Q1 2021 Qualcomm Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Qualcomm first quarter in fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will 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.

All your question Press Star then the number two if you're 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 February started 2021. The playback number for today's call is 87766 06853.

International callers. Please dial 201617415 day playback reservation number is 13714 808, I would now like to turn the call over to Mauricio Lopez <unk>, Vice President of Investor Relations. Mr. Lopez with William Please go ahead.

Thank you and good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and of course bulk of Wala. In addition, Cristiano Amon, Alex Rogers and Don Rosenberg will join the question and answer session.

You can access our earnings release and a slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on Qualcomm Dot com and a 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 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.

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.

Thank you Mauricio and good afternoon, everyone fiscal 2021 is off to a great start with record first quarter non-GAAP revenues of $8 $2 billion up 63% year over year and record non-GAAP earnings of $2 17 per share more than doubling from the prior year, but simultaneously.

Hany its global adoption of five G combined with increasingly complex technical requirements at a pace of change that it's accelerating drives a significant multi year industry transition that plays to our strength.

Do you see T revenues of $6 $5 billion were also a record up 81% year over year and 32% sequentially.

Notably our strong performance and outlook would have been even stronger had we not been supply constrained.

Within Q C T. We saw strength across our portfolio.

Our RF adjacency demonstrated continued growth with quarterly revenues more than doubling year over year and crossing the $1 billion threshold a significant milestone we are executing extremely well on our strategy to address many of the technical challenges of delivering a true modem to antenna five G experience and capture a higher dollar share of.

Content in smartphones.

We are also well positioned with design wins across the mobile handset ecosystem, a strong pipeline for further growth in smartphones and a roadmap to bring our RF expertise to adjacent industries.

Our automotive revenues of $212 million were up 44% year over year and our design win pipeline has grown to $8 $3 billion from just $3 billion three years ago.

<unk> us on a trajectory to achieve our fiscal year 'twenty 'twenty four revenue target of one $5 billion.

Our I O T. Adjacency also passed the 1 billion dollar threshold in Q1 and group, 48% year over year, driven by the growth of our core technologies for the Digitization of consumer networking and industrial applications. Our team continues to execute extremely well in spite of supply constraints and the continued impact of the pandemic.

Our strategy is playing out largely as we expected positioning us well to capture the rapid deployment of <unk> in both the core handset industry as well as creating new opportunities in adjacencies.

Our licensing business, our broad portfolio of foundational system level innovations and intellectual properties across three G. <unk> and five G. Along with valuable implementation patents is unmatched and recognized in part by having signed more than 125 G license agreements up from 111 license agreements last quarter.

Our continued success in licensing reflects our development of foundational technologies, enabling five G standards, coupled with leadership in developing the standards themselves leadership in developing the products necessary to implement <unk> technology and leadership in enabling the industry to rapidly implement five G seamlessly worldwide.

This process continues through the successive releases of five G. Currently underdevelopment as our foundational innovations coupled with our ability to implement five G in products and coordinated deployment in new verticals continues to drive progress outside the handset industry.

We continue to invest in complementary technologies that will enable the adoption of five new use cases that will benefit consumers and businesses in a variety of industries as well as agriculture, and the advanced important social objectives of both urban and rural environments, including improvements in health care and education and a more widely connected future.

We have also spent the past decade deep in AI research and development, resulting in the creation of the technology necessary to scale AI across industries and products from smartphones and automotive to the Iot and data centers.

To make AI ubiquitous, we focused on making efficient hardware algorithmic advancements in software tools available to developers and Oems.

We believe AI will transform industries and our technologies will help accelerate the commercialization and scale of AI, making a a ubiquitous around the globe.

Our commitment to our high performance processor roadmap was reflected in our recently announced proposed acquisition of <unk>. We look forward to combining <unk> World class CPU and technology design team with snap and to enable our ecosystem of customers to redefine computing performance drive innovation and deliver a new class of.

<unk> and experiences for the five G era.

Just two years ago, we first announced our Snapdragon 855 mobile platform. The world's first commercial platform supporting multi gigabit five Jeep and demonstrated end to end five G consumer experiences with real demos over live millimeter wave <unk> networks and devices today, we have an expanding portfolio of differentiated.

<unk> solutions across multiple tiers of our snapdragon mobile platforms.

With high performance based bands advanced RF front end designs and leading edge process nodes for our flagship solutions, we are well positioned to address growing five G demand in the handset space and across our Adjacencies.

In RF our position today is the result of executing on our strategy to extend the breadth of the products we offer.

And just a few years, we have emerged as one of the largest RF suppliers in the smartphone ecosystem with a long term roadmap supporting <unk> and five G. Sub six bands. In addition to five millimeter bands, enabling us to expand our RF leadership.

And product applications.

The automotive industry continues to change rapidly in the car is becoming more connected more autonomous and more electric.

As these trends disrupt the industry five G connectivity and new experiences and user demands such as always connected digital cabins for infotainment real time navigation and entertainment are becoming the new standard we are working to meet the increasing demands of safe and premium driving experiences powered by four G. L. T E and five G <unk>.

<unk> services.

With integrated cellular V to X.

Wifi, Bluetooth and precise positioning technologies, our <unk> and <unk> platforms are designed to securely connect vehicles to the cloud each other and the surrounding environment.

With over 150 million vehicles on the road today connected with our modems. We are a leader in automotive telematics, we are evolving our strong position in automotive telematics to a strategic industry partner building incumbency with continued innovation as the auto industry undergoes rapid transformation.

Our third generation automotive cockpit solutions have been selected by 20 of the top 25 automakers and our recently announced <unk>.

Fourth generation automotive platform demonstrates our leadership in high performance compute computer vision artificial intelligence and multi sensor processing lastly, our recently announced strategic engagements with general motors, and leading tier one suppliers, including LG electronics, Google Panasonic and Visteon are further evidence.

Our strong alignment with the automotive industry.

Turning to Iot, we continued to drive momentum in compute with the launch of our second generation Snapdragon H CX, the introduction of our commercial and educational platforms for both Windows and chrome and continued ecosystem progress we.

We are also driving industry leadership, and XR with over 40 design wins and strong ecosystem momentum with global operator partnerships. We believe XR has the potential to be the next computing platform.

Our networking solutions target the full potential of Wi Fi six with a blend of advanced technologies and protocols targeting networks deployed in enterprise venue and pro Sumer applications. We are also extending our advanced Wi Fi six feature profile into the six gigahertz spectrum with second generation platforms. We.

We are capitalizing on the transformation in private and public networks, enabling millimeter wave of indoor and outdoor launches in North America, and Japan, with our small cell solution, bringing higher reliability and speeds to consumers as well as providing connectivity for five G enterprise private networks of the future Lastly, we are accelerating the deployment.

One of our core technologies for Digitization of non mobile industries across retail utilities transportation and manufacturing applications.

It is exciting to see the strategy, we laid out several years ago, playing out largely as expected and placing Qualcomm and a very strong position for cristiana to carry the vision forward as he executes on the many opportunities in front of us over many years.

Being CEO of Qualcomm for the last seven years, it's been a privilege and honor. The foundation of Qualcomm's leadership is a relentless commitment to innovating with great products focusing on large industries with technical challenges that are hard to solve this.

This is what always gave me the confidence we would succeed even when it wasn't obvious and I have every confidence cristiana share. This vision I would now like to turn the call over to our cash.

Thank you Steve and good afternoon, everyone. We're extremely pleased to report strong results to start our fiscal year.

We delivered a record first quarter with non-GAAP revenues of $8 2 billion and non-GAAP EPS of $2.17 per <unk>.

It was above the high end of the strong guidance, we provided at the beginning of the quarter.

These results reflect the year over year increases of 63 per cent and 119% in revenues and EPS respectively.

Driven by strength across QTL and QC D.

In QTL, we recorded revenues of $1 six $6 billion up 18% year over year and EBT margins of 77%.

In the December quarter, we saw a year over year reduction of 7% and global T. G 45 day handset shipments compared to our planning assumption of a 5% reduction.

Reflecting the impact of Covid and softness in the domestic China shipments.

In Q C. D. We delivered record results with revenues of $6 $5 billion up 32% sequentially and 81% year over year. These.

These results were driven by strength across handset RF front end automotive and Iot.

Our strong revenue growth drove EBIT margins of 29%, which was above the high end of our guidance and increased 900 basis points sequentially.

We realize the benefit of operating leverage.

We're also pleased with our continued diversification as we delivered record revenues and RF front end automotive and Iot.

RF front end revenues up $1 $1 billion more than doubled on a year over year basis, reflecting the strength of our broad product portfolio across all frequency bands and customers.

Automotive revenues of $212 million grew 44% year over year, as our telematics and digital cockpit products continuing to benefit from the industry rebound.

In Iot revenues grew 48 per cent year over year to $1 billion across consumer networking and industrial applications driven by an acceleration in demand for our products and technologies.

Our non-GAAP combined R&D and SG&A expenses of $1 $78 billion was lower than our previous estimate.

Primarily due to the timing of certain R&D expenses within the fiscal year.

Turning to five day adoption, we estimate approximately 225 million five day handsets in calendar 'twenty and 'twenty and forecast 450 to 550 million units in calendar 'twenty 'twenty. One we're extremely pleased by the adoption of our five day chipsets across OEM partners with over 800 designs used.

Five G modem and RF solutions are real.

Simply announced five G premium day, our mobile platform does not bragging 888 already has over 120 design wins, we now have five day offerings across several tiers from our premium tier Snapdragon eight a day to our recently announced snapdragon $4 80, all capable of supporting millimeter wave.

For our global <unk> 45 day handsets, we estimate that shipments declined 12% on a year over year basis in calendar 2020.

In calendar 2021, we expect total handsets to grow in high single digits year over year.

This assumes an impact from COVID-19 in the first half consistent with the exit rate of 2020 and a recovery in the second half.

In addition, do you see these addressable market will expand to include Huawei as existing share, which is estimated to be approximately 16% of total handsets in 2019.

Turning to our second quarter guidance, we are free.

Forecasting revenues of seven point to two 8 billion and non-GAAP EPS of $1 55 to $1 75 a.

A year over year increase of 46 per cent and 88% respectively of the mid points in QTL, we estimate revenues of 1.25 to $1 $45 billion and EBT margins of 66% to 70%.

This is in line with normal seasonality following the strong holiday quarter and reflects the slightly lower handset forecast I previously outlined.

In <unk>, we expect revenues of six to $6 $5 billion up 52% year over year, and EBIT margins of 23% to 25%.

Reflecting EBIT dollar growth of 125 per cent.

Versus the year ago quarter.

Consistent with historical trends, we estimate non-GAAP combined R&D and SG&A expenses to be up 5% to 6% sequentially due to normal calendar year resets for certain employee related costs, we estimate that the pending acquisition of Novia will increase fiscal 'twenty, one non-GAAP combined R&D and SG&A expenses.

By approximately $100 million, a portion of which was contemplated in our second quarter guidance.

Looking forward to the third fiscal quarter, we estimate QTL revenues to be in a similar range as our second quarter guidance and expect <unk> earnings to double on a year over year basis.

This forecast contemplates the current seasonality of the Qcd business following the strength in the first half of the fiscal year, which was driven by <unk> flagship launches, including Apple the holiday season, and Chinese new year.

In addition, we are seeing demand significantly outpacing supply given the constraints affecting the industry.

Beyond the third quarter, we continue to forecast strong growth across scarcity, driven by new device launches design win traction and strength in our adjacent platforms.

Lastly, we launched our latest annual corporate responsibility and ESG report yesterday, which is now available on our website.

I'm pleased to share that we have successfully met or exceeded our 2020 goals and have disclosed 'twenty to 'twenty five targets.

Focus across key areas of diversity, and inclusion purposeful innovation and reducing our carbon footprint.

We continue to respond to the expectations of our stakeholders to disclose ESG information and alignment with international standards.

Before I finish my prepared remarks, I want to thank our employees for their continued hard work and focused execution I'll now turn the call back to Mauricio.

Thank you.

Operator, we're now ready for questions.

Thank you Kim a question Press Star then the number one.

Your question, Chris start to ease.

Using a speakerphone please pick up your handset before pressing the numbers.

So the first question.

Our first question comes from Sydney Chatterji with J P. Morgan. Please proceed with your question.

Oh, hi, Thanks for taking my question and before I ask my question and congratulations to both Steve and then Cristiano.

So if I can just start off with the seasonality.

I think what you're guiding to for Q C. D segment is Mike.

Single digit decline.

Seasonal revenues.

As more of a mid teens decline in Q D.

Can you just help us understand the drivers, what's causing that difference.

That's leading to some consultants and investors today that the sell in of chips is greater than the cell therapies and leading to some inventory build so I just wanted to see if you can address that as well.

Yeah, Hi, <unk>. This is a cash we're not seeing any significant inventory build in the channel. So let me let me just maybe clarify that to start with if if you'd think about QC QTL revenues sequentially from December quarter to March quarter, we've talked about seasonality in that business consistently in the past.

So our guidance really reflects that so it's no different than than kind of the shape of the year. Then do you generally see in the handset market and make some Oems are being reflected in the dollar. So in the past we've talked about a $1 7 billion midpoint going to one four from December to March.

And what we are guiding is we came in just below the midpoint in the December quarter, and we're guiding similarly, just below the $1 four.

For the March quarter. So that's the that's the message on on on QTL on Qcd, clearly with Apple now in our revenue stream, there's a different seasonality than we've had in the past and so you see kind of debt, becoming a factor, but when you take a removed at our seasonality is actually extremely.

Strong with significant growth from December to March quarter.

And and really strength across not just mobile platform with the launch of our Snapdragon eight day chipset, but also across RFE are auto and AR and Iot being strong as well so it's really strength across the board and what you see in the numbers is the seasonality of the revenue profile is showing up.

Okay got it if I can quickly follow up I think historically pretty before the U S restrictions came into play as you've talked about while we not really being material in terms of contribution to earnings even though you had somebody with some shipments there.

See a likely change or any material change post the restructuring of their business, where there is a part of the business.

On order brand and I think there are also some restructuring going on in funding wildly Brian any changes that could lead to.

Yeah.

Yeah Anthony.

As I said, Mike as I said in my prepared remarks, we see though Huawei market share while a portion of the market really has a significant growth opportunity for us as <unk>.

As either those share goes to other Oems or Don or Huawei continues we have an opportunity to sell into it so kind of longer term in the second half of the year, we feel like that's a that's a significant opportunity for us but at this point in our second quarter guidance. There. We don't have material revenue assumed for Huawei honor.

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

Great Thanks and.

If my best to Steve for navigating some tough times and our best wishes to Christiane also my question I guess, just focusing on the margin front.

Really strong margins on Q C. T I know theres, some seasonality into Q1 and an increased cost but.

Given the strong margins to start the year cash how should we think about margin trends over time as you leverage the harvest at <unk> investment.

Yeah. So thanks.

Thanks, Mike for the question.

I'm very happy with the Qcd margins and in the December quarter, I mean, really a 29% operating margins and and gross margins were extremely strong as well and contributing to the strength from the operating margin profile, so very happy to see that.

Really when you when you look forward a couple of factors are driving our margin profile.

Overall from a gross margin perspective, there really isn't a specific trend as we've said in the past we feel like we have the ability to hold margins in the in the in in consistent with our recent history and a potential upside opportunity to grow it and so we still have the same view and operating model.

John will then just become a kind of something that falls out based on the revenue profile, but just kind of a new abstract out the seasonality.

We were pretty happy that we set a target at analyst day last about 15 months ago, and and we're on our way to meeting and exceeding what we set out.

Okay. Thank.

Thank you and then just a follow up on the on the margins on the on the QTL side with a lot of the legal things dying down in and signing them over 125 G contracts you see leverage on that side also I mean, maybe if you can reduce our legal costs are still high audit cost involved there.

Yeah, Mike from a QTL perspective, really legal costs have been at a stable lower level for the last several quarters and so the margin profile that youre seeing kind of reflects a stabilization of the legal cost and really it's about our about the topline revenue and focusing on kind of expanding in keeping them.

Licensing business steady going forward.

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

Chris Your line is Chris.

Steve with your questions.

Hi, excuse me thank you.

So from my first question.

What are wishing to address the shortages and obviously, that's something we've heard from a number of others in the industry. This quarter can you talk about the extent to it in your opening remarks, you mentioned that revenue would have been higher if.

Not for the shortages could you help us to quantify that some and then perhaps you know talking about the next couple of quarters, how that may play out if if you recapture.

Some of the business that you werent able to ship in the December quarter and how that.

Proceeds.

Hi, Chris This is Chris Yeah, and I'm happy to address we we we have seen I think are probably shortage across the entire industry. There is a couple of factors driving that one is a V shaped recovery I think across many of the sectors that.

They were present now we saw acceleration of digital transformation and also consistent with this trend of the enterprise transformation of their home and especially for Qualcomm in Q C. T. We have seen an opportunity with the expansion of addressable market Huawei represent or represented 16% of the market that becomes.

Available to us across all of our Oems. So that's driving a situation that demand is outpacing supply.

Happy what we see right now on the premium tier for example in high tier we see share gains in fiscal 'twenty, one and we expect the situation to normalize towards the second half of the year.

Yeah.

Okay. Thank you and with that you made some comments about the fiscal third quarter our debt.

Perhaps you could clarify first on the on the QTL side, you're talking about similar levels on QTL. If he can help us reconcile that with your view of the overall handset units I think you said growing 77% sequentially and then you.

You you gave us.

Something to go on with regard to the QC T side.

With the with the profitability doubling and I guess with that should we assume that that profitability doubling would be at similar operating margins to what you're guiding for from the March quarter.

Yeah, Chris. So this is a cash I think Q T. L. A as we've said in the past we kind of see the market consistent between March and June quarters are in terms of how the overall market mobile market behaves and so.

That's that's what is reflected in the data point that you provided for the June quarter Juicy D. I think it's it's it's a fair way of thinking about it we're expecting it to be extremely strong on doubling profit year over year basis and.

And our margin profile is really going to kind of fallout from the scale of the scale of the revenue as we had discussed earlier from a from just what is reflected in our third quarter numbers. It was just a net natural seasonality of the business now that we have apple in our revenue stream.

There the timing of their purchases within the year as reflected in the data points, we're providing.

Thank you. Our next question comes from Joe Moore with Morgan Stanley. Please proceed with your question.

Great. Thank you I Wonder if you can give us color on the growth in our F. A b so impressive.

You know when you look at five G units potentially kind of more than doubling when you look at millimeter wave really at one customer and one region I'm just surprised at how robust December is and kind of can you talk to the sustainability of those revenue levels and the growth drivers.

Going forward.

Hi, Joe It's a squishy mono yes, you know it is very consistent with what we have been saying since the beginning of five G. We saw five G. As an entry point for US we have a highly differentiated solution with our modem to antenna platform and all of those designed to think we updated the design count Melon five G is in excess of our.

You know 800 designs a.

They they all contain you know five G. RF front end components are also we like debt, it's very diversified our effort in revenues across all customers also with a lot of sub six is not only a millimeter wave even though we are very happy with the expansion prospects of millimeter wave and that's definitely on us.

Salaried or from Qualcomm. So it's a it's a it's a business which is now one of the fastest growing business. We have we're happy achieved a threshold of $1 billion and we will continue to grow as we grow five G.

Great. Thank you.

Okay.

Thank you. Our next question comes from Stacy Raskin with Bernstein Research. Please proceed with your question.

Hi, guys. Thanks for taking my questions. Firstly I wanted to dig a again in the chipset margin guidance. So you're guiding chipset profit dollars down over $400 million sequentially on about $280 million revenue decline, that's like 150 per cent negative incremental margin, but presumably the mix ought to be getting better.

Apple in the handset stuff rolls off and the Adjacencies are it sounds like they grow so like like what is going on in there like why are the margins coming down that much given the revenue trajectory.

Yeah. So a couple of factors Stacy it's the gosh first is as I as I indicated in my prepared remarks, we typically see a kind of a resetting of certain expenses on the opex side. So you have opex growth that happens between the December and the March quarter.

And this was consistent with history. So if you'd go back and look at our numbers in the past you kind of see the same same increase so that that impacts the margin a bit.

Second is we did see some strength in our in certain pockets in the December quarter, and a gross margin profile. So gross margin profile was higher in the December quarter than our recent trend and what we're guiding forward is some.

Something that's consistent with our recent trends so.

Any any upside to that would be something that of course, we're going to try to execute on but it would be upside from upside to our guidance.

Thank you and if I can follow up on QTL margins. So you're guiding 68% on you know whatever it is 1.35 billion at the midpoint in 2019, you were actually running higher than that you were at like you know one one to $1 3 billion to lower revenues and you've had margins that were in line to higher than what you're guiding now with legal costs, presumably were higher so like what what's going on.

On the QTL side, why aren't margins higher on this revenue level.

Yeah, Stacy that there's no something specific going on I mean, if you go back to analyst day, and I know I don't have the 2019 numbers in front of me, but if you go back to analyst day, and what we laid out in front of you for the full year for Q T. L. A where we thought the margin for the year would be higher than 70% with Huawei resolved.

We're very much executing too.

The target we laid out we think we're in a good place to execute on it.

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

Hey, Thanks for taking my question just revisiting on the margin side.

Given the shortages Youre seeing is just kind of you just comment on your input costs and whether that kind of rolled in yet or whether that's.

That's an impact kind of going forward that you could keep margins.

Yeah, I think Blaine.

As you would expect a lot of our conversations with our customers and suppliers around how we address the address supply and and our agreements on price generally tend to be longer term. So really that's where we are focused on is kind of being good partners to our customers and focusing on supply Mark margin.

As is consistent with our recent history and that's that's what's reflected in the guidance.

And then just for the June quarter, the doubling or TCT profit I think.

The new large customer.

You may be seasonally down there just on the Android side.

Typically a stronger quarter, particularly if the market is going to double if you just kind of the moving pieces because it looks like he said he would be down sequentially from March to June debt.

That doubling of profit, but just any perspective on your outlook and Android within that.

Yeah Blayne there there isn't there isn't a specific trend that I'd like to point out there I think are the strength of our business remains consistent between the quarters on an Android.

Maybe this is Chris I just want to add.

Data point, if you you know there is a cash outline seasonality because of one large U S customer, but if you look of what is happening outside debt actually where we're very happy with what we see in terms of premium and high tier share gains I pointed to the addressable market that has become.

<unk> available to us from Hawaii, and and that's going to be a growth story, especially for <unk> premium and high tier as we go throughout the quarters.

Okay.

Thank you. Our next question comes from Kevin Biyani with Bank of America. Please proceed with your question.

Hi, guys, you guided of smartphones to be.

Going up going from minus 12 last year to go up a high single digit. This year can you give us a little bit of color of regions Ah.

Also kind of types of smartphones any color on the composition of the growth this year.

Yeah, Hi, Tal this is gosh so.

Really what what our guidance is just just to reiterate that we were saying the market was down 12% 19 to 20 COVID-19 calendar 'twenty and would grow in a high single digits from 'twenty to 'twenty, one and this reflects kind of continuing COVID-19 impact in the first half and then recovery in the second half.

Really within that market, what's what's the critical driver for US is how five G plays out and so if you look at our five do you forecast, we're expecting it to go up from $225 million in calendar 'twenty.

Do a midpoint of 500 million, so very strong growth and that's that's kind of the key driver for us in terms of how our revenue expands on the chip side.

And then maybe last thing I'll point out is to Cristiano comment earlier.

You know Huawei Huawei has been a very large OEM and it was really from our perspective. It was mostly high silicon levels satisfying their demand now with the change in the market, we have kind of a 16% of the market that was not available to us before being available. So as we kind of look further out we see this as a pretty mature.

Real expansion of Sam for Us.

So just as a follow up if I'm if the market is going from declines to growth.

What's the impact on our Q T L at the at a high level, meaning.

Is this growth going to be in high in countries, where anyway, you're hitting the limit of the the ceiling for the price.

$400 or is it going to be mostly in the developing markets, where there the growth in the improvement in growth can translate also improvement in the.

Total addressable market, meaning units times price I'm trying to understand the.

The impact of the ceiling to the price for <unk>, Yeah. So I think from acuity perspective, the way, we see five G. Benefiting DSP is S. Five day goes into lower tiers.

Below below the ceiling it at a kind of mix the mix Richard for us as people upgrade devices, they buy more expensive devices and that would be the opportunity from QTL, but we again.

Again, we were not planning debt into our forecast at this point and we see it does oh potential upside as it materializes.

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

Hey, guys. Thanks from me ask the question first of all congratulations to both Steve and Christiana I wanted to go back on the PTT side to the China dynamic in that 16% increase in your Sam how are you guys handling that potential inventory dynamic where the owner side, Mike keep the share and you could get design wins, there, but all of the aspiring.

<unk> share gainers are also going to build to take share so that that potential for inventory coming back I realized in a period of shortage it might not be an issue for you, but how are you managing.

Avoiding that pitfall.

Yeah.

It's definitely something that we're trying to manage carefully I mean, we do have very strong demand from various Oems, but as you rightly pointed out it really is more of a supply driven market and and so we have more opportunity to sell and increase our revenue than we can supply at this point. So it's really that's the primary focus and we don't.

Really have any inventory concerns at this point with our customers.

Paul.

Paul.

So Ross just a question I just want to add one thing given the size of those customers are.

The semiconductor supply chain, probably size you know four for what the market sizes. So that in itself provides some correction on inventory.

Great. Thanks for that color Cristiano I guess as my follow up if I went back to the margin side of things. It seems like you're guiding the implied gross margin down about three points sequentially in the March quarter, and then I understand in QTL goes down in Q C. T up so from a mixed perspective that would happen, but it's still a little bit greater than I would've expected you answered in the prior.

Question of cash a little bit about a normalization, Matt youre, assuming there I wanted to dive a little into what was driving the upside in the December quarter, and why would that change going into the March quarter.

Yeah.

Yeah. So I think Ross it was the December quarter upside was just driven by mix across businesses and and we have certain customers who are who made a.

Purchases earlier than they would usually purchase so it's just a more operational mix that drove the drove the upside and so we're not forecasting that at this point going forward.

Thank you.

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

Yes. Thank you good afternoon guys.

My first question.

I think a number of folks have asked about this.

16 per cent of the market that was Huawei, that's now available to you.

And I think you guys all answered about potential inventory builds up to this point.

But no secret that Huawei had been building.

Finished goods and semiconductor inventories going into this situation Cristiano any thoughts as to how long they can remain in the market.

And when that opportunity two two per share shifts to me presents itself you guys from a timing perspective. Thanks.

Hi, Matt Thanks for your question.

Look we we we measure those things share based on the design activity and why we can't really predict how much inventory they have.

Especially on the high and premium tiers.

Whether you get range through a carrier you know in the portfolio or you get range into retailer the market's already moving and as I said earlier, we have we've seen very strong design activity.

We are in the in a positive position because we're very well hedged you know if if iOS when if a Samsung Android wins, if vivo Opel xiaomi wins or even if you know over time companies like owner wins were very well positioned there and we'll see how that would play out, but I will say that the b.

Because because of how distributors into carriers think about it the portfolio is already switching and that's reflecting in the design activity, we see right now.

Got it thank you for that.

And unrelated follow up question I was.

Interested in the acquisition of <unk>.

The team had made some changes.

On the CPU side, a few years ago to be I think more dependent on I guess licensed cars directly from arm for the snapdragon portfolio and I Wonder what the acquisition of new via might signal around your intentions, there number one and number two you about.

And visions into markets that include Chromebooks notebooks, <unk> connected consumer devices et cetera, Theres any comments there on the Tam of course that would be helpful. Thank you.

So Matt let me just start and I'll shift to our cash should talk about the Tam, but we're very excited about that acquisition and it's it's probably very clear if you look.

On the announcement, we made one thing that he.

It was really incredible is just support we receive from the mobile ecosystem every single OEM was there with the exception of two which are you know it doesn't really apply to them and then you'll have the entire computing ecosystem there both across the windows in chrome from us a it basically reflect this view that we have.

Had full conversions between mobile and computing I think we are in the very beginning of that with our windows on Snapdragon program and create opportunities for us to do a step function.

You know increase in performance with the always the power advantage of Qualcomm both of course premium smartphones as well as the computing segment and that is likely to be a key differentiation for Qualcomm going forward.

And it really for the if you think about the addressable market for the B C and the chromebooks market. This is over a couple of hundred millions of units right. So it's a very large market and what's really important for us as is to be able to combine our CPU, leading CPU technology, along with the other assets that we have.

And mobile and address that more addressed this market in a differentiated fashion and so we feel pretty good about our ability to do that I'll also say the CPU has a lot of implications outside of mobile phones, and PC market, along with into auto and Iot as well. So it's an asset that's going to be broadly.

Relevant to the end markets we pursue.

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

Yeah, Congratulations guys I just had a couple a couple of questions here, just kind of circling back to the inventory thing kind of looking at the full year. So maybe first I mean, how does qualcomm kind of mitigate the.

The idea that some people are overbuilding on the smartphone side trying to gain share.

From Huawei, and if you're going to have a back half kind of kind of drop off and then secondly, maybe a better way to ask this question I know you guys don't give full year guidance, but if I look at the full year in terms of calendar year basis, what type of balance do you guys think that revenue is going to look like if it can be more of a 45, 55%. It just how should a calendar year look like.

Now I know that Apple is kind of a major customer for you guys.

Yes.

Mature on the second question. If you just look at our profile of customers right. As we go past the third quarter and go into the fourth quarter, we're going to have a flagship devices being launched again going all the way through the holiday holiday season. So it does become a kind of from pretty area of strength.

As we go into September and December quarter are relative relative to June. So we wish we were expecting our.

Revenues to grow significantly not just in mobile, but then on a front end that goes with it and then also in Iot and AR and auto we're continuing to see strength from the design win pipeline. So it's really across the board.

And maybe to your first question Mitch maybe reiterating what we said before we don't see I think we've heard a lot in this call about the discrepancy between sell in and sell out we don't see debt, we actually see demand outpacing supply.

And piece of supply availability is whats really regulating the market. So we're not too concerned about that at this point.

And then maybe if I can say per se. So I guess, what do you think is causing that demand I'm sorry. It was just five G. I'm just curious as to what's giving you guys. The confidence that continues for the rest of the year.

Sorry, Mitch can you repeat that question.

So you guys are saying you're talking about demand is outstripping supply in the sell through is fine. So I'm curious as to why you believe the demand is there and it's so significant versus prior cycle.

Yes, Christian let me address that again it it's a couple of things right.

We have been saying and I think that's been a key driver in <unk>, where we are growing on on the market. The growth single digit we're growing fast in the market as both inc, or or or expansion into five G. As well as the addressable market that is expanding for us. The one week, 16% example.

That's one the other one is are we we have seen a good numbers on five G. We for the calendar year, we we actually the range. We went to the high end of the guide, which is 225 million five day units and our guide for 'twenty one.

The upper side of that the guide is in the 550. So the five day transition is robust device ecosystem. You know has to move on and we see an expansion of addressable market that is all giving confidence and you know the day supply chain situation as I said earlier, it's been broad across the industry.

It's not unique to handset. We also saw the acceleration of our digital transformation across the industry and the V shape recovery, but it should get normalized towards the later part of 2021.

Yeah.

Thank you. Our next question comes from the line of Brett Simpson with Arete Research. Please proceed with your question.

Yes, thanks, very much I just wanted to dig in a bit on the shortages that you flagged.

Specifically what is the main sort of source here. The shortages is it more sort of five nanometer yield challenges you're seeing in that sort of impacting the the premium flagship segments that you operate in or is it more sort of P mix and what's happening with Smack me can you maybe just talk a bit more about some of the challenges you're having here and specifically when due.

Do you think we come out of the shortage situation is it going to be the June quarter or do you have to wait till the second half before things get back to normal. Thank you.

Thank you for the question look the the simple answer is the day shortish into semiconductor industry is across the board not only leading nodes, but also legacy nodes you should think about it that you know.

Is he used our legacy process is used in a lot of automotive is using are in.

In order to networking products and consumer electronics, and Alex you see that I'm in a lot of day attaches with your power management chips RF chips. So so the.

The V shape recovery that we've seen across the industry and all of the accelerated Digitization Ah is driving semiconductors, and we've seen that across the board.

Specific to our five nanometer I think we're ramping a new process, it's very consistent to our expectations or argue that we probably for a ramp of a new process with our partner you know at this time, we we ship more in the quarter on you know early in their ramp or Snapdragon 800, and we expect two two.

Question just to normalize.

Towards the later part of 2021.

As you know capacity is put in place and we see you know some of the demand across other sectors of the industry to you know to catch up with supply.

Okay, Thanks, and maybe just a follow up on QTL.

So I mean I you spoke a lot about some of the success, we're having in Q C. T regarding autos you referenced to.

20 of the top 25 automakers using the cockpit platform and you've got an $8 3 billion backlog.

How do we think about the QTL opportunity here for specifically for autos I mean.

Is there something you can share with us in terms of.

How how royalty agreements or are going here and and what sort of royalty rates. We can expect from <unk>. Given the use cases are very different and autos going forward. Thank you.

This is Alex thanks for the question.

Yeah, we've had a long term licensing program in automotive telematics for three G forgey, whereas.

Actually having quite good success with our <unk> licensing of course, not a lot of five day units have hit the road yet we haven't released details of.

The licensing program or the particular royal.

Royalty structure at this point in time, but.

But you know maybe at some point in the future.

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

Good afternoon, and thank you for taking the question I guess first question.

You know with RF front end doubling calendar 'twenty versus COVID-19 curious if theres a framework that you can provide and thinking about the growth trajectory into 'twenty. One obviously you have two quarters now of Apple millimeter wave and there would love to hear any thoughts that you could provide in terms of how to think.

About the growth here in 'twenty, one and beyond if you can.

Yeah, Hi, C J, it's gosh.

You know at the analyst day, we laid out laid out financial targets for the RF front end business. We said, we wanted to be greater than 20% off in 18 billion market. We're.

We're very confident that we're on our way to achieving that in an accelerated fashion. What is the timeline we laid out so we'd said we'd get there in.

22, and and we feel like we're there.

To get there in an accelerated fashion, so pretty happy about that.

Okay. That's helpful. As my follow up you've had a number of questions I guess on the supply constraint from an EBT margins for Q C T, but I guess I wanted to ask a little bit differently.

In terms of higher wafer and <unk> costs.

You talked earlier about how you have longer term contracts with set pricing curious, how we should be thinking about perhaps higher cost earlier in the year versus later in the calendar year end.

And what that might mean for the trajectory of <unk> margins.

Overtime.

I guess as part of that you showed great growth from 14% to 22% in calendar 'twenty.

And your outlook for five G. You know should we be seeing another kind of stair step higher for from margins. There. Thank you.

Yes C J from a from a wafer costs in fab cost perspective.

It really kind of not much of a story for us it's really consistent with what we had expected before and and we feel confident that we can execute to the margin profiles that we've outlined.

Both kind of from an analyst day long term perspective, and also guidance we are providing.

It really as you look at the second half of the year. We are looking forward to strong revenue growth across all of our businesses and of course, the margin will benefit from that.

As well just as we get scale and the operating leverage benefit shows up.

Thank you. Our final question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.

Thanks, a lot I guess my first question is just on Q C. T. So you had guided Q C. T down I think 15% for March last call and now its down just a little bit off of the December base. It was about as you guided so and that's even despite some of the constraints that you had talked about so the story really is that March on the component side is even better than what you thought it.

Three months ago, but that's despite sell through on the licensing side being actually a little bit worse than you thought you know due to COVID-19. So I guess the first question is why is QC T. So much better than what you saw three months ago and Anil.

And you know this was the fourth quarter were these two businesses are sort of going in opposite directions. So I guess I wanted to better understand why you know cristiana wise.

The problem as you get into the back half of the year. Thanks.

Tim It's Mike one of the things with the one of the key factors that kind of a.

Drives are the two businesses going in different direction. In this case. It was just timing of purchases by large customers and so we saw some accelerated purchases in going into the March quarter was this June and so it's just a.

You know depending on how the inventory strategies play out for different customers. The timing makes an impact as to when we see the the improvement in our financial performance.

But the underlying trend there is no kind of specific story, it's just a how how things play out based on sell through and timing of when people buy box.

Look if I can add one thing just real quick also you know maybe it's the beginning of this process, but you know acuity is showing also other growth driver shot you know like the automotive growth driver. The Iot growth drivers. So over time, you know as the business get more diversified I think youre going to have probably less correlation between the two.

Okay.

Thanks.

Thanks for that and I guess my last question is on millimeter wave. So I guess, the first 100 megahertz of C band is going to clear at the end of this year and it seems like the Big U S carrier that was kind of driving that he's going to maybe shift some of their capex over to build that C band in the next two years I know some of the other U S carriers are talking about building out a millimeter wave in 2023.

And beyond can you just talk about the pace of adoption for millimeter wave. Obviously, you have a lot of leverage there do you think it's going to be lumpy or do you just see it going from here. Thanks.

Hi. This question and look we are very pleased with what we're seeing in millimeter wave and it was we restate what we said I think you need millimeter wave for the full potential of five G and especially as you look at some of the more advanced applications beyond smartphones.

You know millimeter wave continued to be a requirement for the premium devices in the United States. We're very pleased to see that one of our large you know our customer had brought a millimeter wave you know across all price points that their devices in this quarter, we saw Germany with the auction rules.

Rules are starting for a millimeter wave 26 gigahertz.

And we continue to see activity, indicating that China is likely to have millimeter wave for 2022. So were happy what we see is progressing as we planned and you know as you said it correctly of millimeter wave and that probably are salaried or for 1.5 multiplier in our QC team.

Yeah.

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

Yes. Thank you first of all I want to thank our folks who gave us the kind words on the call I know cristiana feels the same way. This is actually if I count correctly. My 50 <unk> earnings call. So I appreciate all the hard work from the Qualcomm team, making it a record I look forward to seeing where the company goes is exceedingly well positioned and thank you all for joining us today.

Thank you.

Ladies and gentlemen, this concludes today's conference Avon from you May now disconnect.

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