Q3 2020 Qualcomm Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the Qualcomm third quarter fiscal 2020 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 fresh start and then number one on your telephone keypad.
To withdraw your question Press Star then the number two.
If you're using to speakerphone, please pick up your handset before pressing the numbers.
Limit your questions to one question and one follow up.
As a reminder, this conference is being recorded July 29 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 137 06353.
I would now like to turn the call over to Maria Lopez civilian Vice President of Investor Relations Mr. Lopez's Williams. Please go ahead.
Thank you and good afternoon, everyone. Today's call will include prepared remarks, most people in comp in the cost bulk wall. In addition, 'cause doing them on outs Rogers and Don Rosenberg will join the question answer session.
You can access our earnings release any slide presentation that accompanies this call on Investor Relations website. In addition, this call is being webcast on Qualcomm Dot com and the replay will be available on the website later today.
During the call today, we will use non-GAAP financial measures and to find regulation G.
You can find the related reconciliations to GAAP on our website.
We'll also make forward looking statements, including projections and estimates of future events business or industry trends or business or financial results.
Two events or results could differ materially from those projected in are forward looking statements.
Please refer to as you see filings include our most recent NK, which contain important factors that could cause actual results to differ materially going forward looking statements.
And now into common from Qualcomm's, Chief Executive Officer, Steve Moore Golf.
Thank you Mary Seo and good afternoon, everyone. Our fiscal third quarter non-GAAP earnings of 86 cents per share was above the high end of guidance driven by strong licensing revenue and solid performance in our chipset division.
We recently signed a new long term global patent license agreement with why way, including across license granting back rights to certain of wall ways patents. We also entered into an agreement settling amounts due under the prior license agreement. We're pleased to have successfully reached resolution with wallet.
As a cost will explain later royalty revenue from walk away begins in fiscal Q4 and is not included in our fiscal Q3 results.
Alex and the Q TL team have done an outstanding job in executing over 100 agreements covering fiveg and building by a wide margin. The most extensive licensing program in mobile.
This is a tribute to our track record of driving important and fundamental innovation with the signing of the while we agreement. We're now entering a period in which we have multiyear license agreements with every major handset OEM.
Our entire company has executed very well despite the ongoing impact of cobot 19, while maintaining the safety of our employees as our highest priority.
We continue to advance our product and technology Roadmaps support our customers and me a very complex set of R&D and supply chain requirements.
And the current environment has not impeded the pace, though our innovation.
In the last four months of work from home invention disclosures are up over 30% with Fiveg related invention disclosures up even more.
Turning to the handset market fiscal Q3 was better than the expectations. We shared with you last quarter in China, just midway through the calendar year and despite the impact of Cobot 19, Fiveg now represents the majority of domestic mobile phone shipments. According to the China Academy of Telecommunication Research June domestic Fiveg smart.
Phone shipments represented 63% of total smartphone shipments more than double that penetration in the month of March.
Given the strength of June Fiveg handset data in China, along with flagship Fiveg device launches in the second half of the calendar year, our calendar year 2020, Fiveg forecast of 175 to 225 million handsets remains unchanged with our bias now towards the upper end of that range.
As a cost will explain shortly we are anticipating the next inflection point in our fiveg ramp to start in fiscal Q4 with strong year over year growth in revenue and earnings per share, leaving us well positioned for continued growth in fiscal year 21.
Turning to QC Tiv design win momentum remains strong there are now over 660 designs announced or in development based on our broad portfolio of Fiveg solutions, using snapdragon eight seven and six series platforms or using our X 55 modem with a strong pipeline headed into next year.
In the premium tier we now have over 165 designs announced or in development from our Snapdragon 865, Fiveg mobile platform, We recently announced our six series Snapdragon Fiveg mobile platform, which has the potential to make fiveg accessible to more than 2 billion smartphone users around the world.
Our systems approach to Fiveg RF front end has been extremely well received virtually all of our Fiveg design wins continue to be powered by our RF front end solutions, whether they support fiveg in sub six millimeter wave or both and as a consequence of our RF front on strategy, we expect to emerge in fiscal 2000.
On as one of the largest global RF front end vendors by revenue.
We remain focused on executing on a significant growth opportunities that we have in place today in the handset space. As you would expect we're also working in parallel to position Qualcomm for similar success as Fiveg moves beyond smartphones.
We see a significant market transition occurring as the cloud converges with Fiveg in AI positioning fiveg as the next evolution of the Internet.
This new architecture at the edge plays directly to our strengths in low power high performance computing and connectivity.
Where qualcomm's wireless innovation leadership can drive new opportunities for growth as we have in Fiveg enabled smartphones.
Qualcomm's leadership and global standards bodies is an early indicator of how we are working with the mobile ecosystem to meet the high technical requirements to drive adoption of Fiveg to new industries.
Just this month three GPP completed Fiveg, New radio release 16, the second Fiveg standard that will greatly expand the reach of Fiveg to new services spectrum and deployments. It delivers key technologies spearheaded by Qualcomm for transforming industry, such as enhanced ultra reliable low latency advanced power.
Our saving and high precision positioning needed for mission critical applications like industrial biotech.
While release 16 is now complete our work driving Fiveg technology evolution to fully realize the potential of this latest release continues. In addition, we're already working with the mobile ecosystem on really 17 projects and our researching advanced technologies for release 18 and beyond.
We are very excited about our fiveg future and our ability to commercialize the breakthrough technologies that will drive differentiation for Qualcomm over many years.
I would like to now turn the call over to a cash.
Thank you, Steve and good afternoon, everyone.
We're extremely pleased to report strong third fiscal quarter results, demonstrating the resilience of our business in a challenging economic environment.
We delivered total revenues of $4.9 billion and non-GAAP earnings per share of 86 cents, which was above the high end of our guidance range, primarily driven by stronger results in Q deal.
In the third quarter resale and approximately 20% year over year to reduction in Threeg to fourg to Fiveg handset shipments due to the impact of cobot 19 relative to our prior planning assumption of 30% reduction.
In addition, we saw stronger mix with higher shipments in China and developed regions offset by weakness in emerging regions.
In Q deal, we delivered revenues of $1 billion, an EBITDA margin of 62% both above the high end off our guidance range due to higher units and stronger regional mix.
Please note our third quarter two Dl results do not include any revenues from while resettlement or global patent license agreement.
In Q3 D. Redelivered MSM shipments of 130 million units revenues of $3.8 billion and EBITA margin of 16%, which was at the high end of our guidance range.
The impact of quoted 19 on emerging regions resulted in fewer low DRM SM units offset by improved gross margin as a result of favorable mix.
QC de revenue than he beauty increased seven and 20% respectively on a year over year basis. This performance reflects fiveg design traction RF front end growth and strengthen certain adjacent platforms that benefited from the work from home environment.
Our non-GAAP combined R&D and SGN expenses of $1.68 billion were slightly below our guidance.
During the third quarter, we paid 733 million in dividends refinanced 2 billion in debt and temporarily suspended stock buybacks.
I will now provide a financial overview of the resolution with Wally.
We expect to record approximately $1.8 billion of revenue in our fourth fiscal quarter for amounts due under the settlement agreement relating to the prior license period and the new license agreement for the first half of calendar 2020. This amount will be excluded from our non-GAAP results.
Please note that this amount of consistent with the framework off our licensing program and incremental to the partial payments received from while way under the interim agreement in prior years.
In addition, our fourth quarter non-GAAP financial guidance includes estimated qtr revenue from while we sales in the September quarter.
With the completion of this agreement we have now licensed all significant handset Oems worldwide.
Turning to the global Threeg 45 device forecast.
Given the ongoing uncertainty around the timing of economic recovery, our fourth fiscal quarter forecast is based on a planning assumption of approximately 15% year over year reduction in handset shipments.
This planning assumption reflects a gradual recovery in September quarter based on the regional trends, we saw in the June quarter.
Consistent with our broader expectations our forecast for the first three quarters of Twentytwenty implies a year over year, a reduction of approximately 10% to the calendar year total device forecast. However, total units in the fourth quarter will depend on the speed of the economic recovery.
Lastly, we are maintaining our forecast of 175 to 225 million units for calendar 2025 J devices.
In the June quarter, we estimate that the felon of Fiveg devices increased to greater than 50 million units.
This data point is a strong leading indicator of our confidence in the fiveg handset forecast for the year and our bias towards the high end of this range.
Turning to our fourth fiscal quarter financial guidance, we estimate fourth quarter GAAP revenues to be in the range of $7.3 billion to $8.1 billion and GAAP bps of $2.12 to $2.32, which includes the revenue related to the settlement with wallet.
We expect fourth quarter non-GAAP revenues of $5.5 billion to $6.3 billion, an EPS of $1.05 to one dollar and 25 cents.
This guidance includes an impact of greater than 25 cents due to the reduction in handset shipments due to covert 19, including a partial impact from the delay of Fiveg flagship phone launch.
In Q deal, we estimate fourth quarter revenues of $1.2 billion to $1.4 billion, an EBITDA margins of 67% to 71%.
At the midpoint this guidance implies year over year to revenue growth of 12% driven by the addition of royalty revenues from Wawa, partially offset by our planning assumption of 15% reduction enhance our shipments.
In Q3, D., we expect MSM shipments of 145 to 165 million units revenues of $4.3 billion to $4.9 billion and EBITA margins of 17% to 19%.
These guidance Midpoints imply year over year growth of 27% in revenue and 66% any BD, reflecting the strong execution of our strategy in a challenging economic environment.
As we've previously outlined RF front end as one of the key drivers of our revenue growth. Our fourth quarter forecast includes revenues of approximately $750 million for Fourg to Fiveg subsequent fiveg millimeter wave content.
We anticipate fourth quarter, non-GAAP, combined R&D and as Jenniffer expenses to be up approximately 5% sequentially, reflecting normal seasonality and fiveg investments.
In closing I want to thank our employees customers and suppliers for their commitment and partnership during these extraordinary circumstances looking forward. We are excited to have a strong foundation of growth across our product and licensing businesses.
Thank you and I'll now turn the call back to Mary Sue.
Thank you costs, operator, we're ready for questions.
Thank you take your question Press Star then the number one.
Question fresh start Q, if you're using a speakerphone. Please pick up your handset before passing the numbers one moment. Please the first question.
Thank you. Our first question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.
Great. Thanks for taking my question Congrats on the strong results net of environment in the law life settlement.
My question is helping us understand revenue per MSM trend going forward, you highlighted and 21, you expect to be the revenue leader and RF, obviously pickup the revenue per MSM and then you should have a much greater mix of Fiveg phones over time, so as we look out on in the future costs.
Orders, how should we think about the pluses and minuses on a revenue per and Thats in calculation. Thank you very much.
Yes, Hi, Mike This is the cash.
If you look at our trend over the last couple of quarters on a revenue for Amazon perspective, we were just over $31 and in the second fiscal quarter and then we reported.
A little over $28 in the June quarter, and we're guiding guiding a similar number or $29 in in the.
In the upcoming September quarter, the premise behind the growth in the revenue premises to consistent with what we had said before which is.
As we transition from four due to Fiveg, we expect.
Our revenue opportunity to grow by one point Fivex and so as we look forward, we still think Thats a.
Kind of a reasonable way of thinking about the trend on revenue per MSM long term and I think these quarters, where we delivered the results with the higher numbers.
Bare barrels the.
Barrel dumb math behind.
Okay, and maybe just a quick follow up is there any.
Seasonality to those type numbers based on your mix of Premier smartphones that we should think about and modeling kind of those trend lines.
Yeah, sure that there'll be a little bit off a seasonality based on when our premium deer chipset launches and which is typically via Google heavy on volume on the premium deer in the March quarter. So there will always be some seasonality, but I think overall the true the trend that the last few quarters. So just as a reasonable way of thinking about it.
Hey, Mike. This is portion I was just add one thing maybe to help you understand it.
We may we may have seen over to you know the short period of time, you know as we look at work where the market is given the pandemic. We've we feel good about fiveg units on when you think about trends.
Thinking about the 1.5 metric the more to fiveg penetrate into the handset base I think more that helps our trend of increasing the revenue per MSM and I think was to have a lot of fourg units.
There, we like that you know accelerated transition to fiveg.
Thank you. Our next question comes from Samik Chatterjee with JP Morgan. Please proceed with your question.
Oh, hi, Thanks for taking my question I was just maybe first off if I can try and understand the.
Same unit guidance, you and indeed, but yes. It would help if you can get up on back it for me a bit in terms of whats the normally kind of market recovery.
So the sequential improvement that you're thinking off and then what's I know you mentioned the dealing the product launch, but what are you assuming in terms of the product lunch and Thats a good Chile.
Roughly 15 million at the low end and 35 at the high end, so how much of that as a market recovery and how much of that does the product launch.
Sure. So make this was a cash.
So the midpoint that regarding is 145, a 155 million units relative to June quarter Act to also for 130 million. So I'll try to address it around the midpoint.
It really two drivers for the increase the first one is we saw some weakness in the low to your units in the June quarter because of the impact of covered on emerging markets. So we're seeing that come back in as we look at the forward demand that we're seeing from our customers so that drives growth on a quarter over quarter basis.
And then.
Second we talked about a partial impact from 1 billion of Fiveg flagship phone launch if you think about a large flagship phone launch typically for QC perspective, our customers end up buying chipsets that facilitate the launch in the couple of months before the launch so what we're really seeing here is because.
As of the delay a portion of those purchases are happening in the September quarter, and they are factored into our guidance and another portion would get pushed out to the December quarter. So it's a combination of those things and so going back to answering your direct question. The increased from 130 to 155 is really two drivers increase.
In units.
Especially low tier and then benefit from the new launch.
Okay got it.
Then if I can just follow up on the restrictions. Please see <unk> well, we Oh right no instead will.
In fact on the MSM unit guidance from that and then with the licensing agreement that you know have does this potentially open up an opportunity.
Even kind of ramp up your chip shipments to them in a few to if in the absence of high slick on being able to for white them. The chips that are required for identifying headsets.
So let me go all the address the first part of the question.
At this point, we'd really don't have any any material business with Walgreens. So when you think about our MSM unit guidance.
The there really isn't while we volume around it it's really the other Oems that would be shipping too.
Yeah. This is Steve on the second the second part of the question I think I think the way to think about it is we're working hard to figure out how to sell to every OEM, including including walk away but.
Really nothing to report.
As of yet.
Thank you. Our next question comes from Chris Caso with Raymond James. Please proceed with your question.
Yes. Thank you first question is on Q, TL and there's a lot of moving parts or as we go into September with while we coming in the global handset.
A decline.
Excuse me and the timing of the flagship.
In the past you've given us some metrics about what the normalized Q tail revenue run rate would be.
Is that something you could provide us now if I normalize for all of those exceptional events that are happening now once I put while weigh in and maybe you can give us some some indication because of those those changes this quarter, how much while way contributes.
Qtr a in the September quarter.
Yeah, Hi, Chris This is a car shot let me let me try to give you a few data points that I think will help with your triangulation.
Historically as we've guided our revenue range for Q Dl, we've we've said for the first three calendar quarters.
A record number of 1.1 billion is a reasonable range and then for the December quarter or somewhere in the 1.4 billion range Thats kind of our run rate before.
Two key factors first factor is really the impact of good on our guidance. So in the June quarter, we came in a little over billion dollars in revenue in Q deal.
With a market that was 20% lower on the handset side from a year over year perspective, so 20% reduction year over year.
And we came in a little over $1 billion against a normalized run rate of 1.1 billion.
When you look forward, what we're guiding is a midpoint of 1.3 billion and really the two factors right. While we are coming in and increasing that number and a little bit of decline worse, because he has done a 15% market weakness that we are assuming so I think between those numbers you should be able to triangulate what a normalized run.
Great is that you'd the key thing for US is just not having inside been do coal would going forward and how the recovery happens. So for now we are guiding the September quarter, but as we as we proceed we'll look to give.
Give guidance into the normalized run rate.
That's very helpful. Thank you as a follow up to that with regard to Q TL margins or you've given guidance for this quarter also.
It should we expect going forward on that I'm, assuming that the new walkaway revenue was all incremental there's no cost associated with that so is it reasonable margin run rate at least the first three quarters year I suppose we go higher as you went to the seasonally stronger.
December quarter.
Yeah, Chris here, you're correct on a on the revenue really falling down to the bottom line from a long way perspective, so that's an accurate assumption.
I think at the analyst day last year, we provided our view on a longer term sustainable margins from Q deal.
Where are we said to set a midpoint up 70% and with Flavio it would be slightly higher than that so I don't believe there's any change to that that point of view I think we still think those are good reasonable numbers to use or to model our business going forward.
That's very helpful. Thank you.
Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Please proceed with your question.
Hi, guys. Thank you so much so let me ask the question congrats on the Walkaway settlement accounts, you mentioned earlier in the call about the gross margin within Q CTG performing well can you, though in a little bit deeper into that and really what I want to get into is it doesn't seem like there's a great correlation between the revenue premise and the gross margin in the queue CTG side.
Things and given that that revenue premised on line can be moving all over the place next couple of quarters. Given some of these flag ship launches I want to understand the relationship between those two dynamics better.
Sure Us.
So let me let me kind of maybe quickly talk through what happened in the June quarter. What we what we saw was worth is our guidance of mid by end of 135 million units for the MSM. We saw some weakness at the low tier and what I referred to in my script was because of the fewer low tier units that was driven by coal would impact on emerging markets.
We saw higher revenue premises and a higher gross margin as a result of it. So the boat moved in concert at the same time in same direction.
As we look forward onto the September quarter, what we're implying in terms of guidance for a gross margin is more in line with what we had guided for the June quarter, because we expect the lower end units to come back into our mix and and really from a margin perspective, it's very consistent with what we've outlined pretty soon.
Along margin profile going forward.
Yeah, and Ross I think it's got discretion on a consistent with the other thing the conversation we had before but revenue per MSM you know as some of those slow fourg units starts to get replaced by five to units and we go into the.
Future quarters continue to see a center way to Fiveg penetration, that's going to be outflow good driver for gross margin improvement in capacity.
Thank you. Our next question comes from Matt Ramsay with Cowen. Please proceed with your question.
Thank you very much guys and congrats on the while ideal for myself as well a couple of questions like a costs. The first one is on Opex you talked about it being up with Fiveg investments and other things, maybe you could give us a little bit of context as to whether the September quarter.
The number is a realistic run rate going forward as I know Opex said.
On cost controls had been top of mind, given coded and given some of the Quito things that have happened in the last few years I'm. So that's one and and then the second one is on the set on the back payments from the settlement, there's a big sort of cash payment coming in so you got from walk away any thoughts of use of that cash. Thank you.
Yes, Hi, Matt So on your first question really what we're guiding is a 5% increase in opex quarter over quarter. If you look at our historical trend what we've seen between these two calls these two quarters.
As an example last year.
We saw an increase of 4% when you adjust the June quarter for the variable compensation related to the Apple deal.
So what we're guiding is really consistent.
With our historical trend, there's a little bit off an increase an extra 1% increase just because of timing of fiveg investments.
When you pull back and can look up the whole year, we will end up on total opex of $6.8 billion very consistent with what we told you at the analyst day and our forecast for the year. So we really think of Opex as consistent with our previous previous commitments and ER and is it soon.
We are important for us to continue do.
Manage opex, well and deliver operating leverage as we grow revenues.
And then on the second question on the $1.8 billion.
What we have is a while always going to pay us on $1.8 billion for historical periods and it's a combination of two things really its.
The settlement agreement with goes through the end off 2019.
And add to it the first six months of 2020 through June and the combined total of that is $1.8 billion and so that's something that's an amount that they're going to be over a one year period with the first payment due in the September quarter.
Got it. Thank you I'm just a quick follow up for Cristiano or I guess for Steve as well you guys talked about being the view of 2025 units now being maybe at the upper end of the range and if you put that against a major global launch them.
Be pushed slightly.
With all of that maybe incremental confidence in upside in Fiveg units in China or are there other markets that we should be thinking about that are now ramping five units with some visibility. Thank you.
Hi, Matt that this crescendo well look there is an overall I think a confidence in Fiveg. If you look at the peak the comment made by a cash in the quarter I think we saw a better mix than we originally expected which is you know offsetting.
You know weakness in the emerging markets and mostly for GE low tier units, where we saw is a better units on developed markets, which is just the result of Fiveg traction Fiveg continues.
To be high we now have a you know over 80 commercial networks and 35 countries. We have a large number of operators now 380, 120 of which are working on millimeter wave and our design traction jump to 660 designs now on Fiveg. So fiveg momentum has.
Slowed down it's giving us confidence on on the estimate we made for the year.
Thank you. Our next question comes from Tal Liani with Bank of America. Please proceed with your question.
Great. Thank you.
It's actually a follow up on a previous answer.
When you look at the U.S. and ER and Europe and other places can you give us sense of how much of the launches are planned to be with millimeter wave.
And then.
When it do you have an estimate of your market share within millimeter wave kind of a if you look at the global at the Globe. How much do you think you're capturing off of this market initially thanks.
All right of this crescendo things for the question. So let me just started talking about millimeter wave I know that's a big component of the question.
So it's a traction of millimeter wave technology is moving kinda as we expected I think the corn score card I can give it to you United States continue to ramp Japan recently launch was to forecast Korea to launch of into year Europe in Russia targeting commercial launches before the end of the year with millimeter away.
And then spectrum auctions had occurred in Hong Kong, Taiwan, Thailand, Singapore in Finland for commercialization to Doesnt 21, I think a worth noting is there still expectation that China.
We'll have also millimeter wave by 2021 Theres a total 120, operator. So it was really continue to gain traction. We don't we don't disclose you know specific share, but we do have a significant technology leadership in millimeter wave and they have in showing into some of the expansion of our.
Designs, and I think specifically within the United States, which is a the largest millimeter wave market Oh, we have now for example, Verizon with 35 cities now lie with ultra wide band.
18 team continued to expand as well as T mobile and remains a requirement for all of the flagship devices across the three operators.
Got it.
So.
All devices in the U.S. will have millimeter wave will devices that are being launched in the U.S.
The supported.
No. The you'll have a combination of millimeter wave in a sub six and I think as you get somebody reforms spectrum with DSS gonna have that combination of both millimeter wave today is a requirement for all flagship devices and we expect that technology to penetrate down the lower to yours as well overtime.
Thank you.
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 questions on so the first one I wanted to see if you could give us some feeling for how that 1.8 billion splits up I know you gave a little bit color on.
2019, and before and then the first half of 2020, but do we think about that 1.8 broadly applying to like every phone over that period that while we didnt pay for I mean since Q3.
17 on top of the 450 million that they paid you already.
And I guess for my follow up you've talked about 'em revenue premise I'm, obviously up 50% if I look.
Where that revenue for MSM number around especially when you had apple in the next back the day before it was about 20 Bucks. So 1.5 on that would be 30 is that kind of like the new sort of normal once everything kind of gets into place, that's where we should be thinking about revenue promise them.
I Stacy it's a cash.
Yeah. So on the on the on the 1.8 billion that there again, there are two components to that or two that amount. One is the settlement of our previous agreement and it really captures the periods since the the entire dispute beard that we had with them and second component is the first six months off for calendar 2020, so that.
Total adds up to the 1.8 billion.
It is it is additive to the two previous.
I agree or shorter term agreements that we had with them.
Total amount of those agreements was approximately 1.2 billion. So it's really 1.2 and 1.8 as a total additive number for the historical and then going forward or will you see it in our forecast for the September quarter.
And really as I said in my prepared remarks, we did these terms are very consistent with the overall framework off our licensing program. So it's it's what you would expect given given other Oems on overall licensing program terms.
And then revenue per Amazon I think.
Your your math is is a reasonable way of thinking about it it's really the one point Fivex, which which is what you are using is is is the framework we used to think about it as well.
The one thing I would maybe gaviotas youre a your calculation assumes 100% fiveg. So obviously, it's going to take some time together and so there would be a curve into it.
Thank you. The next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.
Hi, Thanks for taking my question does is ashwin on docile fraud.
Oh Gosh, maybe this is for you mentioned about Fiveg flagship long delay a and its impact on your a hobby QC Ti, but I was wondering if you could help us understand or have you thought about it it's backed on Q T L.
And Interfast Lakeland Tonsan got delayed it had an impact not just on SAP and go and all the handset market. So just wondering if you could give us some color there or add up kind of related well not not exactly when they did but my second question is on the June quarter units fared better and a cure deal units. So.
And you sell side that to the improvement in China, but I was wondering if you could talk about trends outside China, and where you potentially saw some spread a into or out of market.
Yeah, So oh, maybe start with their their second question in in the June quarter. What we saw is us grant across China and developed markets. It was kind of broad based across the developed market landscape. In addition to China, China, obviously as I'm sure you're aware extremely strong numbers.
And what though it was offset by weakness in certain emerging markets. So that's that's going on the trade off a trade off that we saw between between the various markets.
On your first question on five do you flagship phone launch delay and how that impacts Q deal.
The does the specifics scenario that we're talking about the launch is typically pretty late in the quarter. So it's a much smaller factor for Q P.L. within the September quarter guidance.
And we think of it does captured in in our total market weakness guidance as a part of covered but again I think it's a much bigger factor for QC de than it does for Q Dl because the chipset purchases typically happen.
In large quantities in advance of for launch.
Thank you. Our next question comes from the line of Timothy Arcuri <unk>. Please proceed with your question.
Hi, there, but the promenade standing in for him or.
I guess my first question was around your the QC de adjacent these well autos I, okay and so on.
They do better than last quarter and are they sort of protein now roughly a billion dollars and the quarterly run rate can you provide some color on that and then I have a follow up.
Yes.
Yeah. So overall, though are the we are just seemed fees have been performing moving pretty happy with it actually are there certain markets that we're in that definitely benefit from covered and the work from home environment. A we have the mobile broadband market Fiveg and Fourg CB and Donghao.
Those market on all of those I've done extremely well why fiber very large beer in life I and clearly would demand for improved connectivity within the home as people work from home that hasn't been a pretty strong spot for us was well.
And then overall idea Io D. is also continuing to see strong traction. So when you look at all those markets, which make up kind of the broader Io d. category for us a lot of strength across the board.
On to obviously got the got impacted as a part of on just what the industry is going through but really within onto a lot of our products are forward leaning which is focusing on new launches ER and the demand for connectivity and infotainment grew really hasn't changed fundamentally so while we're seeing unemployed.
That's probably a smaller than bug than a lot of other peers are seeing in the industry as well. So those that's kind of the landscape off our adjacencies.
Okay and as my follow up when we think about your Fiveg opportunity.
Especially on the our upfront.
Are you sort of gaining share eagle share gain largely driven by millimeter wave or oh or are you sort of gaining share across the board and can you maybe sort of speak to just your broad fiveg shared with us for the Shannon I mean beyond but just the 50, 50% good enhancement.
Hi. This question I'm on yes, we went on the RF front end, especially as this is a growth market for us as a new entrant, we are seeing share gains and the we have been very clear our strategy to really scale in RF front end, we'll be using five d. as entry point and as we continue.
To gain traction room for Fiveg, we're getting designs across a sub six of course millimeter wave and started to get some traction within Fourg RF front end content as well and we expect that to continue to be a positive trend of attached to our bayes men because of or modem to 110 a differentiation.
And at the system level.
And this is a cash just to add a couple of quick points as I said in my prepared remarks for the September quarter, we're expecting a RF front end revenue of approximately $750 million.
So so very happy about getting to that milestone and really as we outlined previously our target is to grow to approximately 20% share of the RF front end market and so between between that data point and really the forward traction that cushion on talked about we feel very comfortable in being able to hit that target.
Thank you. Our next question comes from Brett Simpson with RJ Research. Please proceed with your question.
Yes, thanks very much two questions. Let me just first on all way the settlement.
Can you talk about how I see the 1.8 billion is going in cash in the September quarter, and then if I look at the licensing with while we did for the this year I think it was a SAP licensee maybe you can confirm lives and Im just wondering what is settling in how they still ACEP licensee or are they taking a full platform license and what sort of.
Licensing period, you make any color.
And then second quick question, maybe for Chris Joe.
Automotive.
I think with a year ago. When you last spoke about your backlog at about $5 billion.
Can you give us an update on the backlog for QC and how we should think about the ramp up here with Fiveg and what sort of content per car is Q seeking a book to address and maybe also for GTL.
How do we think about automotive clearly there's going to be a big push that lead to acts in fiveg is going to get a big licensing opportunity for Qualcomm, we haven't seen any license deals from automakers on Fiveg specific way. So how should we think and by that going forward. Thank you.
So this Alex.
In terms of the one way the obviously the terms are confidential and a cautious already talked about the.
The financials to the extent that we can.
As we've mentioned in the disclosures.
We have an agreed upon payment schedule with respect to.
Amounts that relate to the prior license spirit.
There's a long term deal.
And a broad agreement with the license back to certain while way patents.
And so we're very happy with the deal or your question on automotive, we've actually had quite a longstanding automotive licensing business in the Threeg Fourg space.
For a decade or so and so we're transitioning into into licensing for Fiveg.
But but essentially we've been much singing automotive for quite some time and so that's also reflected in our revenue.
[laughter] so Brent this crescendo, let me answer a question on on a automotive business. So why we're not providing an update right now on on the backlog offer design wins I will talk about some of those trends I think we continue to see that in increasing for us.
Especially as the automotive industry.
It's impacted by the current pandemic I think more and more we're starting to see even higher interest in moving the programs of bringing more electronics and in the digital cockpit transformation within the car. So we continue to gain traction continue to get incremental design awards and we're very happy about.
How that automotive businesses going for us so within regards to the content.
Ben now really focus on.
The telematics a unit for the connected car or the digital cockpit transformation that includes content for the infotainment or the rear seat entertainment dashboard, and smart mirrors and connectivity across a wide fly and Bluetooth would just in the beginning.
Oh for easy you for for a das but most of the silicon content is really within the digital cockpit transformation.
And brought on your question on the design win pipeline, we're not providing an update at this point, but the last number we've disclosed as a greater than $7 billion design win pipeline.
Thank you all our next question comes from the line of Srini Pajjuri with SMBC Nikko Securities. Please proceed with your question.
Thank you I've a couple of questions first on the ASP.
Obviously, a nice improvement last few quarters I'm, just curious how crush as we go into the next couple of quarters, obviously your.
Modem mix will increase I'm, just trying to understand how that might impact your asps as well as margins and then I have a follow up.
Yeah. So.
I mean at this point, we're not really kind of guiding specific asps and margins fun specific products. So I think it's probably best to go back to the broader framework and broader discussion we had on DSP trend I think that's still holds true or even even with your question.
And then.
I think margin trends also the same applies so.
It's a rather than talk about a specific socket the broader broader trend is still accurate and that's probably the best way of thinking to moderate.
Okay Fair enough and then maybe for Christiana I'm, just trying to get a better handle on the competitive landscape Christiana. So.
Obviously with the situation with high Silicon I'm guessing you know you have one less competitor going forward. Just curious if you could look if it could kind of talk about.
The modem competition between you and Mediatech and others, you know kind of compare to that in contrast, with at this stage in Fourg cycle. What are some of the similarities and differences you're seeing and what do you expect going forward and then and then that also relates to my margin question longer term and this is a business you're running at about close to 5 billion run rate.
And I am not you know very if any other semi company at this scale running at below 20% margin. So I'm just trying to understand what the potential margin in a longer term margin potential for this business is and how the competitive landscape is shaping up in fiveg. Thank you.
Hi, This crescendo thinking for your question all right. There's a that let me just start with the competitive landscape. We always said you know in in the smartphone mobile space a lot of competition, it's been probably one of the most competitive segments within semi and ER will feel very good right now.
Especially given the complexity on fiveg, given the opportunity for us to move faster to a different religions of this technology as we go beyond smartphones into other industrial use cases, and the ability to have RF front end differentiation and I think is showing now when we think about our design traction.
We started being first to market with Fiveg EUR 400, 660 designs right now 570 of those designs are based on our second generation and then or third generation I think a premium tier product, we kind of indicated over 165 design, so we've seen or leadership proper.
Gate from one design to the other including with the attach of RF front end. So we're very happy about that we expect that more as as many of our customers, especially in China companies like vivo Open show me.
Continue to grow outside China, I think more demand for global solution like Qualcomm.
We'll increase our differentiation.
Belief and that's also true as Fiveg go so other industry. So we feel much better.
But the differentiation of for Fiveg solution compare to Fourg and as far as margins I think we have been consistent.
Fiveg provides.
Significant growth for us in a and expansion of earnings and we are approaching or long term operating margin target for acuity and we're on track to get that.
Thank you that concludes today's question and answer session. That's your melancholy do you have anything further had before joining the call.
[noise], Yeah, just Ah. Thank you for the to the employees for their hard work and obviously that's been unusual circumstances and so I appreciate very much. The hard work has been happening it's great to see the strategy we laid out.
Result in such positive traction for the business Ah. Thank you to all of them who worked on the wall way deal, it's great to get that behind us and look forward to giving an update in a quarter. Thank you everybody.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
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