players you know corvo Skyworks talk.
They talk about a change in RF content from either 18 to 20 going to 25.
And so my question for you. It seems like initially you guys are more focused more on that incremental five to $7.
Is that fair assessment and is the majority of that five to $7 made up by.
Five millimeter wave and then if we think about that core 18 to 20, that's been historically there.
Are you really aiming for this kind of re farmed.
Bay.
And then I guess within the within a band.
Can you do you have I know you have bought capacity beat via TDK.
I wouldn't imagine it's too much just given that you know avago and corvo have probably 80% of the capacity out there. So would you be targeting more like low band.
Patrick in terms of kind of the SP question you asked.
I think the examples who have coding worse for a premium device.
<unk> really as you look at different regions and you look at different frequency bands in in a given region and beer off device those numbers could be a vastly different so I think it's very difficult to generalize in terms of VSP.
Advantages the way you should read you should think about that is there's a certain market for RF front end that exists with fiveg coming in that is going to expand and that's going to create an opportunity for us to significantly improve our share in the market and then on top of that as Keshav mentioned does DSS.
Happens.
Dynamic spectrum sharing and bands got reform to Fiveg will be able to participate and further expand our revenue opportunity. So that's kind of the framework you should use.
Thank you that concludes today's question and answer session. Mr. Mollenkopf do you have anything further to add before joining the call.
Yes. Thank you just a I just wanted to thank the team the Qualcomm team for their hard work.
And the great execution through 2019 2020, as the year Fiveg I want to thank everybody for their hard work, we're on the cost above it and I'm very excited about it but thanks, everybody see you next time.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Yes.
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