Q1 2020 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Qualcomm first quarter fiscal 2020 <unk> earnings Conference call. At this time, all participants Arnie listen only mode. Later, we'll conduct a question and answer session. If he would like to ask a question. During this time press Star then the number one on your telephone keypad too.

For all your question Press Star then then number two if you're using speakerphone. Please pick up your handset before personally numbers.

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

This conference is being recorded February 5th 2020.

The play back number for today's call. It 87766, 06853 International callers. Please dial 20161 to seven for one five the playback reservation number is 13697473 I.

I would now like to turn the call over time, a resale Lopez, Italy, and Vice President of Investor Relations Mr. Lopez <unk>. Please go ahead.

Thank you and good afternoon, everyone. Today's call will include prepared remarks by Steve on cost and the cost POC wall.

In addition, Cristiano Amon, Alex Rogers and Don Rosenberg will join the question answer session.

You can access our earnings release any slide presentation that accompanies this call on Investor Relations website. In addition, this call is being webcast on Qualcomm Dot com and the replay will be available on our website later today.

During the call today, we will use non-GAAP financial measures as defined in regulation G and you can find related reconciliations to GAAP on our website <unk>.

We will also make forward looking statements, including projections and estimates of future events.

Yes, when she trends or business or financial results.

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

Please refer to actually see filings include the most recent 10-K, which contain important factors that could cause actual results to differ materially going forward looking statements.

And now to comments from Qualcomm, Chief Executive Officer, Steve <unk> golf.

Thank you Murray's yeah. One good afternoon, everyone. We're pleased to report strong results in the first fiscal quarter with non-GAAP earnings of 99 cents per share above the high end of our guidance range led by strength in our chip business. We're also pleased to see strong year over year revenue growth in our licensing business.

As you can see from our strong results our business reached a key inflection point exiting fiscal Q1, demonstrating the positive financial impact up our fiveg strategy to grow our addressable dollar content per device with higher performing court chipsets, and new RF front end content.

Virtually all of our Fiveg Snapdragon design wins are using our RF front end solutions for Fiveg sub six end or millimeter wave, including design wins based on our second generation solutions.

As we continued to execute on our RF front end strategy.

We're pleased to see our RF design win pipeline contribute to the strength of our quarterly results and our outlook.

We're in a strong position with leading technology, an intellectual property and the best products in the company's history.

Our five GE road map extends beyond really 17, placing us on the cost of all the multi decade mobile transformation as Fiveg increasingly becomes the foundation for the digital transformation of industries beyond smartphones.

Turning to Q TL, we have now signed over 85 GE license agreements up from 75 license agreements last November.

Most recently, we signed extensions with two key Chinese Oems through the end of March as we work to complete long term fiveg license agreements.

Let me now spend some time updating you on fiveg traction globally.

As we start the year there are over 345 operators in nearly 120 countries investing in fiveg, including 45 operators in over 20 countries that have launched commercial fiveg services spanning both the sub six and millimeter wave spectrum.

Looking forward, we continue to expect millimeter wave to be deployed in all regions.

Additionally, more than 45 Oems have launched or announced commercial fiveg devices, many of which are using our snapdragon fiveg platforms.

On the product side, we recently introduced our flagship Snapdragon 865 mobile platform that we expect will power many premium tier Android smartphones this year.

We also introduced the Snapdragon 765, and 765 gaming mobile platforms with an integrated Fiveg modem.

With over 275, five GE devices and outdoor in development spanning multiple price tiers, our product offerings will help make fiveg more accessible to consumers.

We also expanded our Fourg line up with new mobile platforms that enable our partners to offer sophisticated solutions that meet global fourg demand, particularly in emerging economies across multiple tiers and price segments.

Turning to Korea last December all three Korean operators combined reported approximately 4.7 million fiveg subscribers and our forecasting continued growth throughout calendar year 2020.

We see Korea, as a leading indicator for the pace of Fiveg adoption of note. The expected five GE subscriber growth, it's not just isolated to the sub six frequency bands carriers are planning millimeter wave service in 2020.

Turning to China, Fiveg device sell an increased through December.

The China Academy of Telecommunication research reported sell in of 13 million five GE handsets in calendar Q4, 2019, importantly, fiveg handsets sell in penetration reached 19% in December 2019.

We're already seeing device is priced as low as 2000, RMB or approximately 285 U.S. dollar. So at this 0.5 GE can address approximately 40% of domestic China smartphone sales.

In the U.S. the Fiveg network Buildout is progressing well at the top four carriers across sub six and millimeter wave spectrum.

Verizon is leading the deployment of enhanced mobile broadband with millimeter wave service and 31 cities and is expanding their device road map to approximately 20, new fiveg products. This year.

T Mobile's Fiveg networks now covers more than 200 million people and more than 1 million square miles across the United States.

18, T. expects to have nationwide fiveg coverage by calendar Q2, and sprint expanded their fiveg network coverage to nine metropolitan areas.

I would also like to highlight two recent developments on spectrum in the United States that will help drive even greater momentum for Fiveg first the FCC gay final approval for commercial use of the CBR S band, taking advantage of spectrum sharing techniques that we and others in the industry began working on years ago there.

C. B R. S band is well suited for enterprise Smart city, and industrial I O T deployments.

And second the Fccs latest millimeter wave auction.

Which includes the largest amount of millimeter wave spectrum ever up for bid in an auction is ongoing and we'll bring up to 3.4 gigahertz of additional millimeter wave spectrum to the end to the U.S. market.

Turning to automotive as a measure of our continued automotive success. Our design win pipeline is now over $7 billion up from $5.5 billion, a year ago, which does not include any impact from our recently launched autonomous driving platform Snapdragon ride.

We continue to benefit from our systems level expertise expanding our automotive solutions to include an autonomous driving platform Snapdragon right.

With a long history of automotive innovation, we now we have now become a trusted adviser to many of the world's leading automakers over 125 million vehicles use our broad range of automotive solutions, including telematics in car connectivity and infotainment platforms.

Our snapdragon ride Ada Es platform represents a significant expansion of our addressable market. We look forward to seeing our snapdragon <unk> ride Adas and autonomous solutions on the road in 2023.

We're very pleased with the Fccs unanimous vote in December to move forward with allocating spectrum in the 5.9 gigahertz band for cellular vehicle to everything technology since that vote. We are seeing traction for cellular be to acts in the 5.9 gigahertz band across regions.

Looking forward, we continue to remain optimistic about our growth opportunities and I O T always connected Pcs and cloud AI.

Lastly, as the Corona virus situation continues to unfold, our thoughts or with the many qualcomm employees in China, our customers and suppliers their families as well as those who are impacted by this unprecedented situation.

As a cost will share with you we have considered the impact of the Corona virus in our forward guidance based on the limited information we have at this time.

I'd now like to turn the call over to a cautious.

Thank you, Steve and good afternoon, everyone.

I will begin with a discussion I'll first fiscal quarter earnings.

Our results demonstrated strong execution with revenues of $5.1 billion at the high end up our guidance range and non-GAAP earnings per share of 99 cents 14 cents above the midpoint of our guidance.

The outperformance in the quarter wasn't driven by strength in Q3 D across five G. RF front end and adjacent platforms with revenues of $3.6 billion anybody margin of 13%, which was above the high end off our guidance range.

MSM shipments of 155 million units were consistent with the midpoint of our guidance.

Q deal delivered revenues of $1.4 billion, a 38% increase year over year and E. B D margins up 72%, reflecting the benefit of a seasonally high quarter.

Returned approximately $1.5 billion to stockholders during the quarter, consisting of 710 million in dividends and 762 million in stock repurchases.

With that I'd like to door global Threeg or Fourg to Fiveg device forecast, we continue to expect approximately 1.75 billion devices for calendar 2019.

Our forecast for calendar 2020 remains unchanged at 1.75 to 1.85 billion devices.

Including 175 to two wanted and 25 million five GE devices.

This forecast continues to reflect flat handsets and low double digit growth in non handsets.

Now, let me walk you through our financial guidance.

For our second fiscal quarter guidance, we are estimating revenues to be in the range of $4.9 billion to $5.7 billion and non-GAAP earnings per share of 80 to 95 cents.

There are significant uncertainty around the impact from the Corona wireless on handset demand and supply chain.

Based on the information we have at this time, we are widening and reducing the low end of our guidance range.

I'm in an active contact with our employees customers and suppliers as we continue to monitor the situation.

In Q3, D., we expect second fiscal quarter revenues of $3.9 billion to $4.5 billion anybody margin of 15% to 17%.

The midpoint off our revenue guidance represents approximately 16% growth sequentially.

We estimate MSM shipments of 125 to 145 million units, a 13% sequential decline at the midpoint.

This trend is consistent with historical seasonality and reflects the latest demand signals from our customers.

Sequentially, we expect revenue put myself to be meaningfully higher reflecting increased content with fiveg device launches. In addition to normal seasonal mix shift over its hard to your chipsets.

Our guidance includes a greater than 50% increase in RF front end revenues in the second fiscal quarter on both a year over year and sequential basis.

For Q deals, we estimate second fiscal quarter revenues to be in the range of $1 billion to $1.2 billion with E. B D margins up 61% to 65%.

We anticipate second fiscal quarter, non-GAAP, combined R&D and SGN expenses to be up 5% to 7% sequentially due to normal seasonality.

Looking forward, we continue to see do inflection points in fiscal 2020.

That's grant in the first off of the fiscal <unk> reflect the first inflection point on the acceleration of Fiveg demand.

We expect our third fiscal quarter performance to be inline with our second fiscal quarter consistent with historical trends that are QC di business.

We expect the next inflection point with the launch of additional Fiveg flagship handsets to be in the fourth quarter and extend into fiscal 2021.

In conclusion, we remain confident in the long term growth opportunities, we outlined at our analyst day, including five do you adoption RF front end content capture an expansion of our technology into a different platforms.

Thank you and I will now turn the call back to Mary Sue.

Thank you cost operator, we're ready for questions.

Thank you to Cuba question Press Star then the number one.

Your question Press Star too if you are using a speakerphone. Please pick up your handset before personally numbers one moment. Please for the first question.

Our first question comes from the line of Sandmaxx Chatterji with JP Morgan. Please proceed.

Oh, hi, thanks for taking the questions. So like second just to start off on the guidance. It says Oh, and you mentioned kind of the seasonal decline and some unit shipments. So just wondering if you can walk us through the.

Oh sequentially more from the 155 million unit shipments you had this quarter old and new range. If 125 to 145 almost of that is seasonality and what do you really factoring in in terms of the Oh, well kind of budgeting for the virus embarked on what you're hearing foams OEM said it themselves.

He is on that might be impacting that range did you're guiding to.

Hi, So make a this is a gosh.

So if you pick the midpoint off our guidance range and look at the sequential decline that's approximately 13% decline a if and if you consider the seasonality in previous years, we've seen a decline of 16% to 22%.

So it's it's largely consistent with the sequential decline we've seen in the past. So that's kind of your question on seasonality. This also our forecast also reflects a the demand demand that we currently have from a from our OEM partners and so that's a it's also consistent with the demand were seeing at this point.

Okay and then.

If I can just follow up on the U.S.P. ramp so all if you dig the.

Guidance that you have the average U.S.P. seems to ramp up sequentially from 23 daughters Omni I'm, assuming it was 31 I'm just wondering if you there's already a pretty cheap listen sequentially increase if you're doing the math right I'm. Just wondering if you can shale talks about what that is speeding up it looks like because oh sounded like you are expecting more RF content will come through.

At half of deals.

Yeah, So you're you're doing the math right. It it's consistent.

With our view.

Really there are three drivers to the is being Greece. A first is our normal sequential increase because of the benefit of the mix improved what happens as we launch our new premium Buran high deer chip. During this timeframe in new devices are launched with it and so you see a mix shift to premium in.

Hi, Deere's, which benefits us so that's the first driver the second driver is a with fiveg coming in the transition from Ford you do Fiveg. It gives us an opportunity to increase the content in the core chipset before out a front end and so you have incremental monetization from that and then finally RF front end.

Also impacting that because we have a as we've talked about we owe very strong design win pipeline not just on the core chipset, but on a front end as well and now that is being reflected in our guidance.

I'd also note that in my script I went through I provided a data point on our auto Frontend revenue growth. So we're seeing 50% greater than 50% revenue growth in RF front end, both on a sequential basis, so fourth quarter to second quarter and a year over year basis. So it's a it's our design win pipeline showing up in the revenue into Fourq.

No.

Thank you. Our next question comes from Mike Walkley with Canaccord Genuity. Please proceed with your question.

Great. Thank you Yeah, just just building on some some of those questions I guess first maybe for Christiana can you update us on the competitive environment for Fiveg, particularly on the Android side, how do you see as Fiveg ramp seal potential Qualcomm share improving over the course of the year and and what the X 55 coming.

How should that also maybe impact share and S.P. trends.

Hi, Mike. Thanks for the question. So there's a lot there let me just talk a little bit about they are the ramp Andy Andy impact on other new chipset. So.

We said in <unk> and our scripted <unk> the number of designs on Fiveg is another 275.

Two thirds of that design pipeline now is there a second generation chipset. So we continue to see traction, especially as we go to from our first five G. You know product to a second product that is increasing and in in that traction. We continue to see the trend of high RF front end attach on snapdragon.

Competition, we expect to have competition since the very beginning on this is a very competitive market. However, we're not seeing anything on competition different than what we expect it in our planning assumptions. So we expect you know QC T shirt to remain strong you know we had made assumptions.

On throughout the year, but it is consistent to what you know what we haven't seen into market and there's nothing new there.

Great and it's just a follow up for clarification with with the ramp but laid out in the guidance on Q4.

[laughter] also an A.S.P. ramp coming again on better five GE mix or is it more more towards a unit ramp. The obviously you customer Apple coming back into the model into some more seasonal trends can you help us think about what kind of.

Ramp on those two metrics that'd be great. Thank you very much.

Yeah. So on D.A.S. beside the way. We've you think about it must be is a good factor off a combination of couple of factors. One is just as we go from Fourg to Fiveg, we've talked about how we expect a D. A revenue opportunity for us to expand my one point fivex.

Between the core chipset and beyond a frontend, but then also as we go across the two years down the two years, starting with the premium in high do you ever but then eventually going into mid dearly during the year as well with Fiveg. The combination of those factors will inform the average revenue per Amazon.

And then for later flagship blonde just that happened in the fall timeframe or again, it it'll kind of the same one point Fivex rules should apply as we go from Fourg to Fiveg and it's really a question off how the mix plays out across the dealers on the Oems that drives the weighted average ASP.

Thank you. Our next question comes from Chris Caso with Raymond James. Please proceed.

Hi. Thank you just first question is just a clarification of what you guided to third fiscal quarter.

And you said that the performance to be in line with a second fiscal quarter or just give some more color around that is is that with regard to Q siti Qt altogether.

Bob.

<unk>.

Simpler operating revenue is that a margin assumption as well.

Yes, so I mean <unk> the way, we think about the your Chris it's kind of playing out largely as we had expected in the last call. We outlined a that we see we saw a couple inflection points.

Through the you're going to both in the first half of the or and then in the fourth quarter and our view kind of hasn't changed we've seen a little bit off an acceleration in fiber deployment would shows up in our results for the quarter end the guidance.

And beyond that as you go from second quarter third quarter, just placed with the normal seasonality off our businesses.

Alright, thank you.

And with regard to up Q CTG now or just the <unk> Cup couple of questions. There with regard to the the the MSM guidance.

For the March quarter.

135 million midpoint units, how many of those are our fiveg. If you give us some sense of how I guess, the fiveg penetration into the product line right now and then following from that with the big jump that you've had in a espy's for all the reasons that you mentioned is that something we should expect to be sustainable.

Through the year, perhaps does it get better as fiveg attach rates increase.

There, perhaps some some natural ASP declines as as products mature could you give us some sense of how that progresses through the year.

Yeah. So Chris this is a caution oh, we're not breaking down our five GE units at this point does a percentof, our total and my time units.

But the way to think about that number is really look at a new handset lawn just that launches that will happen in the quarter and over the next six months.

And ER and those will be expect primarily to be at the premium into high gear, mostly be fiveg launches and so the volume driven by those launches would be would be fiveg.

Hi, Chris just crescendo, just some of the data points that maybe it will help we'll get to the answer if you look markets such as United States I think the device requirements, where they move on some of those all the flagship fund to hide to your products. There are five two products today, but the China. One is interested in one we said in the script, which is.

Five T cell in penetration reached 19% demand for December and in some of the price points already can address about 40% of the total China market based on the price point to seem to market. So all of this good indicator about a five GE transition.

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

Hi, guys. Thanks for taking my questions I was wondering if I want to ask a the.

The Corona virus question, a little more explicitly what would your QC T. M. M. A C O M guy be for Q2, if you weren't baking in any corona virus.

So stacy or what we are factoring into into our guidance is really a looking got done demand that we have from the customers and a and information we have from them. When you look at on the MSM side. When you look at the overall EPS guidance as as you're aware we typically.

Died at 10 cents range and what we did do include the impact of the off the wireless is do reduce the bottom end of the range by five cents a <unk> reflect the information we have at this point.

But it's it's really something that we're going to continue to monitor as we go forward.

Got it. Thank you I'm so my follow up.

I want to ask about keep pricing and margins into Q2, so you're guiding revenue premix, I'm up 33% give or take sequence and I get that.

What are your garden chipset margins only up a few points I'd like three points like what are the gross margins of these fiveg parks look like is there like a headwind mirror or something else that going on with the remainder of like Fourg pricing is that washes out.

I guess I would've expected more margin upside given that that sheer magnitude of I guess the upside what's going on there.

Yes, it's still see it's like Gosh again, I think the numbers. We gave out are actually very consistent with what we had outlined at the at previous earnings release, we we'd indicated a mid teens growth in revenue in a mid teens margin profile and good guiding 15% to 17% I mean as as you know well, it's a combination off just don't.

The units or the pricing environment, and then err on the profitability around it and it's a very consistent with our expectations.

Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Please proceed.

Hey, guys. Thanks for let me ask a question one to stick on the theme of the revenue per MSM side, but maybe take a slightly different spend to it you guys always do a great job of explaining in detail what the revenue per MSM assumptions are and then you tie it together to the E. B T margins, but I wanted to see just conceptually going forward, if the S.P. side or the revenue per MSM.

Is the most <unk>.

Powerful driver the business is that accretive to the gross margin side and I guess somewhat similar to Stacy his question is.

Is is there something detrimental to the gross margin side, that's capping how much the operating margin would otherwise go up because I would think they as piece or the content going up that much would be a very accretive outcome for you.

Yeah, Hi, Ross So it's a combination off of couple of things I think as as we see more more a percent off our devices more to fiveg, we're going to see a benefit.

Not just on the revenue premises, but also in the operating margin.

The second second is are you going across two years and so as we go crosstie or than we have the second inflection point that will further expand the scale of the five do opportunity for us.

As as we outlined at analyst day, we definitely expect to realize the operating leverage from the investment in Fiveg and so as we go forward. We will continue to see as we had especially as we get does second a inflection point later on to your expansion in our operating margins.

Thanks for the details on that I guess is my one follow up moving over to the Qt L. side of things I think Steve said earlier that you had that 10, new licensees or 85 versus the 75 before does that do anything to change or things like Q TL revenue outlook to some sort of above seasonal trends, whether it be in the march quarter or beyond.

As you are getting more people to pay for you with those are the new five GE licenses.

Yeah, So the way a the way we'd think about the they'll be blank you'd be out from a five do perspective is a we've assumed that the market gonna stay as that that's gone structure and of any fiveg benefit that comes either from hired a placement rates and more devices are the result of that.

Or it comes through an improved SBS, especially at the mid and the low deeres that would be incremental to our forecast I mean, clearly as we go and signed the remaining licensees on Fiveg and go through our entire a licensing base to convert the two five de licenses, that's something that's very important to us and ER and critical to us.

Transition to Fiveg Evans.

Thank you. Our next question comes from Matt Ramsay with Cowen. Please proceed.

Yes. Thank you. Thank you very much.

I guess I wanted to ask a little bit about I know a caution the commentary in the guidance you talked about the normal.

Seasonality from December to March a 13% on units, but if you look back on on a year over year basis in both of those quarters.

The total numbers are down.

Sadly substantially and with Baidu ramping I wonder if the team to give a little bit of update aren't on the four key business that you haven't entered the market share shifts that may or may not be happening or is this just all a market volumes story. Thank you.

Yeah, Hi, Matt it's it's a combination off a couple of things.

In these quarters last year, a year ago, Oh, we had a higher volume at Apple since we were in the previous models and still shipping Oh volume to them would job, which is one reason for the decline and then second is while way was in the scheme of things there are small customer for us they were a small customer for us.

Oh, we still had my due to volume with them and so when you adjust for those.

The Delta that do what you would expect is extremely small and that just reflects a general market environment.

Got it thank you for that and that's quite follow up I don't know if this is for cristiano or Steve its sort of an interesting juxtaposition that that the one of the big drivers of growth at your company as Fiveg RF content.

At the same time I'm one of the big players in our opposite leaving that business is noncore, maybe you could just share your reactions to that news. If you think it's a result of your business or future opportunity for your business and just how you've seen the customer base react that'd be really helpful. Thank you.

Sure. This is Steve I would say, obviously is not a surprise to us we've been we've been building. This for some time and and working really to get this opportunity into the business the growth of opportunity on the RF side for us due to five Gee I think is a good story good continuing story, we're happy to see it.

Grow across a tears I think there's still an opportunity for other players is obviously an opportunity.

On the Fourg side.

In terms of of competitive dynamic or what we're seeing from the customers were definitely seeing.

Customers resonate with the system solution. There's some features that we can add that we've been investing in that I think people are finding a.

Valuable, but you know we're happy to see it flow into our business, we've been talking about it for some time and it's great to see it actually in the resulted in the guide.

Hey, Matt just said this person I've just said one think real quick look for us the way to think about it this is going to become.

Part of a core business and that's where you see reflected in the revenue per MSM. We expect that you know uplift that we've seen on Fiveg and RF to continue going forward, especially as we go down to tiers.

Thank you. Our next question comes from Rod Hall with Goldman Sachs. Please proceed.

Yeah, Hi, guys. Thanks for the question I wanted to start with channel inventory and.

Kind of.

Well generally like to comment on it but as we exit March given what's going on with demand in China do you have an expectation that handset channel inventory there will be higher than normal as we exit margin is kind of what you think the flow of inventory might look like over the course of a couple of quarters here and then I also wanted to kind of come.

Back to the competitive environment on Fiveg and ask you you know how important share is to you in that environment and maybe Steve you could comment on what you would see as advantages to having higher market share obviously their cost advantages and so on but there are other strategic advantages, we might not be thinking about that.

You know are important to you. Thanks.

[noise] Rod from a channel inventory perspective, I mean, obviously given given how.

Ugly following the situation in China, but there's a there's this is something that we need to continue to monitor.

The key the key driver for us as Fiveg and five do launches and so in terms of inventory on five would you be really at the front end and we have a we have increasing demand from our OEM base and really the challenge for US is how do we keep up with increasing demand because it's an incredible opportunity for us to grow.

[noise] got on share I think this is Steve I think on share we're not seeing anything that we didn't anticipate a we benefit I think a bit from a bit a bit more geographical or.

You know capability, we sell into handsets that sell into larger or you know more markets. They tend to be better units for us and they give us not only scale kinda from that from the normal scale perspective, but also I would say feature and diversity scale from things you know we have an issue as supply chain issue any in the or or demand issue in China, we tend to.

Have the ability to have other regions to back up to back it up so we tend to look at the business in terms of our planning a we want to make sure that we maintain that strength across different markets and I think that's going to serve us well.

Thank you. Our next question comes from C.J. Muse with Evercore. Please proceed.

Yes.

My question I guess, a follow up question. The other krona earlier question, because I'm just trying to get this right.

You publish the midpoint of your Dod either on royalties or some subs or you're just reflecting a water you'd be EPS range.

Yes. So you just you should think of it does a wider TPS range I mean, it's clearly something that we want that bill factor in our guidance. So what we did as we kind of held our normal guide, but more the lower end by five cents.

Well as my follow up.

You know you're guiding revenues up roughly 5% all bets are 5% to 7%.

So I guess can can you walk through what's driving the greater spending on the opex.

Just think about operating leverage as we proceed through calendar 2000.

Yeah. So maybe two points do it first is on the opex side or the increases being driven by normal normal calendar year resets. So for employee expenses and so it's it's really that's the primary primary driver.

As you think about the fully or are we are oh, we have given guidance before where we expected to be or expect to be at the exit rate for 19, plus some small incremental on top of it and so we're still sticking with that I think.

If we execute to that and we have the growth on the revenue side. It will allow us to expand our margins unrealized realize operating leverage.

Thank you. Our next question is from Timothy Arcuri with UBI, Yes. Please proceed.

Thanks, a lot there's a lot of questions on MSM Asps, but obviously you know RF front had really is the big piece of the story, but I guess, we don't really have any benchmarks in terms of what your revenue is there and I guess in early 2018, I think you said that you thought that fiscal 19 revenue would be roughly two to 3 billion for RF front end.

And it sounds like in prior calls you sort of hinted that you didnt get there, but I guess, just because it's such a big piece of the story can you sort of anchor it for US where are you right now how much revenue maybe in fiscal 19 did you do for our Frontend you know if you're doing so well I would think you want to give us some numbers there. Thanks.

Yeah, Tim this is a gosh a a those point, we're not giving a break down off our RF front on revenue base. I mean, you have you have data points from a while ago and got the market has changed since then.

We've got a growing our business a true through the RF to succeed transaction and just the incredible opportunity to grow RF front and on top of Fiveg.

So we're excited about where it takes us and we'll look for opportunities.

As as we go forward to provide more data to you, but at this point, we're not providing any additional information.

Okay. Okay. Okay. I guess, then I had a question on expenses in Q T L.

And it looks like they bottomed in the mid 300 million dollar range back in September but based on the guidance, there's sort of ramping back up by about 40 million per quarter.

It's all of that legal expense related to the appeal and sort of how do you think about the trajectory of margins in Q T L and particularly the.

Opex for after the year in that business. Thanks.

Yeah, So for Q deal if the way to think about the opex in the business going forward is really look at the first quarter actuals and use that as a as the basis for the expense going forward I mean it. It's at this point, we're not necessarily looking to scale scale expenses and litigation, we see as largely.

Studies state the we'll see some normal increases on declines, but it's really kind of flat opex and and then.

Based on how the revenue a shape changes through the year that well that is how the margin will get impacted.

Thank you. The next question comes from the line Srini Pajjuri with SMBC Nikko Securities. Please proceed with your question.

Thank you couple of questions Oh, gosh I'm, the a gross margin obviously lot of questions there.

My question is obvious in my model I think I'm getting close to flat as gross margin with the almost 40% is being greedy here. My question isn't as you're ramping Fiveg and I'm suspecting most of the far G. Initially is high tier as we go through the year and as you ramp more mid and low tier either instead of gross margins could actually did.

Cline or are you comfortable saying, but gross margins can at least in they'll remain at these levels.

Yeah, Hi for any we're not giving guidance on gross margins, but really from an operating margin perspective. The way, we'd think about Ah think about leverage is really as we transition from afford you do five do we should be able to hold or improve our structure and then without.

Our next Opex guidance that we've previously provided the golf enough combination of those factors should allow us to meet our long term operating margin guidance.

Got it and then maybe for Christiana crescendo on the RF. You said you know vast majority of the more them design wins, Oh are using your RF solutions any any way to give us an idea I'm still what percent of the mixes using millimeter wave and where do you see that going by you know by the end of the year.

Hi, Thanks for the question right now, we see millimeter wave as a requirement or for it you know at least a majority of the United States operators in this year, we we're working towards the millimeter wave lounge of Japan, and Korea. So we expect that to start to be a recall.

Treatment on devices as well.

And ER and we have an optimistic view that by 2021, we're gonna started to see that going into other geographies such as China in Europe. So 2020 is the United States, Japan and Korea story.

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

Yes, so just a number one thanks to the employees with Qualcomm for for driving Fiveg is I know you spend a lot a lot going on the last year. Appreciate all that all that hard work, it's great to see their results a flow through into the financial so we look forward to a continuing to add and talk to everybody next call. Thank you everybody.

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

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