Q3 2019 Earnings Call

July 31, 2019

Ladies and gentlemen, thank you for standing by welcome to the Qualcomm <unk> third quarter fiscal 2019 earnings conference call.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Q3 FY 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, press star, then the number one on your telephone keypad. To withdraw your question, press star, then the number two. If you are using a speakerphone, please pick up your handset before pressing the numbers. Please limit your questions to one question and one follow-up. As a reminder, this conference is being recorded, 31 July 2019. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 136-923-66. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

At this time all participants are in listen only mode. Later, we will conduct a question and answer session.

If you would like to ask a question. During this time press Star then the number one on your telephone keypad.

To withdraw your question Press Star then the number two.

If you are using a speakerphone please pick up your handset before pressing let numbers.

Please limit your questions to one question and one follow up.

As a reminder, this conference is being recorded July 31st 2019.

The playback number for today's call is 87766 06853.

International callers, please dial 20161 to 7415.

The playback reservation number is 1369 to 366.

I would now like turn the call over time resale Lopez medallion, Vice President of Investor Relations.

Mr. Lopez said Williams. Please go ahead.

Thank you.

Mauricio Lopez: Thank you. Good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and Dave Wise. In addition, Cristiano Amon, Alex Rogers, and Don Rosenberg will join the question-and-answer session. You can access our earnings release and the slide presentation that accompany this call on our investor relations website. In addition, this call is being webcast on Qualcomm.com, and a replay will be available on our website later today. During the call, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements.

Mauricio Lopez-Hodoyan: Thank you. Good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and Dave Wise. In addition, Cristiano Amon, Alex Rogers, and Don Rosenberg will join the question-and-answer session. You can access our earnings release and the slide presentation that accompany this call on our investor relations website. In addition, this call is being webcast on Qualcomm.com, and a replay will be available on our website later today. During the call, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements.

And good afternoon, everyone.

Today's call will include prepared remarks by Steve Mollenkopf and the boys.

In addition, Cristiano Amon.

Alex Rogers and Don Rosenberg will join the question and answer session.

You can access our earnings release and the slide presentation that accompanies this call on our 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 we will use non-GAAP financial measures as defined in regulation G and you can find the related reconciliations to GAAP on our website.

We will also make forward looking statements, including projections and estimates of future events business or industry trends or business or financial results.

Actual events or results could differ materially from those projected in our forward looking statements.

Mauricio Lopez: Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now, to comments from Qualcomm's Chief Executive Officer, Steve Mollenkopf.

Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now, to comments from Qualcomm's Chief Executive Officer, Steve Mollenkopf.

Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward looking statements.

And now to comments from Qualcomm's, Chief Executive Officer, Steve I'm on call.

Thank you Maria and good afternoon, everyone. Thanks for joining us today, we executed well this quarter against challenging industry conditions. Despite weakening demand for Fourg solutions fiscal third quarter non-GAAP earnings of 80 cents per share was at the high end of our guidance range driven by improved product margins, lower R&D and F G and H and a lower tax rate.

Steve Mollenkopf: Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. We executed well this quarter against challenging industry conditions. Despite weakening demand for our 4G solutions, fiscal Q3 non-GAAP earnings of $0.80 per share was at the high end of our guidance range, driven by improved product margins, lower R&D and SG&A, and a lower tax rate. In QTL, following the district court's ruling, our licensees continue to perform under their agreements. In parallel, at the ninth Circuit Court of Appeals, we are pursuing a partial stay and appealing the ruling. Of note was the statement of interest of the Department of Justice in support of our stay motion, stating that Qualcomm is likely to succeed on the merits in the appeal.

In Q T L. Following the district court's ruling or licensees continue to perform under their agreements.

In parallel at the ninth Circuit Court of Appeals, we're pursuing a partial stake and appealing. The ruling of note was the statement of interest of the department of Justice in support of our stay motion, stating that Qualcomm is likely to succeed on the merits in the appeal.

Walkaway export ban along with a pivot from fourg to Fiveg, which accelerated over the past couple of months.

Steve Mollenkopf: The Huawei export ban, along with a pivot from 4G to 5G, which accelerated over the past couple of months, has contributed to industry conditions, particularly in China, that we expect will create headwinds in our next two fiscal quarters. As a result of the export ban, Huawei shifted their emphasis to building market share in the domestic China market, where we do not see the corresponding benefit in product or licensing revenue. In addition, our customers in the China market are working through their existing 4G inventory and de-emphasizing their second half 2019 4G launches as they shift their priorities to their 5G launches in early 2020. As a result, we do not expect the typical seasonal benefits given these unique market dynamics.

The Huawei export ban, along with a pivot from 4G to 5G, which accelerated over the past couple of months, has contributed to industry conditions, particularly in China, that we expect will create headwinds in our next two fiscal quarters. As a result of the export ban, Huawei shifted their emphasis to building market share in the domestic China market, where we do not see the corresponding benefit in product or licensing revenue. In addition, our customers in the China market are working through their existing 4G inventory and de-emphasizing their second half 2019 4G launches as they shift their priorities to their 5G launches in early 2020. As a result, we do not expect the typical seasonal benefits given these unique market dynamics.

That's contribute contributed to industry conditions, particularly in China.

That we expect will create headwinds in our next two fiscal quarters.

As a result of the export ban why waste shifted their emphasis to building market share in the domestic China market, where we do not see the corresponding benefit in product or licensing revenue.

In addition, our customers in the China market or working through their existing fourg inventory and de emphasizing their second half 2019, fourg launches as they shift their priorities to their five g. launches in early 2020.

As a result, we do not expect the typical seasonal benefits given these unique market dynamics.

Well the first calendar quarter of 2020, we anticipate reaching the inflection point as our financial results begin to reflect the benefits of our substantial efforts over the years to bring five G to the market worldwide.

Steve Mollenkopf: By Q1 2020, we anticipate reaching the inflection point as our financial results begin to reflect the benefits of our substantial efforts over the years to bring 5G to the market worldwide. Let me walk you through the dynamics of 5G rollouts. 5G network rollouts are progressing at a much faster rate when compared to 4G. We expect over 20 operators to launch 5G service and over 20 OEMs to have 5G devices in the first 12 months after the first commercial launch. This compares to four operators and three OEMs with the launch of 4G, with the major difference being that China is launching 5G in the first year.

By Q1 2020, we anticipate reaching the inflection point as our financial results begin to reflect the benefits of our substantial efforts over the years to bring 5G to the market worldwide. Let me walk you through the dynamics of 5G rollouts. 5G network rollouts are progressing at a much faster rate when compared to 4G. We expect over 20 operators to launch 5G service and over 20 OEMs to have 5G devices in the first 12 months after the first commercial launch. This compares to four operators and three OEMs with the launch of 4G, with the major difference being that China is launching 5G in the first year.

Let me walk you through the dynamics of Fiveg Rollouts.

Fiveg network Rollouts are progressing at a much faster rate when compared to Fourg. We expect over 20 operators to launch Fiveg service and over 20 Oems to have Fiveg devices in the first 12 months after the first commercial launch.

This compares to four operators and three Oems with the launch of Fourg.

With the major difference being that China is launching fiveg in the first year in China.

Steve Mollenkopf: In China, 5G commercial service was officially approved in early June, and our current estimate is that by the end of this year, the three operators will deploy roughly 100,000 5G base stations, which, to put in context, is the equivalent of the scale of the entire network of a large US wireless operator. In the US, 5G is being deployed across sub-6 and millimeter wave for nationwide coverage. Verizon has noted that they expect three-quarters of the phones they are launching next year will be 5G. AT&T announced that they are on track for a nationwide 5G coverage in mid-year 2020, and we expect the proposed T-Mobile Sprint merger to result in an accelerated nationwide 5G rollout. I would add that we expect millimeter wave to be a mandatory requirement at all major carriers in the United States.

In China, 5G commercial service was officially approved in early June, and our current estimate is that by the end of this year, the three operators will deploy roughly 100,000 5G base stations, which, to put in context, is the equivalent of the scale of the entire network of a large US wireless operator. In the US, 5G is being deployed across sub-6 and millimeter wave for nationwide coverage. Verizon has noted that they expect three-quarters of the phones they are launching next year will be 5G. AT&T announced that they are on track for a nationwide 5G coverage in mid-year 2020, and we expect the proposed T-Mobile Sprint merger to result in an accelerated nationwide 5G rollout. I would add that we expect millimeter wave to be a mandatory requirement at all major carriers in the United States.

Five he commercial service was officially approved in early June and our current estimate is that by the end of this year. The three operators will deploy roughly 100000 Fiveg base stations.

Which to put in context is the equivalent of the scale of the entire network of a large U.S. wireless operator.

And in the U.S. Fiveg is being deployed across sub six and millimeter wave for nationwide coverage.

Verizon has noted that they expect three quarters of the phones. They are launching next year will be five cheap 80, and T. announced that they are on track for a nationwide fiveg coverage in mid year 2020.

And we expect the proposed T mobile sprint merger to result in an in an accelerated nationwide fiveg rollout.

I would add that we expect the millimeter wave to be a mandatory requirement at all major carriers in the United States.

Also helping to drive this accelerated transition to Fiveg is dynamic spectrum sharing which enables carriers to dynamically re purpose fourg spectrum for Fiveg use.

Steve Mollenkopf: Also helping to drive this accelerated transition to 5G is dynamic spectrum sharing, which enables carriers to dynamically repurpose 4G spectrum for 5G use. DSS is a game changer for the carriers and will result in a much more rapid proliferation of 5G than we have seen in prior G transitions. Before I talk about our products, I would like to remind you of our contribution to develop the fundamental elements of 5G, including innovations that enable massive MIMO, millimeter wave, security, and the deployment of 5G technologies in networks across broad spectrum allocations. This early work has resulted in a valuable IP portfolio and provided us with early insight into what products need to be developed and commercialized at scale. This will continue as 5G expands beyond release 15, and the feature sets continue to evolve.

Also helping to drive this accelerated transition to 5G is dynamic spectrum sharing, which enables carriers to dynamically repurpose 4G spectrum for 5G use. DSS is a game changer for the carriers and will result in a much more rapid proliferation of 5G than we have seen in prior G transitions. Before I talk about our products, I would like to remind you of our contribution to develop the fundamental elements of 5G, including innovations that enable massive MIMO, millimeter wave, security, and the deployment of 5G technologies in networks across broad spectrum allocations. This early work has resulted in a valuable IP portfolio and provided us with early insight into what products need to be developed and commercialized at scale. This will continue as 5G expands beyond release 15, and the feature sets continue to evolve.

DSS is a game changer for the carriers and will result in a much more rapid proliferation of fiveg than we have seen in prior GE transitions.

Before I talk about our products I would like to remind you of our contribution to develop the fundamental elements of fiveg, including innovations that enable massive mimo millimeter wave security and the deployment of Fiveg technologies in networks across broad spectrum allocations.

This early work has resulted in a valuable IP portfolio and provided us with early insight into what products need to be developed and commercialized at scale.

This will continue as Fiveg expands beyond released 15 and the feature sets continue to evolve.

Today, we are the only chipset vendor that has fiveg system level solutions spanning both sub six gigahertz and millimeter wave bands.

Steve Mollenkopf: Today, we are the only chipset vendor that has 5G system-level solutions spanning both sub-6 gigahertz and millimeter wave bands. This is key to global deployments. Our 5G system-level solutions span baseband, transceiver, RF front-end, and antenna elements, as the components are tightly coupled together for best-in-class performance, spanning multiple KPIs, including power, area, and modem benchmarks. Let me now give you an update on our OEM traction. All of the major Android OEMs have announced 5G devices for this year, and as volume ramps in early 2020, device offerings will expand beyond premium-tier devices. As an example, China Mobile plans to drive 5G devices to price points under a US dollar equivalent of $300 by the end of 2020, representing about 40% of the Chinese smartphone segment by price band.

Today, we are the only chipset vendor that has 5G system-level solutions spanning both sub-6 gigahertz and millimeter wave bands. This is key to global deployments. Our 5G system-level solutions span baseband, transceiver, RF front-end, and antenna elements, as the components are tightly coupled together for best-in-class performance, spanning multiple KPIs, including power, area, and modem benchmarks. Let me now give you an update on our OEM traction. All of the major Android OEMs have announced 5G devices for this year, and as volume ramps in early 2020, device offerings will expand beyond premium-tier devices. As an example, China Mobile plans to drive 5G devices to price points under a US dollar equivalent of $300 by the end of 2020, representing about 40% of the Chinese smartphone segment by price band.

This is key to global deployments.

Our fiveg system level solutions span base band transceiver, RF front end and antenna elements.

As the company as the components are tightly coupled together for best in class performance spanning multiple K.P. eyes, including power area and modem benchmarks.

Let me now give you an update on our OEM traction.

All of the major Android Oems have announced Fiveg devices for this year and as volume ramps in early 2020 device offerings will expand beyond premium tier devices. As an example, China mobile plans to drive Fiveg devices to price points under a U.S. dollar equivalent of $300 by the end of 2020, representing about 40% of the Chinese smartphone segment by price band.

Our Chinese customers have recently made product portfolio decisions consistent with that carrier objective to drive fiveg into lower price bands.

Steve Mollenkopf: Our Chinese customers have recently made product portfolio decisions consistent with that carrier objective to drive 5G into lower price bands. On the product side, our 5G design wins have doubled since our last earnings call. We now have over 150 5G designs launched or in development using our 5G chipsets. In addition to core chipsets, virtually all our 5G design wins are powered by our complete RF front-end solutions for 5G sub-6 and/or millimeter wave. We are the only company today delivering an end-to-end comprehensive modem-to-antenna solution. The complexity of 5G and the value of innovative solutions enables us to expand our ASPs significantly from 4G.

Our Chinese customers have recently made product portfolio decisions consistent with that carrier objective to drive 5G into lower price bands. On the product side, our 5G design wins have doubled since our last earnings call. We now have over 150 5G designs launched or in development using our 5G chipsets. In addition to core chipsets, virtually all our 5G design wins are powered by our complete RF front-end solutions for 5G sub-6 and/or millimeter wave. We are the only company today delivering an end-to-end comprehensive modem-to-antenna solution. The complexity of 5G and the value of innovative solutions enables us to expand our ASPs significantly from 4G.

On the product side, our Fiveg design wins have doubled since our last earnings call. We now have over 155 designs launched or in development using our Fiveg chipsets.

In addition to core chipsets virtually all our Fiveg design wins are powered by our complete RF front end solutions for Fiveg sub six and nor millimeter wave.

We are the only company today, delivering an end to end comprehensive modem to antenna solution.

The complexity of Fiveg and the value of innovative solutions enables us to expand our asps significantly from Fourg.

Turning to more detail on our legal matters.

Steve Mollenkopf: Turning to more detail on our legal matters, on 8 July, we filed our motion for a partial stay with the ninth Circuit Court of Appeals, and as you may have seen, the Department of Justice, on behalf of the United States, filed a statement of interest that supports our request. We cannot predict the exact timing, but we expect the Court of Appeals to rule on our stay motion in the near future. In the meantime, as can be seen from our results this quarter, licensees continue to perform under their agreements, consistent with our view that the district court decision does not nullify the existing license agreements. On our appeal on the merits of the FTC matter, the ninth Circuit Court of Appeals granted the request for an expedited briefing schedule.

Turning to more detail on our legal matters, on 8 July, we filed our motion for a partial stay with the ninth Circuit Court of Appeals, and as you may have seen, the Department of Justice, on behalf of the United States, filed a statement of interest that supports our request. We cannot predict the exact timing, but we expect the Court of Appeals to rule on our stay motion in the near future. In the meantime, as can be seen from our results this quarter, licensees continue to perform under their agreements, consistent with our view that the district court decision does not nullify the existing license agreements. On our appeal on the merits of the FTC matter, the ninth Circuit Court of Appeals granted the request for an expedited briefing schedule.

On July eight we filed our motion for a partial stay with the ninth Circuit Court of Appeals and as you may have seen the department of Justice on behalf of the United States filed a statement of interest that supports our request.

We cannot predict the exact timing, but we expect the court of appeals to rule in our stay motion in the near future.

In the meantime, as can be seen from our results. This quarter licensees continue to perform under their agreements consistent with our view that the district Court decision does not nullify the existing license agreements.

On our appeal on the merits of the FTC matter. The ninth Circuit Court of Appeals granted the request for an expedited briefing schedule.

Steve Mollenkopf: We expect briefing to be complete by the end of the calendar year, and the court has said it will schedule the case for oral argument on the next available hearing date after briefing is completed. With regards to Huawei, we continue to pursue a negotiated resolution of the dispute focused on a final agreement. Turning to QCT, on 15 July, we announced our Qualcomm Snapdragon 855 Plus mobile platform, providing about 1 billion mobile gamers a leading flagship option for pro-like gaming devices. Expanding on our China relationships, we are pleased to announce a strategic cooperation with Tencent to deliver premium 5G and gaming experiences to consumers and developers in China and other regions. This cooperation includes joint efforts on Snapdragon-based mobile gaming devices, Snapdragon Elite Gaming, cloud gaming, AR, VR, and always-connected PCs.

We expect briefing to be complete by the end of the calendar year, and the court has said it will schedule the case for oral argument on the next available hearing date after briefing is completed. With regards to Huawei, we continue to pursue a negotiated resolution of the dispute focused on a final agreement. Turning to QCT, on 15 July, we announced our Qualcomm Snapdragon 855 Plus mobile platform, providing about 1 billion mobile gamers a leading flagship option for pro-like gaming devices. Expanding on our China relationships, we are pleased to announce a strategic cooperation with Tencent to deliver premium 5G and gaming experiences to consumers and developers in China and other regions. This cooperation includes joint efforts on Snapdragon-based mobile gaming devices, Snapdragon Elite Gaming, cloud gaming, AR, VR, and always-connected PCs.

We expect briefing to be complete by the end of the calendar year and the court has set it will schedule. The case for oral argument on the next available hearing date after briefing is completed.

With regards to walk away, we continue to pursue a negotiated resolution of a dispute.

Focused on a final agreement.

Turning to QC team on July 15th we announced our Qualcomm Snapdragon 855, plus mobile platform, providing about 1 billion.

Mobile gamers, a leading flagship option for pro like gaming devices.

Expanding on our China relationships, we are pleased to announce a strategic cooperation with Tencent to deliver premium fiveg and gaming experiences to consumers and developers in China and other regions.

This cooperation includes joint efforts on Snapdragon based mobile gaming devices Snapdragon elite gaming cloud gaming, a AR VR and always connected Pcs.

Steve Mollenkopf: We continue to execute on our growth opportunities across automotive, AR/VR, connectivity and networking, and IoT. In compute, we are on track to see the first Snapdragon 8cx-based designs to launch in the second half of calendar year 2019. In summary, while near-term demand trends are not surprisingly soft as the entire market and industry transitions to 5G, we are very excited with our design wins and growth in device content as 5G ramps, particularly into 2020. Put simply, our position at the center of developing this incredible technology represents a large opportunity for our stockholders. I would now like to turn the call over to Dave.

We continue to execute on our growth opportunities across automotive, AR/VR, connectivity and networking, and IoT. In compute, we are on track to see the first Snapdragon 8cx-based designs to launch in the second half of calendar year 2019. In summary, while near-term demand trends are not surprisingly soft as the entire market and industry transitions to 5G, we are very excited with our design wins and growth in device content as 5G ramps, particularly into 2020. Put simply, our position at the center of developing this incredible technology represents a large opportunity for our stockholders. I would now like to turn the call over to Dave.

We continue to execute on our growth opportunities across automotive, a AR VR connectivity and networking and aiotv.

In compute we're on track to see the first the Snapdragon eight CX based designs to launch in the second half of calendar year 2019.

In summary, while near term demand trends are not surprisingly soft as the entire market and industry transitions to Fiveg. We are very excited with our design wins and growth in device content as fiveg ramps, particularly into 2020 put simply our position at the center of developing this incredible technology represents a large opportunity for our stockholders I would now like to turn the call over to Dave.

Thank you, Steve and good afternoon, everyone.

Akash Palkhiwala: Thank you, Steve, and good afternoon, everyone. We delivered Q3 GAAP revenues of $9.6 billion, which included $4.7 billion related to the settlement with Apple and its contract manufacturers. GAAP EPS was negatively impacted by a $2.5 billion non-cash charge to income tax expense due to a write-off of a deferred tax asset resulting from recently issued US tax regulations. Our non-GAAP revenues were $4.9 billion. Despite top-line softness, non-GAAP EPS was $0.80 at the high end of our guidance range due to better QCT gross margins, lower combined R&D and SG&A expenses, and a better-than-expected tax rate. During the quarter, SG&A expenses benefited from a faster-than-expected reduction in excess litigation expense. QCT delivered revenues of $3.6 billion on 156 million MSM shipments, below the midpoint of our guidance range, given a larger-than-expected impact from market weakness.

Dave Wise: Thank you, Steve, and good afternoon, everyone. We delivered Q3 GAAP revenues of $9.6 billion, which included $4.7 billion related to the settlement with Apple and its contract manufacturers. GAAP EPS was negatively impacted by a $2.5 billion non-cash charge to income tax expense due to a write-off of a deferred tax asset resulting from recently issued US tax regulations. Our non-GAAP revenues were $4.9 billion. Despite top-line softness, non-GAAP EPS was $0.80 at the high end of our guidance range due to better QCT gross margins, lower combined R&D and SG&A expenses, and a better-than-expected tax rate. During the quarter, SG&A expenses benefited from a faster-than-expected reduction in excess litigation expense. QCT delivered revenues of $3.6 billion on 156 million MSM shipments, below the midpoint of our guidance range, given a larger-than-expected impact from market weakness.

We delivered third quarter GAAP revenues of $9.6 billion, which included $4.7 billion related to the settlement with Apple and its contract manufacturers.

GAAP EPS was negatively impacted by a $2.5 billion noncash charge to income tax expense.

Due to a write off of a deferred tax asset, resulting from recently issued U.S. tax regulations.

Our non-GAAP revenues for were $4.9 billion, despite topline softness.

non-GAAP EPS was 80 cents at the high end of our guidance range due to better usage gross margins lower combined R&D and <unk> expenses and a better than expected tax rate.

During the quarter SGN <unk> expenses benefited from a faster than expected reduction in excess litigation expense.

QC team delivered revenues of $3.6 billion on 156 million MSM shipments below the midpoint of our guidance range, given any larger than expected impact from market weakness.

QC T E. B T margin was 14% in line with our guidance, reflecting improvements in both gross margin and lower operating expenses.

Akash Palkhiwala: QCT's EBT margin was 14%, in line with our guidance, reflecting improvements in both gross margin and lower operating expenses. QTL's Q3 revenues of $1.3 billion came in slightly above the midpoint of our guidance range and included both current-period Apple royalties and the last $150 million interim payment from Huawei. Our Q3 QTL results reflect the view that post the ruling in the FTC case, our licensing agreements remain enforceable, and our licensees are expected to perform under their agreements, which they have done to date. QTL's EBT margin was 70%, above the high end of our guidance range on lower operating expenses due to a faster-than-anticipated reduction in excess litigation expense. Turning to our outlook, as Steve mentioned, as we look forward over the next couple of quarters, our business is being impacted by several factors in advance of the transition to 5G in early calendar 2020.

QCT's EBT margin was 14%, in line with our guidance, reflecting improvements in both gross margin and lower operating expenses. QTL's Q3 revenues of $1.3 billion came in slightly above the midpoint of our guidance range and included both current-period Apple royalties and the last $150 million interim payment from Huawei. Our Q3 QTL results reflect the view that post the ruling in the FTC case, our licensing agreements remain enforceable, and our licensees are expected to perform under their agreements, which they have done to date. QTL's EBT margin was 70%, above the high end of our guidance range on lower operating expenses due to a faster-than-anticipated reduction in excess litigation expense. Turning to our outlook, as Steve mentioned, as we look forward over the next couple of quarters, our business is being impacted by several factors in advance of the transition to 5G in early calendar 2020.

Due to the <unk> third quarter revenues of $1.3 billion came in slightly above the midpoint of our guidance range and included both current period, Apple royalties and the last $150 million interim payment from walk away.

Our third quarter Qtr results reflect the view that post the ruling in the FTC case, our licensing agreements remain enforceable and our licensees are expected to perform under their agreements, which they have done to date.

Q2 sales EBITA margin was 70%.

Above the high end of our guidance range on lower operating expenses due to a faster than anticipated reduction in excess litigation expense.

Turning to our outlook as Steve mentioned as we look forward over the next couple of quarters, our business is being impacted by several factors in advance of the transition to Fiveg and early in calendar 2020.

We see continued weakness in China demand.

Akash Palkhiwala: We see continued weakness in China demand, Huawei gaining share inside China, and our Chinese OEMs managing their inventory ahead of 5G. We are lowering our estimates for global 3G, 4G, 5G device shipments in calendar 2019 by 100 million units to a range of 1.7 to 1.8 billion. We now expect handset shipments to be down mid-single digits year over year. In China, through the June quarter, while device shipments from handset makers into the carriers and retailers was down only 5%, the device sell-through from carriers and retailers to consumers was more pronounced, down approximately 20% year over year, reflecting in part a pause by consumers ahead of 5G, and an uncertain macro environment. As a result, we have seen a meaningful build in channel inventory during the first half of calendar year 2019.

We see continued weakness in China demand, Huawei gaining share inside China, and our Chinese OEMs managing their inventory ahead of 5G. We are lowering our estimates for global 3G, 4G, 5G device shipments in calendar 2019 by 100 million units to a range of 1.7 to 1.8 billion. We now expect handset shipments to be down mid-single digits year over year. In China, through the June quarter, while device shipments from handset makers into the carriers and retailers was down only 5%, the device sell-through from carriers and retailers to consumers was more pronounced, down approximately 20% year over year, reflecting in part a pause by consumers ahead of 5G, and an uncertain macro environment. As a result, we have seen a meaningful build in channel inventory during the first half of calendar year 2019.

While were gaining share inside China.

And our Chinese Oems managing their inventory ahead of Fiveg.

We are lowering our estimates for global Threeg Fourg Fiveg device shipments in calendar 2019.

By 100 million units.

Through a range of 1.7 to 1.8 billion.

We now expect handset shipments to be down mid single digits year over year.

In China through the June quarter, while device shipments from handset makers into the carriers and retailers was down only 5%.

The device sell through from carriers and retailers to consumers was more pronounced down approximately 20% year over year.

Reflecting in part a pause by consumers ahead of Fiveg.

In an uncertain macro environment.

As a result, we have seen any meaningful build in channel inventory during the first half of calendar year 2019.

Over the next two quarters, we expect a significant impact on device shipments as sell in and sell through growth rates realign and channel inventory levels are drawn down in China.

Akash Palkhiwala: Over the next two quarters, we expect a significant impact on device shipments as sell-in and sell-through growth rates realign and channel inventory levels are drawn down in China. In other regions, including North America and Europe, we are seeing lengthening handset replacement rates impacting unit volumes, as well as some softness in India and in non-handset devices. Further, as a result of the trade dispute, our business is being impacted by a shift in OEM share towards Huawei as they increase their focus on domestic China sales and, to a lesser extent, by the loss of direct sales to Huawei affected by the trade ban. Lastly, we are seeing our Chinese OEMs respond to these factors by pulling back on new 4G device orders and managing their inventory in advance of the transition to 5G in early calendar 2020.

Over the next two quarters, we expect a significant impact on device shipments as sell-in and sell-through growth rates realign and channel inventory levels are drawn down in China. In other regions, including North America and Europe, we are seeing lengthening handset replacement rates impacting unit volumes, as well as some softness in India and in non-handset devices. Further, as a result of the trade dispute, our business is being impacted by a shift in OEM share towards Huawei as they increase their focus on domestic China sales and, to a lesser extent, by the loss of direct sales to Huawei affected by the trade ban. Lastly, we are seeing our Chinese OEMs respond to these factors by pulling back on new 4G device orders and managing their inventory in advance of the transition to 5G in early calendar 2020.

In other regions, including North America, and Europe , we are seeing lengthening handset replacement rates impacting unit volumes.

As well as some softness in India and the non handset devices.

Further as a result of the trade dispute our business is being impacted by a shift in OEM share towards walk away as they increase their focus on domestic China sales and to a lesser extent by the loss of direct sales to always affected by the trade ban.

Lastly, we are seeing our Chinese Oems respond to these factors by pulling back on new Fourg device orders have been managing their inventory in advance of the transition to Fiveg in early calendar 2020.

Turning to our fiscal fourth quarter guidance, we expect revenues to be in the range of $4.3 billion to $5.1 billion.

Akash Palkhiwala: Turning to our fiscal Q4 guidance, we expect revenues to be in the range of $4.3 to $5.1 billion and non-GAAP earnings per share of $0.65 to $0.75. For QCT, we estimate MSM shipments to be in the range of 140 to 160 million units, down 4% sequentially at the midpoint. Historically, we have seen mid-teens % growth in MSM shipments from our Q3 to Q4, reflecting normal seasonal strength in the latter part of the year as OEMs build for the upcoming holiday seasons. The estimated lower MSM shipments in our Q4 are being impacted by the factors I just described. The China-related weakness is particularly impactful to QCT revenues due to our leading position with Chinese OEMs in the premium and high tiers. We estimate QCT's EBT margin for Q4 will be 13 to 15%, flat sequentially at the midpoint.

Turning to our fiscal Q4 guidance, we expect revenues to be in the range of $4.3 to $5.1 billion and non-GAAP earnings per share of $0.65 to $0.75. For QCT, we estimate MSM shipments to be in the range of 140 to 160 million units, down 4% sequentially at the midpoint. Historically, we have seen mid-teens % growth in MSM shipments from our Q3 to Q4, reflecting normal seasonal strength in the latter part of the year as OEMs build for the upcoming holiday seasons. The estimated lower MSM shipments in our Q4 are being impacted by the factors I just described. The China-related weakness is particularly impactful to QCT revenues due to our leading position with Chinese OEMs in the premium and high tiers. We estimate QCT's EBT margin for Q4 will be 13 to 15%, flat sequentially at the midpoint.

non-GAAP earnings per share of 65 to 75 cents.

For TCT, we estimate MSM shipments to be in the range of 140 to 160 million units.

Down 4% sequentially at the midpoint.

Historically, we have seen mid teens percentage growth and MSM shipments from our third to fourth fiscal quarter.

Reflecting normal seasonal strength in the latter part of the year as Oems build for the upcoming holiday seasons.

The estimated lower MSM shipments in our fourth quarter are being impacted by the factors I just described.

The China related weakness is particularly impactful to QC t. revenues due to our leading position with Chinese Oems in the premium and higher tiers.

We estimate Q Cts EBTDA margin for the fourth fiscal quarter will be 13% to 15%.

Flat sequentially at the midpoint.

We estimate Q TL revenues will be in the range of $1 billion to $1.2 billion.

Akash Palkhiwala: We estimate QTL revenues will be in the range of $1 to 1.2 billion, with EBT margins of 62 to 66%, down sequentially versus the third quarter. Our Q4 forecast does not include any revenues from Huawei, with the last interim $150 million payment recognized in the third quarter. Similarly to QCT, QTL is not seeing the typical seasonal uptick in our fourth fiscal quarter, reflecting weaker device shipments. We expect non-GAAP combined R&D and SG&A expense to be down 1 to 3% sequentially, reflecting the absence of the catch-up and employee bonus expense that occurred in our third quarter, offset by an increase in R&D spend. We plan to remain disciplined around cost management and expect operating expenses to increase slightly from our Q4 run rate as revenues ramp through fiscal 2020.

We estimate QTL revenues will be in the range of $1 to 1.2 billion, with EBT margins of 62 to 66%, down sequentially versus the third quarter. Our Q4 forecast does not include any revenues from Huawei, with the last interim $150 million payment recognized in the third quarter. Similarly to QCT, QTL is not seeing the typical seasonal uptick in our fourth fiscal quarter, reflecting weaker device shipments. We expect non-GAAP combined R&D and SG&A expense to be down 1 to 3% sequentially, reflecting the absence of the catch-up and employee bonus expense that occurred in our third quarter, offset by an increase in R&D spend. We plan to remain disciplined around cost management and expect operating expenses to increase slightly from our Q4 run rate as revenues ramp through fiscal 2020.

With EBITDA margins of 62% to 66% down sequentially versus the third quarter.

Our fourth quarter forecast does not include any revenues from walk away with the last interim $150 million payment recognized in the third quarter.

Similarly.

TCT GTL has not seen the typical seasonal uptick in our fourth fiscal quarter, reflecting weaker device shipments.

We expect non-GAAP combined R&D and <unk> expense to be down 1% to 3% sequentially, reflecting the absence of the catch up in employee bonus expense that occurred in our third quarter.

Offset by an increase in R&D spend.

We plan to remain disciplined around cost management and expect operating expenses to increase slightly from our fourth quarter run rate as revenues ramp through fiscal 2020.

We estimate our fourth quarter GAAP tax rate to be 16% and our non-GAAP tax rate to be 13%.

Akash Palkhiwala: We estimate our Q4 GAAP tax rate to be 16% and our non-GAAP tax rate to be 13%. We believe the 13% rate is a good proxy for both our GAAP and non-GAAP tax rates going forward. As an update on our share repurchase activity, as of today, we have completed approximately 90% of the ASRs at an average price of approximately $64 per share. As a reminder, we expect to complete the ASRs in early September. We are estimating $1.21 billion weighted average shares outstanding for the fourth fiscal quarter and expect to exit the fiscal year with approximately $1.16 billion shares outstanding post the completion of the ASRs.

We estimate our Q4 GAAP tax rate to be 16% and our non-GAAP tax rate to be 13%. We believe the 13% rate is a good proxy for both our GAAP and non-GAAP tax rates going forward. As an update on our share repurchase activity, as of today, we have completed approximately 90% of the ASRs at an average price of approximately $64 per share. As a reminder, we expect to complete the ASRs in early September. We are estimating $1.21 billion weighted average shares outstanding for the fourth fiscal quarter and expect to exit the fiscal year with approximately $1.16 billion shares outstanding post the completion of the ASRs.

We believe the 13% rate as a good proxy for both our GAAP and non-GAAP tax rates going forward.

As an update on our share repurchase activity as of today, we have completed approximately 90% of the asrs at an average price of approximately $64 per share.

As a reminder, we expect to complete the Asrs in early September .

We are estimating 1.21 billion weighted average shares outstanding for the fourth fiscal quarter and expect to exit the fiscal year with approximately 1.16 billion shares outstanding post the completion of the Sars.

Looking beyond the quarter, we expect these market headwinds impacting our business to continue through the remainder of the calendar year and expect our revenues and earnings in our fiscal first quarter of 2020, we will be in a range similar to our fourth quarter forecast.

Akash Palkhiwala: Looking beyond the quarter, we expect these market headwinds impacting our business to continue through the remainder of the calendar year, and expect our revenues and earnings in our fiscal first quarter of 2020 will be in a range similar to our Q4 forecast. We are optimistic that 5G will be a catalyst to market improvement, with broad rollouts of 5G networks globally, including the US, China, Europe, Korea, Japan, and Australia. We expect 5G device volumes to ramp more meaningfully in early calendar 2020, with new flagship device launches from global and Chinese OEMs supporting 5G. In QCT, as we transition to 5G, our addressable dollar content opportunity per device is up to 1.5 times greater than a comparable 4G device, given greater chipset complexity and our ability to capture 5G RF front-end content.

Looking beyond the quarter, we expect these market headwinds impacting our business to continue through the remainder of the calendar year, and expect our revenues and earnings in our fiscal first quarter of 2020 will be in a range similar to our Q4 forecast. We are optimistic that 5G will be a catalyst to market improvement, with broad rollouts of 5G networks globally, including the US, China, Europe, Korea, Japan, and Australia. We expect 5G device volumes to ramp more meaningfully in early calendar 2020, with new flagship device launches from global and Chinese OEMs supporting 5G. In QCT, as we transition to 5G, our addressable dollar content opportunity per device is up to 1.5 times greater than a comparable 4G device, given greater chipset complexity and our ability to capture 5G RF front-end content.

We are optimistic that fiveg will be a catalyst to market improvement with broad rollouts of Fiveg networks globally, including the U.S., China, Europe , Korea, Japan and Australia.

We expect Fiveg device volumes to ramp more meaningfully in early calendar 2020, with new flagship device launches from global and Chinese Oems supporting Fiveg.

In QC Ti as we transition to Fiveg, our addressable dollar content opportunity per device is up to 1.5 times greater than a comparable fourg device, given greater chipset complexity and our ability to capture Fiveg RF front end content.

We remain confident in the incremental $2 of ESS related to the longer term contribution from the agreements signed with Apple as product shipments right.

Akash Palkhiwala: We remain confident in the incremental $2 of EPS related to the longer-term contribution from the agreements signed with Apple as product shipments ramp. One final comment, we will be hosting an analyst and investor day in New York on 19 November 2024. Please stay tuned for further details. Thank you. I will now turn the call back over to Mauricio.

We remain confident in the incremental $2 of EPS related to the longer-term contribution from the agreements signed with Apple as product shipments ramp. One final comment, we will be hosting an analyst and investor day in New York on 19 November 2024. Please stay tuned for further details. Thank you. I will now turn the call back over to Mauricio.

And one final comment we will be hosting an analyst and Investor day in New York on November 19th this year.

Please stay tuned for further details.

Thank you I will now turn the call back over to Mauricio.

Mauricio Lopez: Thank you, Dave. Operator, we are now ready for questions.

Mauricio Lopez-Hodoyan: Thank you, Dave. Operator, we are now ready for questions.

Thank you Dave operator, we're now ready for questions.

Thank you. Thank you have a question press Star then the number one.

Operator: Thank you. To queue a question, press Star, then the number one. To withdraw your question, press Star two. If you are using a speakerphone, please pick up the handset before pressing the numbers. One moment, please, for the first question. Our first question comes from James Faucette with Morgan Stanley. Please proceed with your question.

Withdraw your question Press Star two.

If you are using a speakerphone please pick up your handset before pressing the numbers one moment. Please for the first question.

Our first question comes from James Fawcett with Morgan Stanley . Please proceed with your question.

Great. Thank you very much I wanted to ask you you mentioned that.

James Faucette: Great. Thank you very much. I wanted to ask, you mentioned that a couple of different forces that are impacting demand for QCT right now, both Huawei's more internal focus on China as well as pause in demand ahead of 5G. Can you talk a little bit about how that is impacting not only unit volumes but the pricing and mix currently, and then how you're looking at the impact on, at least qualitatively, your anticipation for 5G volumes, etc., next year, especially since we seem to be coming off of a lower base?

A couple of different.

Forces that are impacting demand for QCP right now for a while always more internal focus on China as well as pause in demand ahead of of Fiveg can you talk a little bit about how that is impacting.

Not only in unit volumes, but but the pricing and mix currently and then how you're looking at.

The impact on.

At least qualitatively your anticipation for Fiveg volumes et cetera next year, especially since we seem to be coming off of a lower base.

James Faucette: As a follow-up, can you just talk a little bit more and give a little more color on how you may be handling any requests for renegotiation per the FTC ruling and kind of what the roadmap is that you've laid out for those licenses in terms of treating those requests and dealing with compliance in the interim? Thank you.

And then as a follow up can you just talk a little bit more and give a little more color on how you may be handling any requests for renegotiation for the FTC ruling and.

As a follow-up, can you just talk a little bit more and give a little more color on how you may be handling any requests for renegotiation per the FTC ruling and kind of what the roadmap is that you've laid out for those licenses in terms of treating those requests and dealing with compliance in the interim? Thank you.

And what kind of what the the the roadmap is that you've laid out for those licensees in terms of treating those requests Sam and.

Dealing with compliance in the interim thank you.

Sure. This is Dave let me start and and Christian I will jump in.

Akash Palkhiwala: Sure. This is Dave. Let me start, and Cristiano will jump in. So if you think about the dynamics in the market, we called down the market 100 million units. A meaningful portion of that is related to China, where we're seeing softness. We referenced in the comments the sell-through market to consumers being down 20% year over year through the first half of calendar 2019, and our sell-in down 5%. So we see the back half of the year a convergence of those growth rates, so the sell-in rates coming down more aggressively in the back half of the year. That in the back half of the year is compounded by some runoff of channel inventory that's been built up over the first half as well, and so some pronounced impacts on really Q3 with respect to the channel inventory runoff.

Dave Wise: Sure. This is Dave. Let me start, and Cristiano will jump in. So if you think about the dynamics in the market, we called down the market 100 million units. A meaningful portion of that is related to China, where we're seeing softness. We referenced in the comments the sell-through market to consumers being down 20% year over year through the first half of calendar 2019, and our sell-in down 5%. So we see the back half of the year a convergence of those growth rates, so the sell-in rates coming down more aggressively in the back half of the year. That in the back half of the year is compounded by some runoff of channel inventory that's been built up over the first half as well, and so some pronounced impacts on really Q3 with respect to the channel inventory runoff.

So if you think about the dynamics in the market recall down the market a 100 million units.

No meaningful portion of that is related to China.

Where were seeing softness we referenced in the comments.

The the sell through market to consumers being down 20%.

Year over year through the first half of COVID-19.

In our selling that down 5%, so we see the back half of the year.

A convergence of those growth rates, so the sell in rates coming down more aggressively in the back half of the year.

That in the back half of the year is compounded by some run off of channel inventory that's been built up over the first half.

As well and so some pronounced impacts on.

Really Q3 with respect to the to the channel inventory run off.

And so we think that.

Akash Palkhiwala: So we think that the market dynamics and the market units sort of flow out a little bit in Q3 and then hitting our Q4 and our fiscal Q1 as those dynamics play out. The way to think about how that impacts the business is, first, if you think about QCT, we typically would see, from a seasonal perspective, maybe a 15% to 17% increase in MSM shipments as we move from Q3 to Q4, and obviously, we guided down 4%. If you think about jumping off from 156 million MSMs in Q3, that gap from what we would normally expect to see is about 35 million units. About 2/3 of that is market-related, with China being a meaningful component of that.

So we think that the market dynamics and the market units sort of flow out a little bit in Q3 and then hitting our Q4 and our fiscal Q1 as those dynamics play out. The way to think about how that impacts the business is, first, if you think about QCT, we typically would see, from a seasonal perspective, maybe a 15% to 17% increase in MSM shipments as we move from Q3 to Q4, and obviously, we guided down 4%. If you think about jumping off from 156 million MSMs in Q3, that gap from what we would normally expect to see is about 35 million units. About 2/3 of that is market-related, with China being a meaningful component of that.

The market dynamics in the in the market units sort of flow out a little bit in Q3 and then.

Hitting our Q4 in our fiscal Q1.

As a as those dynamics play out.

And the way to think about.

How that impacts the business is is first you think about CCT.

Yeah, we typically would see on from a seasonal perspective, maybe a 15% to 17% increase in MSM shipments as we move from Q3 to Q4, I mean, obviously, we guided down 4%.

So if you think about jumping off from 156 million Msms in in Q3, that's that gap from what we would normally expect to see is about 35 million units about two thirds of that is market related with China being being a meaningful component of that.

Akash Palkhiwala: I would point out that a lot of the China dynamics and certainly the things related to pause before 5G are more sort of premium and high-tier dynamics that are more impactful from a revenue perspective for us. And the other 1/3 would be really share shifts, those OEM share shifts towards Huawei away from some of our OEMs, as well as a little bit of share loss at the low tier, but that's not really sort of financially impactful. So that's, I think, the way to think about the impacts on the next quarter or two here.

I would point out that a lot of the China dynamics and certainly the things related to pause before 5G are more sort of premium and high-tier dynamics that are more impactful from a revenue perspective for us. And the other 1/3 would be really share shifts, those OEM share shifts towards Huawei away from some of our OEMs, as well as a little bit of share loss at the low tier, but that's not really sort of financially impactful. So that's, I think, the way to think about the impacts on the next quarter or two here.

I would point out that a lot of the China, then Ericsson and certainly the things related to.

Pause before fiveg or more sort of premium and high tier dynamics that are more impactful from a revenue perspective for us.

And you know the other third would be really share shifts those OEM share shifts towards walkaway away from some of our Oems.

As well as a little bit of share loss at the low tier, but that's not really sort of financially impactful.

So so that's I think the way to think about the impacts on the next quarter or two here.

Mauricio Lopez: Maybe. So, James, just.

Cristiano Amon: Maybe. So, James, It's Cristiano. Just to add some additional color. So building on what Dave had said, if we remember, I think China got authorization to launch 5G back in June. So there was a lot of uncertainty whether they will launch or not, given the environment, they did launch. What we've seen, counterintuitive but actually building confidence on the 5G transition, is we had some of the OEMs cancel some of the 4G launches and moving the portfolio towards 5G designs. We're seeing a lot of requests for pulling in, and we see preparing for the 5G ramp at the next selling season. We do have this, I will say, one-time impact. As Huawei demand got suddenly reduced in Europe, we saw an increased focus of Huawei in China, and that kind of changed the OEM mix.

Maybe some chances.

Jim just pushing that just to add some additional color. So building what they've had said if you remember I think China got authorization to on Fiveg back in June .

James Faucette: James, just Cristiano, just to add some additional color. So building on what Dave had said, if we remember, I think China got authorization to launch 5G back in June. So there was a lot of uncertainty whether they will launch or not, given the environment, they did launch. What we've seen, counterintuitive but actually building confidence on the 5G transition, is we had some of the OEMs cancel some of the 4G launches and moving the portfolio towards 5G designs. We're seeing a lot of requests for pulling in, and we see preparing for the 5G ramp at the next selling season. We do have this, I will say, one-time impact. As Huawei demand got suddenly reduced in Europe, we saw an increased focus of Huawei in China, and that kind of changed the OEM mix.

So and.

You know so there was a lot of uncertainty whether they will you know lounge or not given the environment. They did launch and what we seem to some counter intuitive, but actually building confidence on the Fiveg transition as we had some of the Oems Cam. So some of the fourg launches and moving the portfolio towards Fiveg designs, we've seen a lot of requests for pulling in and that we see the foot and preparing for the fiveg ramp at the next to selling season and one one we do have this I will say one time impact s. walkaway demand a gut suddenly reduced in Europe . We saw an increased focus on self wawa in China that kind of changed OEM mix, but did general sentiment and Thats, what we see and activity is to drive as fast as possible to the fiveg ramp as we believe that this inventory on the preeminent high you know in the channel.

James Faucette: But the general sentiment, and that's what we're seeing in the activity, is to drive as fast as possible to the 5G ramp as we bleed this inventory on the premium and high in the channel. We're seeing 5G ramping across multiple tiers, as Steve said, even at the price points at $300 and above.

But the general sentiment, and that's what we're seeing in the activity, is to drive as fast as possible to the 5G ramp as we bleed this inventory on the premium and high in the channel. We're seeing 5G ramping across multiple tiers, as Steve said, even at the price points at $300 and above.

And weve seen fiveg ramping across multiple tiers as Steve said, you know even at the price points at 300 and above.

Jim This Alex on the second part of your questions.

[Company Representative] (Qualcomm): Jim, this is Alex. On the second part of your questions, how are we handling requests for renegotiations? As you may have seen, we have had a number of requests for renegotiations come in. We've also had license agreements that were in the process of renegotiation recently. With respect to those requests, we're ensuring essentially what we call a FRAND process, that the licensee has an opportunity to drive to a fair, reasonable, and non-discriminatory result in any license agreement that's ultimately reached. So we're engaging, as we always do, very thoroughly with licensees to try to get to a process that recognizes the value of our portfolio, which we think is very, very good as 5G ramps.

Alex Rogers: Jim, this is Alex. On the second part of your questions, how are we handling requests for renegotiations? As you may have seen, we have had a number of requests for renegotiations come in. We've also had license agreements that were in the process of renegotiation recently. With respect to those requests, we're ensuring essentially what we call a FRAND process, that the licensee has an opportunity to drive to a fair, reasonable, and non-discriminatory result in any license agreement that's ultimately reached. So we're engaging, as we always do, very thoroughly with licensees to try to get to a process that recognizes the value of our portfolio, which we think is very, very good as 5G ramps.

How are we handling request for renegotiations.

As you May have seen we have had a number of requests for renegotiations come in we've also had a license agreements that were in the process of renegotiation recently.

And with respect to those requests were ensuring essentially what we call a friend process that the licensee has an opportunity to to drive to a fair reasonable and non discriminatory result.

In any <unk> license agreement that is ultimately reached.

And so we're engaging as we always do I'm very thoroughly with licensees to try to get to a process that recognizes the value of our portfolio, We think which we think is very very good.

As fiveg ramps.

Thank you. The next question comes from the line of Chris Caso with Raymond James. Please proceed with your question.

Operator: Thank you. The next question comes from the line of Chris Caso with Raymond James. Please proceed with your question.

Yes. Thank you.

Chris Caso: Yes, thank you. I guess first question is on the sell-through versus the sell-in expectations over the next couple of quarters. And understand what you guys said on the revenue expectations for you that take into account some of the inventory adjustment that's going on. But what are your expectations for sell-through? Does it stay at this sort of down 20% year-on-year rate as we get into the 5G transition at the beginning of next year? What's embedded in the guidance?

I guess first question is on the up.

Sell through versus the sell in expectations over the next couple of quarters and understand what you guys said on.

On on the revenue expectations for you that take into account some of the inventory.

Adjustment that's going on what are your expectations for.

Sells it or sell through does it stay at this sort of down 20% year on year rate as we get into the the fiveg transition out there at the beginning of next year, what what's embedded in the guidance.

Yeah, essentially what's what's what's in our guide is rebar expecting the sell through to remain.

Akash Palkhiwala: Yeah. Essentially, what's in our guide is we're expecting the sell-through to remain low through the rest of the calendar year, reflecting, as we said, sort of some of the macro environment, but also really some of the pause before 5G ramps more meaningfully next year. So we expect that to remain low and then the sell-in to start to converge towards that over the remainder of the year. And then that's just, as we said, compounded by the fact that there's been some channel inventory built in the first half that will bleed off. That's more of a Q3 probably factor.

Dave Wise: Yeah. Essentially, what's in our guide is we're expecting the sell-through to remain low through the rest of the calendar year, reflecting, as we said, sort of some of the macro environment, but also really some of the pause before 5G ramps more meaningfully next year. So we expect that to remain low and then the sell-in to start to converge towards that over the remainder of the year. And then that's just, as we said, compounded by the fact that there's been some channel inventory built in the first half that will bleed off. That's more of a Q3 probably factor.

Remained low through the rest of the calendar year.

Reflecting as we said sort of some of the macro environment, but also it really you know some of the pause before fiveg ramps more meaningfully next year. So we expect that to remain low and then the sell into.

Start to converge towards that over the remainder of the year and then that's just as we said compounded by the fact that there's been some channel inventory build.

Built in the <unk> in the first half that will bleed off that's that's more of a Q3, probably not probably factor.

Okay. That's helpful. Thank you.

Chris Caso: Okay. That's helpful. Thank you. As a follow-up, I guess we understand that you're hoping to get a stay in the FTC ruling. Could you lay out for us what the contingency plans are in the event that a stay is not granted? What are the steps that would need to be taken, and what would be the financial impact of having to take those steps before appeal is finally decided?

As a follow up Oh, I guess, we all understand that you're.

You are hoping to get a stay and the FTC ruling.

Could you layout for us what the contingency plans are in the event that a stay is not granted what are the steps that that would need to be taken and what would be the financial impact of having to take those steps.

Before you know appeal is finally decided.

Hi, Chris This is Don Rosenberg, so as you know.

[Company Representative] (Qualcomm): Of course, this is Don Rosenberg. So as you know, we're smack in the middle of the Court of Appeals reviewing our motion for a stay. So we're limited in what we can say about that. But I should point out, and I don't think it's missed your eyes, that it's a fairly widespread consensus that Judge Ko's order is erroneous in many, many respects. And the fact that the United States, through the Justice Department, with the support of the Department of Defense, and the Department of Energy, have filed a brief statement of interest, rather, in support of our motion to stay, in which, among other things, they objected both to the remedy, but also indicating that they think we're going to be successful on the merits. In addition, the Court of Appeals has expedited their review of our appeal on the merits.

Don Rosenberg: Of course, this is Don Rosenberg. So as you know, we're smack in the middle of the Court of Appeals reviewing our motion for a stay. So we're limited in what we can say about that. But I should point out, and I don't think it's missed your eyes, that it's a fairly widespread consensus that Judge Ko's order is erroneous in many, many respects. And the fact that the United States, through the Justice Department, with the support of the Department of Defense, and the Department of Energy, have filed a brief statement of interest, rather, in support of our motion to stay, in which, among other things, they objected both to the remedy, but also indicating that they think we're going to be successful on the merits. In addition, the Court of Appeals has expedited their review of our appeal on the merits.

We're smack in the middle of the court of Appeals reviewing our motion for stay.

So were limited in what we can say about that but I should point out I don't think its missed.

Your your eyes that is fairly widespread consensus that judge close order.

Is erroneous in many many respects and the fact that the United States as the Justice Department through the.

With the support of the Department of Defense and Department of Energy and filed a brief.

Statement of interest rather.

In support of our motion to stay in which among other things. They objected both to the remedy but also indicating that they think we are going to be successful on the merits.

In addition, the court of Appeals has expedited.

Their review of our appeal on the merits.

[Company Representative] (Qualcomm): So I think we're very encouraged by this kind of support. We think, as I said, that there is a widespread view that our chances are very good. So we're kind of at the point where we want to wait for that decision on the stay and then proceed from there. This is Alex. I'll just add very quickly, one of the, I think, fundamental points that can't be missed is that the current agreements are valid and enforceable. Even the FTC has weighed in and said that the agreements are not nullified. So that's very important. In addition, we have a couple of what I would call anchor agreements that are very good agreements that we're quite happy with, and that's Samsung and the recently signed Apple agreement. And as I said, our IP position is very, very strong through 4G and ramping into 5G.

And so I think we're very encouraged by this kind of support we think as I said that there is.

So I think we're very encouraged by this kind of support. We think, as I said, that there is a widespread view that our chances are very good. So we're kind of at the point where we want to wait for that decision on the stay and then proceed from there.

Uh huh widespread view that that our chances are very good. So we're kind of at the point, where we want to wait for that.

That decision on this day.

And then.

And then proceed from there.

Alex Rogers: This is Alex. I'll just add very quickly, one of the, I think, fundamental points that can't be missed is that the current agreements are valid and enforceable. Even the FTC has weighed in and said that the agreements are not nullified. So that's very important. In addition, we have a couple of what I would call anchor agreements that are very good agreements that we're quite happy with, and that's Samsung and the recently signed Apple agreement. And as I said, our IP position is very, very strong through 4G and ramping into 5G.

It's Alex So just had very quickly one of the I think fundamental points that can't be missed is that the current agreements are valid and enforceable, even the FTC is way down and said that the agreements are not nullified and so that's very important.

In addition, we have a couple of what I would call anchor agreements that are very a good agreements that were quite happy with and that Samsung and the recently signed a Apple agreement and as I said, our IP position is very very strong.

Through fourg and ramping into Fiveg.

Thank you. Our next question comes from the line of Blayne Curtis with Barclays. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Blaine Curtis with Barclays. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Blayne Curtis with Barclays. Please proceed with your question.

Blaine Curtis: Hey, guys. Thanks for taking my question. I was wondering if you could comment on Apple's purchase of Intel's modem. Then kind of as you think longer here, it sounds like Huawei's focusing more on post this ban or attempted ban here, focusing more internally on their modem. I know you've shipped to a portion of that. So I'm kind of just curious, any view on how this Apple purchase affects the two bucks you guys talked about? Then if you can just comment on Huawei and if they gain share and do more insourcing opportunities for you as you go into 5G.

Blayne Curtis: Hey, guys. Thanks for taking my question. I was wondering if you could comment on Apple's purchase of Intel's modem. Then kind of as you think longer here, it sounds like Huawei's focusing more on post this ban or attempted ban here, focusing more internally on their modem. I know you've shipped to a portion of that. So I'm kind of just curious, any view on how this Apple purchase affects the two bucks you guys talked about? Then if you can just comment on Huawei and if they gain share and do more insourcing opportunities for you as you go into 5G.

Hey, guys. Thanks for taking my question I was wondering.

If you could comment on Apple's purchased then tells modem and then as you think longer here it sounds like we're always.

You're focusing more on post this banner.

Attempt to Dan here, focusing more in turn on their remote and I know you shifted a portion of that some kind of just curious any any view on how this apple purchase affects the two Bucks you guys talked about and then if you could just comment on.

Walk away and if they gained share and do more in sourcing the opportunity is for you as you go to Fiveg.

Blayne. This is Steve I'll handle the first one and Christian I think is going to jump in on the walk away question I would say a in terms of the recent news flow this really.

[Company Representative] (Qualcomm): Blaine, this is Steve. I'll handle the first one. And Cristiano, I think, is going to jump in on the Huawei question. I would say in terms of the recent news flow, I think that was pretty highly anticipated. It was clearly anticipated in the agreement that we did. Remember, we did two agreements, a patent license agreement as well as a multi-year product agreement. We don't see anything changing in terms of our ability to deliver on those agreements. And we think it still remains a pretty competitive, or at least an attractive competitive dynamic for us when you look at the industry and our roadmap versus others, even after those agreements expire. And I think very clearly, in answer to your question, we don't see any impact to the $2 number that we have put out there.

Steve Mollenkopf: Blaine, this is Steve. I'll handle the first one. And Cristiano, I think, is going to jump in on the Huawei question. I would say in terms of the recent news flow, I think that was pretty highly anticipated. It was clearly anticipated in the agreement that we did. Remember, we did two agreements, a patent license agreement as well as a multi-year product agreement. We don't see anything changing in terms of our ability to deliver on those agreements. And we think it still remains a pretty competitive, or at least an attractive competitive dynamic for us when you look at the industry and our roadmap versus others, even after those agreements expire. And I think very clearly, in answer to your question, we don't see any impact to the $2 number that we have put out there.

Product agreement multiyear product agreement, we don't see anything changing in terms of our ability to deliver on those agreements and we think it still remains a pretty competitive.

Our at least at attractive competitive dynamic for us when you look at the industry and our roadmap versus others, even after those agreements expire and I think very clearly.

The answer to your question, we don't see any any impact to the two dollar number that weve put out there.

Hi, this crescendo so under way.

James Faucette: Hi, this is Cristiano. So on the Huawei, Huawei has, and it has been now a number of years, that their premium and high-tier has been focused on their own silicon, I think, or shipments to Huawei, so I can admit to low-tier. But I will look at the Huawei focus on China a little different. I think it creates an opportunity for our customer base coming out of China, companies like Vivo, Oppo, OnePlus, and Xiaomi. Outside China, especially in Europe, that's a credit to us, especially on the 5G transition. And we looked at opportunity that's probably permanent, not one time. I think the interest on the European carriers have been very high.

Cristiano Amon: Hi, this is Cristiano. So on the Huawei, Huawei has, and it has been now a number of years, that their premium and high-tier has been focused on their own silicon, I think, or shipments to Huawei, so I can admit to low-tier. But I will look at the Huawei focus on China a little different. I think it creates an opportunity for our customer base coming out of China, companies like Vivo, Oppo, OnePlus, and Xiaomi. Outside China, especially in Europe, that's a credit to us, especially on the 5G transition. And we looked at opportunity that's probably permanent, not one time. I think the interest on the European carriers have been very high.

You know what we have in there has been no a number of years did their their premium and the high tier has been focused on their own silicon I think our shipments to always Oh is like in the mid to low tier, but I will look at that Wally Oh focus on China, a little different I think it creates an opportunity for our customer base are coming out of China companies like vivo Opel Oneplus and show me.

Outside China, especially in Europe that are accretive to us, especially on the five year transition and we looked at opportunities is probably permanent not a not one time I think the interest on the European carriers have been very high and when some data came out that were very pleased and show you know since they were kind of generations ahead on or 50 chip I think the latest report show that that while a modem is at least 50% bigger in area than the than the first generation capacity and I think we had compete you know with many other companies throughout the years and we're optimistic about the lead we have in Fiveg and hopefully that will drive a good transition for us with our customers in China, including competing with Malawi domestic gen as well.

James Faucette: When some data came out that we're very pleased and show, since we're kind of generations ahead on our 5G chip, I think the latest report showed that the Huawei modem is at least 50% bigger in area than the first-generation QCT. I think we had competed with many other companies throughout the years, and we're optimistic about the lead we have on 5G. Hopefully, that will drive a good transition for us with our customers in China, including competing with Huawei domestic China as well.

When some data came out that we're very pleased and show, since we're kind of generations ahead on our 5G chip, I think the latest report showed that the Huawei modem is at least 50% bigger in area than the first-generation QCT. I think we had competed with many other companies throughout the years, and we're optimistic about the lead we have on 5G. Hopefully, that will drive a good transition for us with our customers in China, including competing with Huawei domestic China as well.

Thank you. Our next question comes from the line of Samik Chatterjee with JP Morgan. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Samik Chatterjee with JPMorgan. Please proceed with your question.

Oh, hi, thanks for taking the question.

Samik Chatterjee: Hi. Thanks for taking the question. I just wanted to start off with kind of a question on 5G. You're clearly excited about your position in 5G. But as we kind of think about the impact on the smartphone industry, you're expecting volumes to improve, but lowering the cost of the solution also is probably going to be a big driver. So how are you seeing kind of progress on that front? And just as a follow-up, I think you mentioned kind of 20 operators you expect to launch 5G. Can you just help us think about the mix of Sub-6 versus Millimeter Wave? And you mentioned you expect Millimeter Wave to be mandatory. Kind of what's driving your view there, given what we hear is the infrastructure is not really ready to support Millimeter Wave in most geographies yet? Thanks.

I just wanted to start off with.

Question on Fiveg excited about your position in Fiveg, but as we kind of think about the impact on the smartphone industry Jude expecting volumes to improve but lowering the cost of the solution also theres, probably a blunt the big drivers. So how are you seeing kind of progress on that front and just as a follow up I think you mentioned kind of cleaning up rate goes do you expect to launch Fiveg can you just help us think about the mix of sub six forces me to leave and you mentioned you would strike me that we have to be mandatory kind of what's driving your views there given what fee. He noticed that infrastructure is not because you raised to support more than we do we have in most geographies yet.

Thanks to me this is Steve I'll, maybe I'll take the first one Chris John I will jump in a bit on the on the RF component I would say I would look at the.

[Company Representative] (Qualcomm): Maybe this is Steve. Maybe I'll take the first one, and Cristiano will jump in a bit on the RF component. So I would say I would look at 5G rollout in general has a higher intensity and a more global nature than what we saw even in 4G. So the pressure that we are getting to accelerate not only the premium tier but also higher-tier devices is pretty immense. If you were to look, China Mobile came out with a data point that said essentially CNY 2,000 devices, roughly a $300 phone. That'll be where they're going to target the 5G line next year. Pretty substantial by the end of the year. That is a pretty substantial move.

Steve Mollenkopf: Maybe this is Steve. Maybe I'll take the first one, and Cristiano will jump in a bit on the RF component. So I would say I would look at 5G rollout in general has a higher intensity and a more global nature than what we saw even in 4G. So the pressure that we are getting to accelerate not only the premium tier but also higher-tier devices is pretty immense. If you were to look, China Mobile came out with a data point that said essentially CNY 2,000 devices, roughly a $300 phone. That'll be where they're going to target the 5G line next year. Pretty substantial by the end of the year. That is a pretty substantial move.

Fiveg rollout.

In general.

He has a higher intensity in a more global nature than what we saw even in fourg. So the the pressure that we are getting to accelerate.

Not only the premium tier but also.

You know higher tier devices is pretty mess. If you. If you were to look China mobile came out with a a data point that said essentially 2000 RMB devices roughly 300 dollar phone.

That'll be where they're going to target. The Fiveg July next year pretty substantial by the end of the year that is that pretty substantial.

Move I would expect at the beginning of the year, which is what we're really focused on right now you'll start to see that line be somewhere close to the 3000 RMB. So roughly 400 $430 price point, that's pretty significant actually and its anticipated in our roadmap in terms of our integration that you may have seen us and remember that we have talked about how we have been moving forward our fiveg into an integrated roadmap even more quickly than we did in fourg.

[Company Representative] (Qualcomm): I would expect at the beginning of the year, which is what we're really focused on right now, you'll start to see that line be somewhere close to the 3,000 RMB, so roughly $400, $430 price point. That's pretty significant, actually. It's anticipated in our roadmap in terms of our integration. You may have seen us and remember that we have talked about how we have been moving our 5G into an integrated roadmap even more quickly than we did in 4G. Now, two things happen to us that I think are beneficial in addition to just the good dynamics that happen when you have transitions in technology. One is because the complexity of 5G goes up, the ASP of the baseband, we tend to have an attractive move just from the ASP of the baseband alone tier to tier. So 4G, same tier to 5G, same tier.

I would expect at the beginning of the year, which is what we're really focused on right now, you'll start to see that line be somewhere close to the 3,000 RMB, so roughly $400, $430 price point. That's pretty significant, actually. It's anticipated in our roadmap in terms of our integration. You may have seen us and remember that we have talked about how we have been moving our 5G into an integrated roadmap even more quickly than we did in 4G. Now, two things happen to us that I think are beneficial in addition to just the good dynamics that happen when you have transitions in technology. One is because the complexity of 5G goes up, the ASP of the baseband, we tend to have an attractive move just from the ASP of the baseband alone tier to tier. So 4G, same tier to 5G, same tier.

Now two things happened to us that I think are beneficial. In addition to just the good dynamics that happened when you have transitions and technology. One is because the complexity of Fiveg goes up the ASP of the base band we tend to have a an attractive move just from the ASP of the baseband alone.

Tier two tier so fourg same tier to fiveg same tier the ASP of the base band is is good for US secondly, we see a strong opportunity.

[Company Representative] (Qualcomm): The ASP of the baseband is good for us. Secondly, we see a strong opportunity in the RF to grow the content of the device. As you know, we've had strong traction there, in part because of the importance of wrapping the system design around the antenna. You will see, consistent with the design that I mentioned or the feature that I mentioned, dynamic spectrum sharing, you will see an opportunity to extend those 5G RF design opportunities into the legacy 4G bands as they are effectively dynamically reformed with that feature. So we see a continued roadmap for us to grow content per device. And that's why we've been investing so heavily to put that in place. It's in place now. And the real activity for us is how quickly can we get this to ramp, and can we do it worldwide?

The ASP of the baseband is good for us. Secondly, we see a strong opportunity in the RF to grow the content of the device. As you know, we've had strong traction there, in part because of the importance of wrapping the system design around the antenna. You will see, consistent with the design that I mentioned or the feature that I mentioned, dynamic spectrum sharing, you will see an opportunity to extend those 5G RF design opportunities into the legacy 4G bands as they are effectively dynamically reformed with that feature. So we see a continued roadmap for us to grow content per device. And that's why we've been investing so heavily to put that in place. It's in place now. And the real activity for us is how quickly can we get this to ramp, and can we do it worldwide?

In the RF to grow the content of the device as you know we've had strong traction there in part because of the importance of wrapping the system design around the antenna.

You will see consistent with the design that I mentioned or that feature that I mentioned dynamic spectrum sharing you will see an opportunity to extend those fiveg RF design opportunities into the legacy Fourg bands as they are effectively dynamically re farmed with that feature. So we see a continued roadmap for us to continue to grow content per device and that's why we've been investing so heavily to put that in place. It's in place now and the real activity for US is how quickly can we get this to ramp and can we do it worldwide. So we're pleased with that I would say the dynamics and we have a lot of visibility into that with a lot of confidence that we think that we'll be able to do it.

[Company Representative] (Qualcomm): So, we're pleased with that, I would say, the dynamics. We have a lot of visibility into that. We have a lot of confidence that we think we're going to be able to do it.

So, we're pleased with that, I would say, the dynamics. We have a lot of visibility into that. We have a lot of confidence that we think we're going to be able to do it.

Hi.

James Faucette: All right. So Cristiano, just to answer your question about sub-6 and millimeter wave mix. So millimeter wave right now is a requirement across all the main carriers in the United States. I think we saw phones get launched with millimeter wave. And in 2020, we'll see that in Korea and Japan. So if you look at the developed economies, I think the Japan market, Korea market, and the States market require millimeter wave. That will be low attach in terms of the total 5G volumes. But it's not stopping there. So Europe, which is launching with sub-6, millimeter wave has already been auctioned in Italy. And it is now likely to get licensed in the UK as well. So 5G has really been designed for the combination of sub-6 and millimeter wave. And we are optimistic about millimeter wave attach increasing.

Cristiano Amon: All right. So Cristiano, just to answer your question about sub-6 and millimeter wave mix. So millimeter wave right now is a requirement across all the main carriers in the United States. I think we saw phones get launched with millimeter wave. And in 2020, we'll see that in Korea and Japan. So if you look at the developed economies, I think the Japan market, Korea market, and the States market require millimeter wave. That will be low attach in terms of the total 5G volumes. But it's not stopping there. So Europe, which is launching with sub-6, millimeter wave has already been auctioned in Italy. And it is now likely to get licensed in the UK as well. So 5G has really been designed for the combination of sub-6 and millimeter wave. And we are optimistic about millimeter wave attach increasing.

So Chris you know just to answer your question about sub six and millimeter wave mix. So millimeter wave right now it's a requirement across all the main carriers into other states I think we saw phones are getting launch of millimeter wave.

And in 2020, we'll see that in Korea, and Japan. So if you look at the developed economies I think the Japan market Korea market. Other states market requires millimeter wave there will be no high attach in terms of the total but the volumes, but it's not stopping there. So Europe that is launching we sub six millimeter wave has been already auction in Italy, and it is now likely to get a you know a license in the UK as well. So fiveg is really been designed for you know the combination of sub six and millimeter wave and we are optimistic about millimeter wave.

Attach increasing one other thing to mention is sub six in general we will see nttwenty a lot of re farming, our existing spectrum because of that dynamic spectrum sharing you know technology. So that also creates opportunities for us to expand our RF front end that today is focus on fiveg.

James Faucette: One other thing to mention is sub-6 in general. We will see in 2020 a lot of refarming of existing spectrum because of the dynamic spectrum sharing technology. So that also creates opportunities for us to expand our RF front end that today is focused on 5G, these new sub-6 band, and millimeter wave to also add the refarmed bands. That's how we think about the RF.

One other thing to mention is sub-6 in general. We will see in 2020 a lot of refarming of existing spectrum because of the dynamic spectrum sharing technology. So that also creates opportunities for us to expand our RF front end that today is focused on 5G, these new sub-6 band, and millimeter wave to also add the refarmed bands. That's how we think about the RF.

These new sub six band and millimeter wave to also add the reform bands, So and that's how we think about the RF.

Thank you. Our next question comes from the line of Tal Liani with Bank of America. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Tal Liani with Bank of America. Please proceed with your question.

Hi, guys. When you say that there is a slowdown in fourg versus Fiveg is it only China specific or can you give the global context of this comment.

Matt Davies: Hi, guys. When you say that there is a slowdown in 4G versus 5G, is it only China-specific, or can you give the global context of this comment? It's just hard for me to believe that there is any slowdown in Europe or the US because of 5G. So I want to understand it. Second, can you comment on the relationship with Apple post the acquisition of Intel's modem business by Apple? How do you view it, and where do you see yourself kind of in the future playing with Apple? Kind of how do you work with Apple given that they're going to have a modem asset in-house? Thanks.

Tal Liani: Hi, guys. When you say that there is a slowdown in 4G versus 5G, is it only China-specific, or can you give the global context of this comment? It's just hard for me to believe that there is any slowdown in Europe or the US because of 5G. So I want to understand it. Second, can you comment on the relationship with Apple post the acquisition of Intel's modem business by Apple? How do you view it, and where do you see yourself kind of in the future playing with Apple? Kind of how do you work with Apple given that they're going to have a modem asset in-house? Thanks.

It's just hard for me to believe that there is any slowdown in Europe for the U.S. because of Fiveg. So I want to understand that second can you comment on the relationship with Apple post the acquisition of Intel's modem business by Apple.

How do you.

View it and.

What's where do you see yourself kind of in the future.

Of playing with Apple kind of how do you.

Work with Apple given that they're going to have a modem assets in house. Thanks.

Hi, This is Dave I'll start so let me, let me start with China.

[Company Representative] (Qualcomm): This is Dave. I'll start. So let me start with China. So we are seeing a pause or a slowing in terms of 4G orders in advance of 5G in China. Really, there's a number of, as we referenced, a number of dynamics going on in China right now. There is sort of a real realignment of the selling towards the lower sell-through growth rate, so some compression on growth rates in the back half of the year, the channel inventory being drawn down. And so headwinds for the OEMs in terms of the market in China in the back half of the year. And then what we're seeing is an element of the softness in the sell-through market really being attributable to more high and premium-tier segments of the market pausing before 5G.

Dave Wise: This is Dave. I'll start. So let me start with China. So we are seeing a pause or a slowing in terms of 4G orders in advance of 5G in China. Really, there's a number of, as we referenced, a number of dynamics going on in China right now. There is sort of a real realignment of the selling towards the lower sell-through growth rate, so some compression on growth rates in the back half of the year, the channel inventory being drawn down. And so headwinds for the OEMs in terms of the market in China in the back half of the year. And then what we're seeing is an element of the softness in the sell-through market really being attributable to more high and premium-tier segments of the market pausing before 5G.

In China.

Really there is a number of as we referenced a number of dynamics going on in China right. Now there is a sort of a real realignment of the selling towards the lower sell through growth rate. So some compression on a on growth rates in the back half of the year.

The channel inventory being drawn down and so.

Headwinds for the Oems in terms of the the market.

And then what we're seeing is a.

An element of a of the softness in the sell through market really being attributable to more high end premium tier segments of the market pausing before fiveg. So we are seeing that some of that pause before fiveg and a desire by some other Oems to try to accelerate.

[Company Representative] (Qualcomm): So we are seeing some of that pause before 5G and a desire by some of our OEMs to try to accelerate efforts to bring 5G into the market. Seeing that there. Outside of China, we referenced lengthening replacement rates in developed markets like the US, and Europe. So we think a little bit at play there as well in terms of some pause, again, at sort of the higher tiers in advance of 5G. Tell us, Steve, with respect to Apple, I think the relationship is quite good. What really characterizes it now is 100% of the intensity is about how do we get products out together. Very natural, I think, for both companies. We, and I think both sides really anticipated that there would be some announcement like you've seen, but it hasn't changed the way in which we move forward. We're used to that.

So we are seeing some of that pause before 5G and a desire by some of our OEMs to try to accelerate efforts to bring 5G into the market. Seeing that there. Outside of China, we referenced lengthening replacement rates in developed markets like the US, and Europe. So we think a little bit at play there as well in terms of some pause, again, at sort of the higher tiers in advance of 5G.

Efforts to to bring five gene to the market so seeing that there.

Outside of China.

We referenced lengthening replacement rates in in developed markets like like the U.S. and in Europe , and so we think a little bit of a play there as well in terms of some pause again sort of the higher tiers.

In advance of a fiveg.

Steve Mollenkopf: Tal, this is Steve. With respect to Apple, I think the relationship is quite good. What really characterizes it now is 100% of the intensity is about how do we get products out together. Very natural, I think, for both companies. We, and I think both sides really anticipated that there would be some announcement like you've seen, but it hasn't changed the way in which we move forward. We're used to that. The real effort is how do we get products out together. I think that's a very healthy relationship.

And tells the Steve with respect to Apple I think the relationship is quite good and what really characterize it now is the 100% of the intensity is about how do we get products out together very natural I think for both companies you know, we and I think both sides really anticipated that there would be some announcement like you've seen but it hasn't changed the way in which we we move forward we're used to that and.

[Company Representative] (Qualcomm): The real effort is how do we get products out together. I think that's a very healthy relationship.

And the real a real effort is how do we get products out together I think that's a very healthy relationship.

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

Operator: Thank you. Our next question comes from the line of Ross Seymour with Deutsche Bank. Please proceed with your question.

Hi, guys I wanted to talk about the Fiveg side, you're clearly excited about the first half of next calendar year can you talk a little bit through do you think it's going to be more of a unit.

Matt Davies: Hey, guys. I want to talk about the 5G side. You're clearly excited about the first half of next calendar year. Can you talk a little bit through? Do you think it's going to be more of a unit demand environment where that's really going to rise, or is there going to be more of a substitution effect there, and people on the sell side and buy side should more focus on that 1.5x increasing content that you talked about, Steve?

Ross Seymore: Hey, guys. I want to talk about the 5G side. You're clearly excited about the first half of next calendar year. Can you talk a little bit through? Do you think it's going to be more of a unit demand environment where that's really going to rise, or is there going to be more of a substitution effect there, and people on the sell side and buy side should more focus on that 1.5x increasing content that you talked about, Steve?

Demand environment, where that's really going to rise or is there going to be more of a substitution effect there and the people on the the sell side by side should more focus on that one point fivex, increasing content that you talked about Steve.

Yeah, Ross I think as we look out over the next year and the transition to five you. We don't really look at it in terms of being a a unit growth story, where where the market units.

[Company Representative] (Qualcomm): Yeah, Ross. I think as we look out over the next year in the transition to 5G, we don't really look at it in terms of being a unit growth story where the market units increase. What we really see is in a flat market, the transition over to 5G creating an opportunity for us by the fact that our monetization per phone is going up, as Steve referenced, as we see higher ASPs associated with complexity as well as the capture of 5G RF front-end content. And so it's really more about that as a growth driver for us as we head into the first calendar quarter next year and on into the rest of fiscal 2020.

Dave Wise: Yeah, Ross. I think as we look out over the next year in the transition to 5G, we don't really look at it in terms of being a unit growth story where the market units increase. What we really see is in a flat market, the transition over to 5G creating an opportunity for us by the fact that our monetization per phone is going up, as Steve referenced, as we see higher ASPs associated with complexity as well as the capture of 5G RF front-end content. And so it's really more about that as a growth driver for us as we head into the first calendar quarter next year and on into the rest of fiscal 2020.

Increase.

What we really see is.

So in a flat market the transition over to Fiveg I'm, creating an opportunity for us by.

The fact that our monetization.

Per.

Per phone is going up as Steve referenced.

As we see fire a higher ASP is associated with the complexity.

As well as the capture of a Fiveg RF front end content and so it's really more about that.

As a as a growth driver for us as we.

Heading into.

The first calendar quarter next year and on into the rest of the rest of fiscal 2000.

James Faucette: Ross, this is Cristiano. I'd like to add the following. When you look at the first half, just the launch of 5G by the operators and how unlimited data plans start to move to the 5G devices, we'll see that replacement. And with that, you do see this 1.5 factor coming in as we grow content and our front end. Over time, it's hard to make predictions, but we've seen this with every different transition. As some of the new services, whether video, gaming, or streaming gaming, start to become more popular and device form factor changes for larger screens, you could see the market growing faster than single digits, but we're not making that assumption for 2020.

Cristiano Amon: Ross, this is Cristiano. I'd like to add the following. When you look at the first half, just the launch of 5G by the operators and how unlimited data plans start to move to the 5G devices, we'll see that replacement. And with that, you do see this 1.5 factor coming in as we grow content and our front end. Over time, it's hard to make predictions, but we've seen this with every different transition. As some of the new services, whether video, gaming, or streaming gaming, start to become more popular and device form factor changes for larger screens, you could see the market growing faster than single digits, but we're not making that assumption for 2020.

Well assess krish and I like to add default. It's when you look at when you look at the first half just.

Just a lounge, a fiveg by the operators and know how unlimited data plan starts to move to to the Fiveg devices, we will see that that replacement and ER and with that you do see this 1.5 factor coming in as we go content and RF front end.

Over time, it's hard to make predictions, but we've seen this with every different transition as some of the new services would or video or gaming or streaming gaming you start to become more popular and device form factor changes for larger screen, you could see the market growing faster than single digits, but we're not making that assumption.

Before 2020.

That's helpful. I guess as my follow up question sticking with the China theme in General can you give us an idea of whether it's your QC t. revenues or the M.S.M.'s any sort of even rough estimate about the percentage of those that are associated with China, because the year over year growth rates you're talking about.

Matt Davies: That's helpful. I guess as my follow-up question, sticking with the China theme in general, can you give us an idea, whether it's your QCT revenues or the MSMs, any sort of even rough estimate about the percentage of those that are associated with China? Because the year-over-year growth rates you're talking about, or declines in this instance, are quite acute. I know in the September quarter, you had 14 weeks last year, and some things have changed, and you walked through the inventory dynamics. But even if I adjust for those, it seems like you're down the better part of 15% to 20% year-over-year.

Ross Seymore: That's helpful. I guess as my follow-up question, sticking with the China theme in general, can you give us an idea, whether it's your QCT revenues or the MSMs, any sort of even rough estimate about the percentage of those that are associated with China? Because the year-over-year growth rates you're talking about, or declines in this instance, are quite acute. I know in the September quarter, you had 14 weeks last year, and some things have changed, and you walked through the inventory dynamics. But even if I adjust for those, it seems like you're down the better part of 15% to 20% year-over-year.

Or declines in this instance.

Our quite acute I know its in the September quarter, you had a 14 weeks last year and some things have changed and you walk through the inventory dynamics, but even if I adjust for those it seems like you're down the better part of 15, 20% year over year. So to the extent China is such a larger exposure for you can you just talk about how big is it and is there anything you can do to help mitigate these sorts of booms and busts as we go into that first half of 2020, when the count the fiveg ramp could lead to the same sort of volatility.

Matt Davies: So to the extent China is such a larger exposure for you, can you just talk about how big is it, and is there anything you can do to help mitigate these sorts of booms and busts as we go into that H1 2020 when the 5G ramp could lead to this same sort of volatility?

So to the extent China is such a larger exposure for you, can you just talk about how big is it, and is there anything you can do to help mitigate these sorts of booms and busts as we go into that H1 2020 when the 5G ramp could lead to this same sort of volatility?

Yeah.

[Company Representative] (Qualcomm): Yeah. A quick comment on year-over-year. So if you look at where we are year-over-year, there's a couple of factors that affect the decrease or the reduced level of revenues. One, I would remind you that last year, there was significantly more Apple in our business versus the current quarters. So that's a meaningful portion of the decrease in revenues on a year-over-year basis. We also had some low-end share loss over the last year that had some contribution to the reduction as well. But Apple, a big part of it in terms of QCT. Yeah. On the QTL side, just to highlight it, in the year-ago quarter, we had $500 million from Huawei compared to $150 million in the current quarter. So overall, that contributes to the comparison also. And I would just add one. This is Steve. I'd just add one thing.

Dave Wise: Yeah. A quick comment on year-over-year. So if you look at where we are year-over-year, there's a couple of factors that affect the decrease or the reduced level of revenues. One, I would remind you that last year, there was significantly more Apple in our business versus the current quarters. So that's a meaningful portion of the decrease in revenues on a year-over-year basis. We also had some low-end share loss over the last year that had some contribution to the reduction as well. But Apple, a big part of it in terms of QCT. Yeah. On the QTL side, just to highlight it, in the year-ago quarter, we had $500 million from Huawei compared to $150 million in the current quarter. So overall, that contributes to the comparison also.

Maybe a quick comment on on year over year. So if you look at where we are year over year Theres a couple of things a couple of factors that affect.

The.

The decrease or the.

The reduced.

Liberal revenues, one I would remind you that last year, there was a significantly more apple in our business.

Versus the current quarters. So that's a meaningful portion of the of the decrease in revenues on a year over year basis.

We also had some.

Low end share loss over the last year.

That had some contribution to the to the reduction as well, but Apple a big part of it.

In terms of in terms of capacity on the Qt outside just the just to highlight it.

In the year ago quarter, we had a 500 million from from walrus compared to.

A 159 in New York in the current quarter. So.

Overall that contributes to the to the comparison also.

Steve Mollenkopf: And I would just add one. This is Steve. I'd just add one thing. I think you have an unusual event here, which was the reaction of Huawei to the ban and how it retrenched into China. I think that was a very unusual share shift that obviously we got impacted probably more than other folks just because the tiers and the OEMs that were impacted are ones that we tend to monetize. We think that gets back in a more normal position, kind of snaps back the other way with the launch of 5G. Hopefully, we wouldn't have a one-time event like that. It should be more stable post that big ramp with 5G.

And I would just add one this is Steve I just had one thing I think you have an unusual event here, which was the reaction of walk away to the to the ban and how it retrenched into China and I think that was a very unusual share shift that obviously, we got impacted probably more than other folks just because the tears and the Oems that were impacted are ones that we tend to monetize we think that.

[Company Representative] (Qualcomm): I think you have an unusual event here, which was the reaction of Huawei to the ban and how it retrenched into China. I think that was a very unusual share shift that obviously we got impacted probably more than other folks just because the tiers and the OEMs that were impacted are ones that we tend to monetize. We think that gets back in a more normal position, kind of snaps back the other way with the launch of 5G. Hopefully, we wouldn't have a one-time event like that. It should be more stable post that big ramp with 5G.

Gets back in a more normal position.

Kinda snaps back the other way with the launch of Fiveg and hopefully wouldn't have a onetime event like that but it should be more stable post that big ramp with fiveg.

Thank you. The next question comes from the line of Matt Ramsey with Cowen. Please proceed with your question.

Operator: Thank you. The next question comes from the line of Matt Ramsay with Cowen. Please proceed with your question.

Yes. Thank you very much good afternoon, a couple of.

Matt Davies: Yes. Thank you very much. Good afternoon. A couple of additional questions on China, one from each side of the business. I don't know, Steve or Cristiano, I know you've talked a little bit about the Huawei retrenchment and the impact on QCT units. It's been topical that obviously China, after the Huawei entity list stuff and other factors, has maybe focused more as a country on indigenous development. Have there been any movements for HiSilicon to supply any other OEMs in China or for OEMs broadly to source from China? And then on the QTL side, since Judge Koh's ruling, any change in compliance with Chinese OEMs outside of Huawei that we should know? Thank you.

Matt Ramsay: Yes. Thank you very much. Good afternoon. A couple of additional questions on China, one from each side of the business. I don't know, Steve or Cristiano, I know you've talked a little bit about the Huawei retrenchment and the impact on QCT units. It's been topical that obviously China, after the Huawei entity list stuff and other factors, has maybe focused more as a country on indigenous development. Have there been any movements for HiSilicon to supply any other OEMs in China or for OEMs broadly to source from China? And then on the QTL side, since Judge Koh's ruling, any change in compliance with Chinese OEMs outside of Huawei that we should know? Thank you.

Additional questions on China.

One from each side of the business.

Steve of Cristiano I know, you've talked a little bit about the wawa retrenchment and the impact on on Q CTP units, it's been topical that obviously, China. After the Wawa entity list off and other factors has maybe focus more as a country on on indigenous developments have had there been any movements for high silicon to supply any other Oems in China or for Oems broadly to source from China.

And then on the Qtr side.

Since judge coast ruling any change in compliance with Chinese Oems outside of Wal way that we should know thank you.

Thanks for the question well.

James Faucette: Thanks for the question. Look, I think the way to think about it, Huawei had a sudden change in their phone landscape, especially what happened in Europe. I think there was a drastic reduction in demand. I think that causes them to be very focused on China because that's the place they could be focused on. I think the big picture answer to your question is China has many initiatives. The initiatives of China is not only about China's domestic market, but also how the Chinese mobile ecosystem grows outside China. What we have seen, it's a relationship with China remains very healthy and is expanding. In addition to the relationship with Vivo, Oppo, OnePlus as they expand in Europe, we recently signed an agreement with Tencent talking about content and 5G use case development.

Cristiano Amon: Thanks for the question. Look, I think the way to think about it, Huawei had a sudden change in their phone landscape, especially what happened in Europe. I think there was a drastic reduction in demand. I think that causes them to be very focused on China because that's the place they could be focused on. I think the big picture answer to your question is China has many initiatives. The initiatives of China is not only about China's domestic market, but also how the Chinese mobile ecosystem grows outside China. What we have seen, it's a relationship with China remains very healthy and is expanding. In addition to the relationship with Vivo, Oppo, OnePlus as they expand in Europe, we recently signed an agreement with Tencent talking about content and 5G use case development.

I think the way that the way to think about it while we had.

Sudden change in their phone landscape, especially what happened in Europe , I think there was a drastic reduction in demand and I think that causes them to be very focused on China, because that's the place that could be focused on.

I think the Big picture answer to your question is China has many initiatives and the and the initiatives that China is not only about China domestic market, but also the Chinese mobile ecosystem grow outside China, and what we have seen.

It's a a relationship with China remains very healthy and ER and is expanding and then in addition to the relationship with vivo opened one plus as they range in Europe . We recently signed an agreement with a 10 cents talking about content in Fiveg use case development and I expect that to the relationship between Q CP in China into five D area. We will continue to be healthy because we we help the expansion outside China and that's how we look at it we don't see we don't see any signs today that that dynamic is changing.

James Faucette: I expect that the relationship between QCT and China in the 5G era will continue to be healthy because we help the expansion outside China. That's how we look at it. We don't see any signs today that the dynamic is changing.

I expect that the relationship between QCT and China in the 5G era will continue to be healthy because we help the expansion outside China. That's how we look at it. We don't see any signs today that the dynamic is changing.

And then this Alex on the acute side.

[Company Representative] (Qualcomm): And then this is Alex. On the QTL side, there was, as we've referenced, one incident that would have affected compliance. And we engaged very rapidly on that, took it very seriously. But as you can see, as of the end of the reporting here, we've got good compliance.

Alex Rogers: And then this is Alex. On the QTL side, there was, as we've referenced, one incident that would have affected compliance. And we engaged very rapidly on that, took it very seriously. But as you can see, as of the end of the reporting here, we've got good compliance.

There was as we've referenced one incident.

That would have been affected the compliance and we engaged a very rapidly on that take it took it very seriously.

But as you can see as of.

The end of the.

Reporting here.

We've got a good compliance.

Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.

Hi, guys. Thanks for taking my question I wanted to ask about the QC cheap trajectory. So I know you're talking about inventory flush and some of the weakness and everything else, but at the same time, if I'm if I look at you know your.

Matt Davies: Hi, guys. Thanks for taking my question. I wanted to ask about the QCT trajectory. So I know you're talking about inventory flush and some of the weakness and everything else. But at the same time, if I look at your forward guidance on chipsets, I mean, you've been missing for the last several quarters. So why all of a sudden is it inventories and a pause in front of 5G versus just a continuation of the trend that we've already been seeing for the last three or four quarters? And for my follow-up, I just want to know, do you guys think 5G overall is accretive to licensing revenues? I mean, you lowered the rate when you included it. You have the ASPs cap. It doesn't sound like you're looking for incremental unit growth to the market for 5G.

Stacy Rasgon (Bernstein Research: Hi, guys. Thanks for taking my question. I wanted to ask about the QCT trajectory. So I know you're talking about inventory flush and some of the weakness and everything else. But at the same time, if I look at your forward guidance on chipsets, I mean, you've been missing for the last several quarters. So why all of a sudden is it inventories and a pause in front of 5G versus just a continuation of the trend that we've already been seeing for the last three or four quarters? And for my follow-up, I just want to know, do you guys think 5G overall is accretive to licensing revenues? I mean, you lowered the rate when you included it. You have the ASPs cap. It doesn't sound like you're looking for incremental unit growth to the market for 5G.

Your forward guidance on chipsets on I mean, you've been missing for the last several quarters.

So why all of a sudden is inventories in a pause in front of Fiveg versus just a continuation of the trend that we've already been seeing for the last three or four quarters.

And for my follow up.

I, just wondering or do you guys think fiveg overall is accretive to licensing revenues.

I mean, you lowered the rate when you included it you have the ace piece cap it doesn't sound like you're looking for you know incremental unit growth to the market for Fiveg. So how do we think about five g.'s impact on on the run rate of royalty revenues I'm, given where it is today. Thank you.

Matt Davies: So how do we think about 5G's impact on the run rate of royalty revenues, given where it is today? Thank you.

So how do we think about 5G's impact on the run rate of royalty revenues, given where it is today? Thank you.

Hey, Stacy.

[Company Representative] (Qualcomm): Hey, Stacy. Yeah. So with respect to the QCT side, first of all, I would make the comment that stepping back over the course of this year, I think with the recent 100 million unit reduction, we've seen sort of a continuing erosion in the handset market over the course of this year. So this has been something that has been a headwind for the business, I think, for the last several quarters. And so I think that's been a dynamic that has been impacting MSM units as well as sort of the overall business. I think what we saw, what we're seeing now is maybe a little more pronounced growth impacts on the back half of the year as, again, we go back to sort of the sell-through rates remaining down in China and the sell-in rates really not yet aligned with that.

Dave Wise: Hey, Stacy. Yeah. So with respect to the QCT side, first of all, I would make the comment that stepping back over the course of this year, I think with the recent 100 million unit reduction, we've seen sort of a continuing erosion in the handset market over the course of this year. So this has been something that has been a headwind for the business, I think, for the last several quarters. And so I think that's been a dynamic that has been impacting MSM units as well as sort of the overall business. I think what we saw, what we're seeing now is maybe a little more pronounced growth impacts on the back half of the year as, again, we go back to sort of the sell-through rates remaining down in China and the sell-in rates really not yet aligned with that.

Yes, so with respect to the execution Juicy Teesside.

First of all I would I would make the comment that a stepping back over the course of this year I think with the recent hundred million unit reduction.

We've seen a.

Sort of a continuing.

Erosion in the handset market over the course of this year. So this has been something that has been a headwind for the business.

I think for the last several quarters and so I think that's been.

A dynamic that has been impacting MSM units, you know as well as sort of the overall business.

I think what we saw this.

What we're seeing now is maybe a little more.

Pronounced a growth impacts on the back half of the year as again, we go back to the sort of the sell through rates remain down in China.

And himself sell in rates really not oh not in line with that so realignment there on the fact that they weren't aligned in the first half, resulting in some channel inventory build so.

[Company Representative] (Qualcomm): So, realignment there, the fact that they weren't aligned in the first half, resulting in some channel inventory builds. So really more market dynamics in terms of pressure on units. As we said, a little bit of share loss at the low end, not financially significant. And then the more, I would say, unique situation with Huawei really entrenching and focusing on the domestic China market and really putting their attention there and grabbing significant share. So that little bit more of a unique situation to what we're seeing right now. But I would say a lot of it really is attributable to the market headwinds that we've been frankly seeing all year long. And then QTL, with respect to how to think about that as a 5G as an upside, a lot of the agreements we sign are for 3G, 4G, 5G.

So, realignment there, the fact that they weren't aligned in the first half, resulting in some channel inventory builds. So really more market dynamics in terms of pressure on units. As we said, a little bit of share loss at the low end, not financially significant. And then the more, I would say, unique situation with Huawei really entrenching and focusing on the domestic China market and really putting their attention there and grabbing significant share. So that little bit more of a unique situation to what we're seeing right now. But I would say a lot of it really is attributable to the market headwinds that we've been frankly seeing all year long. And then QTL, with respect to how to think about that as a 5G as an upside, a lot of the agreements we sign are for 3G, 4G, 5G.

Really more market dynamics in terms of pressure on units.

As we said a little bit of share loss.

At the low end not financially significant.

And then and then you know the more I would say unique.

Situation with walk away.

Really in trenching, and focusing on the domestic China market and and really putting their attention there and grabbing significant share. So that's a little bit more of a unique.

Situation to to what we're seeing right now, but I would say a lot of it is really is attributable to the market headwinds that we've been frankly seen all year long.

And then Q TL with respect to how to think about that as a five years as an upside.

You know a lot of the agreements, we signed our for Fourg and Threeg Fourg Fiveg and so really we look at it is just continuation extending of the you know the monetization of the Oh, the handset market as it evolves.

[Company Representative] (Qualcomm): And so really we look at it as just a continuation and extending of the monetization of the handset market as it evolves from 4G to 5G, just like we did from 3G to 4G.

And so really we look at it as just a continuation and extending of the monetization of the handset market as it evolves from 4G to 5G, just like we did from 3G to 4G.

From you know.

Fourg to Fiveg, just like we did from Threeg to Fourg.

Thank you. Our next question comes from the line of Mitch Steves with RBC capital markets. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Mitch Steves with RBC Capital Markets. Please proceed with your question.

Hi, guys. Thanks for taking my taking my question just a quick one just kind of turning back to kind of ASP is expected.

Matt Davies: Hey, guys. Thanks for taking my question. Just had a quick one, just kind of turning back to kind of the ASP expected if we're going to ramp 5G faster. So I guess two parts. So first, does this mean that essentially we're going to see kind of a bigger pause in smartphone shipments and then that's going to increase demand for kind of the 5G shipments out in 2020? And then secondly, if that's not the case, what should we think about as kind of a normalized unit base for the smartphone industry at this point?

Mitch Steves: Hey, guys. Thanks for taking my question. Just had a quick one, just kind of turning back to kind of the ASP expected if we're going to ramp 5G faster. So I guess two parts. So first, does this mean that essentially we're going to see kind of a bigger pause in smartphone shipments and then that's going to increase demand for kind of the 5G shipments out in 2020? And then secondly, if that's not the case, what should we think about as kind of a normalized unit base for the smartphone industry at this point?

Forget of ramp Fiveg faster. So I guess two parts. So first is that does this mean that essentially we're going to see kind of a bigger pause in smartphone shipments and increased demand for the kind of the fiveg shipments out in 20.

And then secondly, if that's not the case, what should we think about as a kind of a normalized unit base for the smartphone industry at this point.

Yeah.

[Company Representative] (Qualcomm): Yeah. So in our comments, when we talked about the 100 million unit reduction, we kind of gave a sense that it's 1.7, 1.8 billion units in total. We indicated that now translates into a handset market being down sort of mid-single digits year-over-year. And so if you look, if you step back over the last number of years, it's been a relatively flat handset market. So down a little bit as we see some of this pause and some of the macro environment impacts affecting us. So we don't really see any sort of changes in the overall unit market beyond the comments that we made.

Dave Wise: Yeah. So in our comments, when we talked about the 100 million unit reduction, we kind of gave a sense that it's 1.7, 1.8 billion units in total. We indicated that now translates into a handset market being down sort of mid-single digits year-over-year. And so if you look, if you step back over the last number of years, it's been a relatively flat handset market. So down a little bit as we see some of this pause and some of the macro environment impacts affecting us. So we don't really see any sort of changes in the overall unit market beyond the comments that we made.

So in the in our comments are we talking about the 100 million a unit reduction would kind of give a give a sense. It's 1.7 1.8 billion units in total.

We indicated that now translates into a handset market being down sort of mid single digits year over year.

And so you know if you look if you step back over the last number of years, it's been relatively flat handset market, so down a little bit as we see.

Some of this some of this pause in some of the you know the the macro environment impacts affecting us so.

You know, we don't really see any sort of changes in the overall unit market beyond you know the comments that that remained.

Yes, just to clarify real quick I think I did a good job asked my question I was referring more to 2020. So essentially if people are pulling down the numbers for this year does that mean, essentially 20 should be up like seven or eight to kind of sit there is being a more of a down year or is that too early to call that.

Matt Davies: Yeah. Just to clarify real quick, I don't think I did a good job asking the question. I was referring to more of 2020. So essentially, if people are pulling down the numbers for this year, does that mean essentially 2020 should be up like seven or eight to kind of offset this being more of a down year? Or is that too early to call that?

Mitch Steves: Yeah. Just to clarify real quick, I don't think I did a good job asking the question. I was referring to more of 2020. So essentially, if people are pulling down the numbers for this year, does that mean essentially 2020 should be up like seven or eight to kind of offset this being more of a down year? Or is that too early to call that?

Yeah, probably probably too early for us to call. What you know what we'll see in 20, you know, but I think.

[Company Representative] (Qualcomm): Yeah. Probably too early for us to call what we'll see in 2020. But I think we would expect to, as we said, see an inflection beginning in the first calendar. So it would be our second fiscal quarter with 5G launches happening more significantly in China, as well as other flagship device launches at a Mobile World Congress, and things like that. And then sort of building over the course of the year as we think about moving towards really more flagship launches happening in the fourth fiscal quarter.

Dave Wise: Yeah. Probably too early for us to call what we'll see in 2020. But I think we would expect to, as we said, see an inflection beginning in the first calendar. So it would be our second fiscal quarter with 5G launches happening more significantly in China, as well as other flagship device launches at a Mobile World Congress, and things like that. And then sort of building over the course of the year as we think about moving towards really more flagship launches happening in the fourth fiscal quarter.

Yeah, we would expect to a as we said see an inflection beginning in the first calendar so it'd be our second fiscal quarter.

With with Fiveg launches happening more significantly in China.

ER as well as other flagship device launches I'm not a mobile world Congress in place things like that.

And then a sort of building over the course of the year as we think about moving towards you know really more flagship launches happening in the <unk>.

Fourth fiscal quarter.

Thank you. Our next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.

Yeah. Thanks, guys I, just a couple of things I wanted to.

Chris Caso: Yeah. Thanks, Efimian and guys. Just a couple of things. I wanted to ask, kind of deviate from all the demand stuff, and just ask Steve if you could update us on the CFO search, kind of what the status of that is. And then I also wanted to come back to just the demand stuff just to kind of clarify what information you're acting on. So are you seeing deterioration? Did you see deterioration of demand through the quarter? Could you just kind of talk to us about what sort of data points you've seen here and how they came to you? Did things weaken toward the end of the quarter or they just remained weak? Or kind of give us some idea of what trajectory looked like to you. Thank you.

Rod Hall: Yeah. Thanks for squeezing me in guys. Just a couple of things. I wanted to ask, kind of deviate from all the demand stuff, and just ask Steve if you could update us on the CFO search, kind of what the status of that is. And then I also wanted to come back to just the demand stuff just to kind of clarify what information you're acting on. So are you seeing deterioration? Did you see deterioration of demand through the quarter? Could you just kind of talk to us about what sort of data points you've seen here and how they came to you? Did things weaken toward the end of the quarter or they just remained weak? Or kind of give us some idea of what trajectory looked like to you. Thank you.

Ask kind of deviate from over the man stuff and just ask if you could update us on the CFO search kind of what the status of that is.

And then I also wanted to come back to you.

Just the demands not just to kind of clarified what youre what information you're acting on so are you seeing just curious did you see deterioration in demand through the quarter could you just kind of talk to us about what sort of data points, you've seen here and how they came to you did it did things weaken towards the end of the quarter or just remain weaker can you give us some idea of what trajectory look like to you. Thank you.

Right Hi, its Steve we continue to look nothing to announce a.

[Company Representative] (Qualcomm): Rod, hi, it's Steve. We continue to look. Nothing to announce right now, but we'll keep you updated.

Steve Mollenkopf: Rod, hi, it's Steve. We continue to look. Nothing to announce right now, but we'll keep you updated.

Right now, but but we'll keep you a well keep you updated.

And then with respect to.

Matt Davies: Then with respect to sort of how things have unfolded, I guess, more recently. So one, I think we track the Sino-MR report. I mean, we track that like probably a lot of others in terms of watching what's happening with the sell-through. And so we've seen that continue to be down even through the June quarter with really no significant movement away from that trend. And then we look at that relative to kind of where we see handset demand coming in with respect to sort of our own data points around the market. And so we look at it from that standpoint. We look at our demand profiles coming in from customers and QCT and factor that into the mix as well. And that's where we've seen some of the pullback that we talked about with respect to 4G units.

Dave Wise: Then with respect to sort of how things have unfolded, I guess, more recently. So one, I think we track the Sino-MR report. I mean, we track that like probably a lot of others in terms of watching what's happening with the sell-through. And so we've seen that continue to be down even through the June quarter with really no significant movement away from that trend. And then we look at that relative to kind of where we see handset demand coming in with respect to sort of our own data points around the market. And so we look at it from that standpoint. We look at our demand profiles coming in from customers and QCT and factor that into the mix as well. And that's where we've seen some of the pullback that we talked about with respect to 4G units.

The sort of how things have unfolded I guess, a more recently so one I think we track like a like the thing RMR report I mean re retract, though I, probably a lot of others in terms of watching.

What's happening with the sell through and so we've seen that continue to be down you know even through the June quarter.

With really no no significant movement away from from that trend and then we look at that relative to kind of where we are where we see handset demand coming in with respect to sort of our own.

Our own data points around the around around the market and so.

Yeah, we look at it from that standpoint, we look at our demand profiles coming in from customers in Q City and and in fact are the that into the the mix as well and and that's where we've seen some of the.

The pullback that we talked about with respect to Fourg.

For the units.

Yeah, just Krishna like we I think I mentioned this before before we saw some phone model cancellations, which isn't you know into fourg.

James Faucette: Yeah. Just Cristiano, I think I mentioned this briefly before. We saw some phone model cancellations, which is on the 4G second half launch. So that's an indication they wanted to accelerate the 5G. And that's an unusual metric, having the phone model cancellation on the 4G side.

Cristiano Amon: Yeah. Just Cristiano, I think I mentioned this briefly before. We saw some phone model cancellations, which is on the 4G second half launch. So that's an indication they wanted to accelerate the 5G. And that's an unusual metric, having the phone model cancellation on the 4G side.

Second half long so that's an indication it's a you know they want it to accelerate the fiveg and that's a that's a unusual.

No metric, though you know having the phone model cancellation on the Fourg side.

Thank you ladies and gentlemen that concludes today's question and answer session. Mr. Mollenkopf do you have anything further to add before turning the call.

Operator: Thank you. Ladies and gentlemen, that concludes today's question and answer session. Mr. Mollenkopf, do you have anything further to add before adjourning the call?

Well. Thank you I just thank everyone for joining us today, and maybe just to the employees of Qualcomm and thank you for a job.

[Company Representative] (Qualcomm): Well, thank you. I just thank everyone for joining us today. Maybe just to the employees of Qualcomm, thank you for the good quarter. We have a lot of work ahead to launch 5G. It's a big opportunity for the company. Look forward to the next several quarters. A lot of work to do, but I think a great opportunity for us. Thank you.

Steve Mollenkopf: Well, thank you. I just thank everyone for joining us today. Maybe just to the employees of Qualcomm, thank you for the good quarter. We have a lot of work ahead to launch 5G. It's a big opportunity for the company. Look forward to the next several quarters. A lot of work to do, but I think a great opportunity for us. Thank you.

Good quarter, we have a lot of work ahead to launch Fiveg is a big opportunity for the company and.

Look forward to the to the next several quarters and a lot of work to do but I think a great opportunity for us. Thank you.

Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.

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

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