Q3 2021 Qualcomm Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the Qualcomm third quarter and 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 you would like to ask a question. During this time press Star then the number 1 on your telephone keypad to withdraw your question Press Star then the number 2 if you're using a speakerphone. Please pick up your handset before pressing the numbers. Please limit your questions to 1 question and 1 follow up as a reminder, this conference is being recorded July 28th.
2021, the playback number for today's call is 870.76606853 International callers. Please dial 20161 to 7415. The playback reservation number is 13720943 I would now like to turn the call over to Mauricio Lopez.
Pescetarian Vice President of Investor Relations Mr. Lopez <unk>. Please go ahead.
Thank you and good afternoon, everyone. Today's call will include prepared remarks by Chris John Malone and the cost Paul Colella. In addition, Alex Rogers and Don Rosenberg will join the question and answer session.
You can access.
<unk> 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 we will use non-GAAP financial measures as defined in regulation G and you can find the related reconcile.
<unk> agents 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.
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, Chris General Amon.
Thank you Mauricio and good afternoon, everyone. Thanks for joining us today.
This is an amazing.
Amazing time to be part of Qualcomm.
The need for our technologies and products has never been more evident.
We are seeing demand across virtually every industry, because our products and technologies are.
Essential ingredients that enable digital transformation in the cloud.
The economy.
We are leaving and expect to continue to lead in mobile.
In addition, we also expect to lead the evolution of the connected intelligent edge by transforming connectivity and processing in cars the enterprise the home.
Smart factories next generation Pcs and tablets, XR wearables and many more.
This is the foundation of our revenue diversification strategy.
This strong performance in our business has led to fiscal third quarter revenues and earnings per share that exceeded the high end.
Our guidance.
Most importantly, we are on track to realize approximately $10 billion in combined revenues across Iot RF front end in automotive in fiscal year 'twenty, 1 validating the positive financial impact of our revenue diversification strategy.
Let me provide you now with some additional details.
The foundation of our Iot strategy is edge connectivity and processing for the growing cloud based economy, Inc.
In consumer.
We're seeing strong demand driven by our consumer electronics up.
Cycle and growth in emerging product categories, such as XR in Wearables.
In etch networking, we had another great quarter with continued momentum driven by the enterprise transformation of the home and the second wave of enterprise demand driven by return.
Upgrade workplace.
We're also seeing rapid adoption of Wi Fi 6 and increased demand for both <unk> and 5 <unk> mobile broadband devices.
In industrial our product offerings are purpose built for key verticals, such as transportation and logistics.
2 the warehousing.
Video collaboration smart cameras retail and more.
We are at the forefront of enabling this new ecosystem and also making <unk> for industrial applications a reality.
We are becoming the connected intelligent edge.
Partner of choice.
As demand for automotive solutions increase we're pleased to report that our automotive revenue design win pipeline has reached approximately $10 billion.
And based on our third quarter results, our annualized automotive revenue run rate is now over 1.
This reflects continued traction across global automakers and tier 1 customers.
Our automotive telematics and connectivity platforms digital cockpit and CB <unk> solutions are at the intersection of key automotive industry trends such as the continued.
<unk> growth of connected vehicles, the transformation of the in car experience and vehicle electrification.
As the additional chapters becomes 1 of the most important assets of automakers, we remain well positioned for continued growth.
The leading technology partner for day.
The industry.
In RF front end, we believe we are on track to become the largest smartphone RF front end supplier by revenue.
Looking forward, we expect to have technology leadership across virtually all handset RF front end components, while continue to lead in modem to antenna.
This system performance now.
Now I will provide an update on 2 key drivers for our handset revenues first we continue to be positively impacted by the growth in <unk> in changing OEM landscape, resulting in the expansion of our addressable handset opportunity.
Our Snapdragon 8 series mobile platforms have shown significant design win momentum.
More than half of our <unk> smartphone design wins to date are using our 8 series in total design wins for our Snapdragon 888 increased more than 20% quarter over quarter.
We're also seeing strong traction with our Snapdragon 7 series mobile platforms with nearly 40, new devices shipped or announce during this last quarter alone base.
Based on our design win traction and performance of our customers, we have increased confidence in growth.
Handset revenues snap.
Snapdragon premium and high tier solutions remain synonymous with Android flagship mobile experiences.
Second we're still on track to materially improve supply by the end of the calendar year.
Were securing incremental capacity across both leading.
<unk> are cheered nodes and optimizing the allocation of our products across the global supply chain.
We're also making progress with our multi sourcing initiatives in fiscal Q3, the Snapdragon 778 G. The first of several products from our multi sourcing initiatives.
<unk> was commercialized in record time and is now shipping in volume.
Additional products from our multi sourcing initiatives will be commercialized in the coming months.
I would like to thank our employees, our suppliers and our customers for helping us navigate the challenging supply environment.
In our licensing business, our third quarter results reflect the strength of our patent portfolio and the stability of our licensing program.
We are a global 5 VIP leader with more than 155 day license agreement signed to date up from more than 1 third at last quarter, we continue to develop and Pat.
With central innovation for future releases of 5 G and we expect <unk> to have a longer lifecycle than prior generations due to its broad application across multiple industries.
I would now like to turn the call over to our cash.
Thank you Cristiano and good afternoon.
And Neil everyone. We are pleased to report another exceptional quarter in a challenging environment as we continue to execute on our priorities, including 5 G adoption revenue diversification and operating leverage our third quarter results were above the high end of our guidance with non-GAAP revenues of $8 billion and.
Our non-GAAP EPS.
Afternoon of $1.92.
These results reflect 63% year over year increase in non-GAAP revenues and more than doubling of EPS driven by strength across <unk> and QTL, including a partial recovery from the impact of Covid in the year ago period.
QTL revenues of 1.
$5 billion and EBT margins of 71% were above the midpoint of our guidance. These results reflect the impact of a stronger mix offset by lower than expected units in China and India.
<unk> revenues of $6.5 billion and EBT margins of 28% were above the high.
Our guidance.
<unk> of $1.8 billion, nearly tripled versus a year ago period on revenue growth of 70% and 12 points of EBIT margin expansion Hansa.
Handset revenues increased 57% year over year to $3.9 billion.
Driven by.
The adoption of <unk> products in premium and high tier devices across all major Oems.
Combined RF front end Iot and automotive revenues accounted for approximately 40% of total <unk> revenues within the quarter and grew 1.6 times faster than handset revenues year over year.
RF front end revenues of $957 million more than doubled year over year on the strength of our broad product portfolio and customer traction.
As a reminder, our RF front end revenues include power amplifiers trackers antenna tuners filters diversity and millimeter wave modules and.
<unk> revenue from RF Transceivers.
Iot revenues grew 83% year over year to $1.4 billion, an increase of approximately $100 million versus guidance.
The outperformance was driven by demand across consumer edge networking and industrial platforms.
Automotive revenues off.
$253 million grew 83% year over year on the adoption of connected cars and expansion of digital cockpit revenues are increasing design win pipeline now puts us on track to exceed the 'twenty 'twenty 4 revenue target outlined at last Investor day.
<unk> to our guidance for handset units and Ford.
<unk> quarter for.
For calendar 2021, we're maintaining our forecast for high single digit growth for global <unk> handsets, including 450 to 550 million <unk> handsets gear.
Given the strong adoption of <unk> in developed regions in China, we have a bias towards the high end of.
First could you forecast.
In the fourth fiscal quarter, we are forecasting revenues of $8.4 to $9.2 billion and non-GAAP EPS of $2.15 to $2.35.
In QTL, we expect revenues of $1.45 to 1.65 billion and EBT margins of 69%.
Our 573%.
In <unk>, we expect revenues of 7% to $7.5 billion and EBT margins of 29% to 31%.
At the midpoint this implies year over year revenue growth of 46% and EBIT dollar growth of 114%.
The strength of.
<unk> 2 day forecast reflects sequential growth across all revenue streams, including premium and high tier device launches and operating leverage benefit from extending our mobile technology and investments across Iot and automotive.
Lastly, we anticipate non-GAAP combined R&D and SG&A expenses to grow 2% to 3%.
Sequentially.
Based on the midpoint of our fourth quarter guidance I would like to emphasize some key metrics for fiscal 2021, we expect non-GAAP EPS of $8.24 nearly doubling relative to fiscal 2020.
Within <unk>, we expect year over year revenue growth of.
$10 billion and operating margin expansion from 17% in fiscal 'twenty, 228% in fiscal 'twenty, 1 with a continued focus on diversification. We are forecasting RF front end Iot and automotive combined revenues to grow from 6 billion in fiscal 'twenty to 10 billion in fiscal 'twenty.
We expect to exit the fiscal year with a strong product roadmap expanded design win pipeline and increased customer traction.
Before I finish my prepared remarks, I'd like to highlight a couple of items.
As part of our ongoing ESG efforts, we recently started purchasing 100% renewable solar energy for our San Diego headquarters.
1, which will significantly reduce our annual greenhouse gas emissions.
Lastly, we'll be hosting our Investor day in New York on November 16, where we will provide an update on our long term strategy and financial outlook. Thank you and I'll now turn the call back to Mary Sue.
Operator, we.
Quarters here for questions.
Thank you. Thank you have a question press Star then the number 1 to withdraw your question Press Star 2 if youre using a speakerphone. Please pick up your handset before pressing the numbers 1 moment. Please for the first question.
Our first question is coming from the line of Mike Walkley with Canaccord Genuity. Please proceed.
With your question.
Great. Thank you congratulations on the strong results.
Just wanted to focus on the Q Cte margins well June is seasonally a softer quarter with Apple back in the model.
The margins came in above your guidance and you're guiding to a 30.
We're now ready and sequentially.
Could you.
Cash native provided any estimates or supply constraints are expert David shipments did adversely impact guidance at all and it's 28% EBIT margins is that now good to think of as a floor and if not what are some puts and takes that might move lower over time.
John.
Sure Mike Thanks for the question.
Really when you look at our operating leverage performance in the year, we were pretty happy with the way we've seen the operating margin expansion with revenue growth.
If you look at what happened in the third quarter, we had a guidance midpoint of 25% we came.
<unk> 28 per cent and so that's on the strength largely of our revenue coming in higher and then a strong gross margin performance as well.
And then now we're forecasting a midpoint of 30% in the fourth fiscal quarter. So really when you think about it.
Going forward we.
Came in at INR margins around our revenue scale and R&D investments and the trick really for US has dropped to minus those too.
As we mentioned in our prepared remarks, as we exit the fiscal year, we feel like we're in a very strong position from a design win perspective to continue to grow revenues.
And.
Who knows we optimize investments again against it I think we have an opportunity to continue to expand our operating margins.
Great. Thanks, and just for my follow up maybe for Christiana.
Just focusing on the Iot business day.
83% year over year growth, maybe youre going to see this for the analyst day, but how should we think about what's the.
And CAGR for this business and how much of that business. Today is 5 team look at <unk> do in terms of growing the Iot business.
Thanks, Mike.
Great question, we're very excited about this business for a number of reasons first is very diversified.
There's a lot of things and our Iot segment is consumer networking and industrial and what we see is really secular growth trends, which is all base to an accelerated digital transformation.
And we are going to provide a lot more details about how we think about growth rates.
Of this business in our analyst day.
It is 1 of the largest Sam expansion opportunity for Qualcomm. It is highly diversified and he has not only higher growth rates.
Then handsets I think of cash outlined at 1.6.
Times are.
Don handset growth.
Both.
Right, but also it's accretive to mark to margins and create operating leverage so stay tuned for more but we're very happy about what we see with Iot right now.
Thank you. Our next question is coming from Chris Caso with Raymond James. Please proceed with your question.
Yes.
Thank you good afternoon, I guess the first question that you could talk about what what generated the upside in the quarter as compared to your expectations what wasn't a matter of getting more supply because I know supply constraints were a big concern coming in and then if you could talk to us about the status of the supply constraints going into the end of the year you talked about getting some.
Some additional supply does that benefit the.
December quarter, or where does that supply come farther out in time.
Hey, Chris it's it's a cash.
Let me, let me try to answer both of your questions and I'm sure a crescendo can ask comments comments do it for the third fiscal quarter as you know our guidance.
1 point was $1.65. We came in at $1.92, and really most of the upside was driven by a QC D. We did come in a slightly stronger in Q T. L, which was really just a trade off between slightly lower units on.
India in India, and China, the low tier but.
Items were set by stronger product mix, especially with 5 gene various regions. So that helped us.
Going over to QC D.
What we really liked about the growth that we saw in the quarter. It was really we saw strength across all the different revenue streams. So it's not just handsets, but also our Iot and AR.
Upfront and in auto and within that we had a stronger mix product mix that helped us and as we just discussed on the Iot side significant upside 100 million higher than the revenue guidance. We had given so that helped as well and then maybe the last thing I'll highlight is our gross margin performance, we're pretty happy with the gross margin performance in.
In the quarter. So those were kind of all the key factors that.
That contributed to it.
Turning over to supply a as we as a reset in casciano his prepared remarks consistent with what we provided last time, we continue to expect that our supply will improve materially by the end of the year.
And it's really a combination of 2 drivers we're seeing multi sourcing initiatives that we put in place over the last several months, we are seeing the benefit of that as we can use available capacity across the foundries and then the second is really previously planned capacity builds with some of our suppliers that comes.
<unk> signed towards the end of the year as well. So both of those are initiatives that we have previously discussed our are in play and that's helping us the first 1 off our multi sourcing product.
We recently commercialized and we have a couple more coming up so that's that's really you're just seeing some.
On the benefits of those initiatives in our September quarter Guide and we will see even more benefit in the December quarter Craig.
Chris Denison as Christina and the only thing I would like to it is.
Now in spite of having great results, both revenue and EPS all exceeding the right end of our guidance, we still have demand outpacing supply.
We have more demand than supply across all of our business.
And as you look at our guide in the next quarter, it's consistent with the statement. We made that we see material improvement in supply to Qualcomm by the end of the year and that's great news and but overall, we continue to see strong demand.
We're in every single business outpacing supply.
That's very helpful. Thank you for my follow up I wanted to address 1 of the day investor concerns.
To give you the opportunity to address it and that's the modem socket at Apple.
And of course Apple has expressed.
Demand, they're also working on their own modem.
Our concern of investors I know that.
Getting apple at its limit you're limited in what you can say on that but I guess I wanted to hear what you could say on it.
And perhaps if you could talk about perhaps the magnitude of that of that risk.
That if apple were to take that path, what what would it mean for Qualcomm.
Thanks for your follow up question 2 answers for you and not any different than what you would expect from Qualcomm I think the very first 1.
Yes, we're very happy with our relationship with Apple were just on their first phone.
We have other phones to go and and we're very happy with things the way things are progressing you know.
At the end of the day, you should always think of Qualcomm, we have always been really focus in cellular technology. The first with every new generation of wireless and as long as modem continued.
Don Elephant, there's always going to be a place for Qualcomm in this business. The second part of the answer which I think is the most important and an opportunity to address investor concerns is the biggest opportunity for Qualcomm in mobile is day changes that are happening in the mobile landscape right now.
As a matter of fact this quarter Xiaomi is now the number 2 OEM and award in shipments and we see the shift in OEM market share create an incredible opportunity for us Snapdragon became synonymous with Android premium and high tier that is how are we going to go faster than.
In the market and incredible opportunity for revenue and earnings looking at the whole value of the Snapdragon platform. We're super focused on executing on this opportunity and it's going to be 1 of the key drivers of growth in Qualcomm handset strategy going forward.
Thank.
Our next question is coming from the line of <unk> <unk> with J P. Morgan. Please proceed with your question.
Hi, good afternoon, congrats on the results. So I question on Ohio class.
Just maybe I wanted to start off here wouldn't be RF Oh.
Alex on the audit side and really good progress there.
It does sound like Youre on track and targeting to become 1 of the largest auto suppliers.
You can give us on.
Wonderful update I know you do it annually, but update on where you stand in terms of share vehicles. Some of the incumbents, there and what's driving the confidence here, particularly as you go into a heavy.
Vincent.
What's driving the confidence about getting to that Paul position in that market and then I have a follow up as well.
If somebody gets a cash thanks for the question overall overall on the RF front end side, the starting point for US obviously always as a having the right product portfolio and so on over the last 3.
3 years, we've been investing in the breadth of the portfolio and are we're in a very good place I think as you look forward.
Not only are we the leaders and the modem to RF end to end system solutions, but also each individual component within on our front and we feel like we're in a very competitive and.
Strong product position.
The second is just the design win pipeline that we have in front of US we have great relationships with the Oems in the in the mobile industry and so that relationship then extends into providing an end to end solution for them and so as we look forward and based on our conversations to commitments.
Once we have from the Oems on the designs.
We feel very confident that Oh, we have an upward trajectory going forward and then finally in terms of our scale.
When we look at the scale within handsets, we already feel like maybe the largest the largest player in the industry and RF front end.
And the opportunity for us is as <unk> expands outside how do we take our position in the handsets, while we continue to grow within handsets, but also take it outside and grow in other areas.
But oh Mike.
My follow up Mike you've talked about the growth in handsets.
Thinking.
A bit more longer term and into next year.
How should we think about what's the primary driver here is it still content increase as you get more on 50 phones or is it really the 10 billion, who I'll wait them that you've talked about and in that context can you talk about media day.
Product and competitive.
Kind of landscape, there and how that's evolving.
Yeah, So maybe I'll I'll address the first part and then Cristiano can address the media that competitive landscape.
Overall I think the answer to your question is all of the above right. We clearly have a long ways to go within 5 G. We are at the at the front end of it and we're going.
The rest of the tiers transitional wear as well and as that happens.
We still think the metric that we gave previously for 1.5 X multiplier on our revenue and margin opportunities still holds.
In addition to that as Youre seeing the changing OEM landscape is benefiting us with our customers winning share.
And as that happens when you combine that with our product portfolio within 5 G and design commitments from our customers, especially in the premium and high tiers that positions us to grow our grow significantly as we move into our fiscal 'twenty 2.
Maybe a quick data point to give on an honor.
They are in the process of launching 3 phones with US 1 is a premium tier snapdragon 8 day date phone and then doing the high tier and so it's just an example of how we're expanding our customer base.
Hi, Mike.
So really simple answer not to talk about mediatek.
But we we think that there's plenty of opportunities for growth.
For us and other companies in the changing landscape what is really important for Qualcomm and I'll give a couple of metrics 1 outlined by cash not only we have a strong roadmap, but we have customer commitments to premium and high tier designs.
For Qualcomm.
Total design wins for our Snapdragon 800 increased 20% quarter over quarter in all 4 total 5 G design wins have further designed as nap Dragon H series. So that it is a clear indication about qualcomm opportunity in.
You mean in high end, where we can capture the majority of the value of the market and we look at the growth.
Oh handset segment or I know, we talked a lot about our growth outside handset, but handsets up $6 billion year over year Q3, 'twenty, 1 handset revenue up 57%. So that's a.
Clear indication that we're in a good position we see this as 1 of the largest growth opportunities. We have for the handset business and will continue to be executing into this new Tam with premium and high tier devices.
Thank you. Our next question is coming from the line.
Line of Ross Seymore with Deutsche Bank. Please proceed with your question.
Hi, guys. Thanks for letting me ask a question I guess this is my first 1 I wanted to ask a question on gross margins to a cash. It's impressive that you guys grew your gross margin 70 basis points sequentially. Despite the Q C. T side of the equation dropping in your mix.
Just wanted to get into a little bit about what's.
What's driving that upside in gross margin in the quarter and more importantly, structurally going forward given the new markets you're entering into the position you guys have in the market is there anything structurally that would keep you from getting a gross margin more aligned to kind of the even the mid fifty's range, where a lot of your fabulous peers.
Peers are currently reside.
Hey, Ross Thanks for the question.
Yeah as I said earlier, I think I'm pretty happy with how we did on the gross margins. It's really a combination of a couple of things..1 is just having a stronger mix of products and so as we are.
See more adoption of.
As John said premium and high tier that helps our percent growing gross margin profile. In addition to dollar margins.
The second is really mix of businesses and it leads into your second point is as we grow into these other areas are automotive and Iot.
Our margin profile at the gross margin level.
So is that growth helps the gross margin profile and so that's that's a.
A key factor for us going forward as you rightly noted.
Great. Thanks for that color and I should have clarified that the mid fifties gross margin would be for the Q C. T side, not overall, but I guess as my follow up question separately, whether it's Christiana aura.
Level.
How should we think just pluses and minuses for the calendar fourth quarter, you have a lot of different dynamics, the timing of premium launches new launches from the Huawei honor, China ecosystem supply coming on board. So it's just a lot of different puts and takes that could make historical seasonality really be thrown out the window, so any sort.
Sort of just even directional color there on those puts and takes would be helpful.
Sure. So as you know well, it's a seasonally strong quarter for the company overall and let me just maybe quickly hit the 2 businesses within.
Within QTL.
Said in the past that we expect the holiday quarter.
Our cash round, $1.7 billion range. So at this point, we're not seeing anything that anything different at this point to give separate separate data points.
On the <unk> side, we expect the seasonality to be a favorable thing for all of our businesses. So not just handsets, but RF front end Iot and auto and.
And so we will see a typical seasonal benefit within handsets, obviously, we're getting the benefit from the launch of new handsets that that happened during that time, especially in the premium and high tier and then some supply improvements coming into coming into the picture as well the 1 thing to keep in mind as a reminder, last year.
<unk> already had a higher than normal sequential increase from September to December quarter.
And that was obviously because of 2 reasons that we would not have at this time.
First is apple coming back as a customer to Qualcomm and so that exaggerated the seasonality and then also there was a delay in their phone.
Launch so those are the factors if you compared to last year that'd be would not be factors that would imply this here.
Thank you. Our next question is coming from the line of Blayne Curtis with Barclays. Please proceed with your question Hey, Good afternoon. Thanks for taking my question and I appreciate the detail on the Iot business that you released.
Obviously, a very broad business I was wondering if any way you can dial it in maybe by the Threep.
Segment.
Where are you seeing the strength obviously the business nearly doubled since you started breaking it out I know, there's a lot of segments in there I know its pretty diverse. So I was just curious.
How you would answer the question as to within these segments where you're.
Are you seeing the most strength.
Yeah, Blayne, it's gosh, let me, let me take a crack at that.
If you look at what happened in our Iot business. This year, we were somewhere in the $1.1 billion range of revenue range for March.
We grew to $1.4 billion and as I mentioned earlier.
We feel like we're in a strong position to continue to grow continue to grow that revenue stream, so a pretty pretty interesting trends for us.
When you break down the business and we broke it down into slide you are referring to in 3 buckets, we had edge networking consumer and industrial on neither of those are dominant.
<unk> category. So you should think of all 3 as contributing very materially to the total amount of revenue.
Maybe I'll highlight a couple of things within edge networking.
Both the Wi Fi access point business and a 5 day fixed wireless business. There are they are both are very strong for us.
And especially when you think about the 5 day fixed wireless business. We were really at the very front end of that having very material impact for us. So.
We're looking forward to the group that that offers to us over the next the next several years.
In the consumer business.
Clearly there is a very broad.
Set of products, we have the revenue is split between several products, but then also as you look forward.
The opportunity within the next generation P. CS and E. R. V are very material things that could be good material growth drivers going forward.
And then within industrial.
Very broad field and were really not even in the first innings on that market. So long ways to go for US and we're excited all of these markets are looking for technologies from us.
Thank you. Our next question is coming from Matt Ramsey with Cowen. Please proceed with your question.
Yes, Thank you very.
Good afternoon.
I guess, Mike My first question goes back to the Tam that you guys outlined at $10 billion from what what Huawei is exiting and your customers are going to grow into.
We've been trying to track is Huawei is kind of depleted their own inventory and now.
That's up yourself and mediatek are growing into that business against some supply constraints.
Of that $10 billion Tam that's out there for you just ballpark about how much do you think you can realistically address in the September quarter, and how much of that Tam is still ahead of you guys. As you go into fiscal 'twenty 2.
Thanks.
Matt for that question.
Uh huh.
We will stay away from kind of breaking down that damn I don't think we have that level of precision in a in kind of estimating our opportunity going forward what gives us confidence that we will get a portion of it in the September quarter, but really this is a big tailwind.
Alwyn for us going into fiscal 'twenty..2 is a is our conversations with daily Ams commitments from them on designs and and really the supply improvements that we'll get at the end up the year and so those are the 3 kind of factors that.
Play into our confidence as we go into fiscal 'twenty 2.
Yeah.
Got it thanks.
My follow up I wanted to ask a question Christiane on.
Your automotive business to teams.
Really well positioned and you guys have talked about the pipeline growing.
With 5 G connectivity being a full chrome and then the ability to do Wi Fi GPS Bluetooth and dash display et.
And as Mike I'm on.
On the same integrated platform I guess, what's the competitive landscape like that across those sockets for 4 for Qualcomm right now and what kind of Asps are you guys envisioning for that business I guess you'd sell it as an integrated solution, including RF.
Thanks, Matt for the question.
Look we really like our position in this space, especially because you know the trends of connecting the car to the cloud. It's just the first step where you can do within the telematics or to connect communications box into car you can add to that Wi Fi Bluetooth as you outlined but also solar Vita works.
Capabilities. So long roadmap I think we have a very strong position given our.
Understanding of the market and the ability to provide a very modular solution I think we're highly differentiated in the space and it's really showing based on our design wins.
Also you're starting to see digital cockpit, becoming.
More material in the revenue.
It's really a much richer silicon opportunity for us as we look at the dashboard. The infotainment in rear seat entertainment heads up display smart mirrors smart side view mirrors, and so forth and there is a completely redesign of the core experience.
I will argue today Qualcomm it's now.
Winning.
They absolutely majority of premium tier car Rfps, we are engaged with 23 of the 26 brands highly differentiated in the space also because we can take a system approach connecting all of those differences.
Arent systems together, you should start thinking about our automotive business as they are going to be a digital chassis than automotive company will have to built and weird differentiated because we have capex capabilities across multiple domains and is starting to reflect in the magnitude of our.
To that pipeline.
Uh huh.
Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.
Great. Thank you.
I wonder how the.
End of kind of supply chain tightness in shortages.
Affects your EBIT margin in <unk>.
Contract and is there kind of an active process of thinking that through if can.
Can we trade off some of that 30% EBIT margin to retake some share maybe we lost or is it sort of just how are you approaching that.
Is there an ambition to achieve a certain EBIT margin or a certain market share and what's the tradeoff between those 2 things.
Joe It's a cash our framework on margins really is unchanged from the way we outlined it at the analyst day last year, it's really a combination of 2 things it's it's optima.
Optimizing on the gross margins and the way, we do that as a.
<unk>.
The mix between premium and high tiers with the gross margins are a lot more attractive in handsets versus the lower tiers and then second is focusing on diversification outside and so that add scale to the margin profile.
The next point that maybe highlight is.
Coming out of the technology that funds are the growth in Iot and auto is coming from mobile so mobile technology is being reused in these areas in very large scale.
And that allows us to really get the operating leverage benefit that we were planning for and then of course, we are balancing that with R&D.
R&D investments and making sure we're investing in the right things that position us to continue to win in these exciting areas and the long term. So it's a combination of those factors.
Great. Thank you.
Thank you. Our next question comes from Rod Hall with Goldman Sachs. Please proceed with your question.
Yeah, Hi, Thanks for the question I wanted to dig into millimeter wave a little bit last quarter. You said it was about 40% of our F&B.
Revenues I'm wondering if you could tell us what it was this quarter and then if you.
Might be able to indicate whether you expect that to continue I mean, assuming it's risen do you expect to continue to rise where does.
In the year the calendar year for you. That's my first question and then I have a follow up.
Yeah, Hi, Raj It took gosh I'll give you the metric on it and then I'll defer to Cristiano to add color on top of it from a from a percentage of total RF. If your revenue this quarter was not that different than last quarter in.
Is it similar range.
When you think about it very long term going into next year and the following year.
As millimeter wave gets deployed we expect that to be a vector for growth within RF front end. So it will become a larger percent of the total pie.
Rod on the second part of your question.
So here's how our millimeter wave is tracking you know everything in line over expectations commercial networks, United States, Japan, Italy, and Singapore day.
Coming 1 is South Korea, Germany.
Countries in Western Europe, Southeast Asia, and in Russia as well.
And during the M WC Barcelona the.
The on trade show 150 carriers around the ward indicated they were investing in millimeter wave technology. So we're excited about that and we continue to highlight what we think could it be an incredible upside opportunity to the model, which is millimeter wave going to China, we're continuing to be engaged in for the Winter Olympics.
The recent early 2022.
And if that becomes a broader deployment in China, you should expect a lot of upsides to our model.
Great. Okay, and then Mike I wanted to dig into.
The China weakness a little bit more I know that you guys called it out in your comment.
There's the.
<unk> an opportunity I got but curious if you could just comment on the wider market there the weakness that we're seeing in handset.
You think this is.
Just consistent with the maturity of that market do you think there are macro factors that are coming into play here could you just give us a little bit more color on what you think is going on in China, and maybe what the outlook.
While we had index.
6 months or so.
Yeah, Rod It took us I think as as I mentioned in my prepared remarks, we did we did see some weakness within the quarter relative to our expectations.
China and in India.
A lot of the weakness we saw was at the low tier.
They're the phenomena, we saw is really kind of weaker low tier, but then mix shift towards the high end.
In these markets and so that's.
That's a key trend that we're monitoring which obviously on a net net the mixed shift is a very positive thing for us.
The day impact in India that we saw in the in the June quarter, obviously was related to the Covid situation, there and so as that that improves and has improved materially already.
We would expect that some of those units come back into the September quarter, and that's a that's been factored into our guide.
So thank you. Our next question is coming from the line of Timothy Arcuri with UBS. Please proceed with your question.
Hi, This is Paul.
Sure Tim.
I had a couple of questions maybe maybe the first 1.
Given the recent Intel announcements, where you're partnering with Intel.
Oh.
Paul.
What sort of commitment is this on your part is that sort of a volume commitment at this point.
I realize it's a ways out but would be sad to say that it's very surgical.
U S portfolio.
Hi, Thanks for the question.
It's actually very simple.
We were probably 1 of the few companies that given our scale is able to have multi sourcing at the leading node. We have 2 strategic partners today, which is TSMC and Samsung and we're very excited and happy about Intel are deciding to become a foundry in investing.
As you know technology to become a foundry I think that's great news for the United States Fabless industry we.
We are engaged we are evaluating their technology, we don't yet have a specific product plan. It at this point, but we're pretty excited about Intel entering into the space I think we all determined.
And Lee conductors.
Important and resilient supply chain, it's only going to benefit our business.
Okay and for my follow up.
Can you provide some more color on how the license the 5 day related licensing agreements work for the non.
Non smartphone adjacencies.
The price cap or is it.
Revenue base.
Hum.
So.
What you see with QTL right now is.
And in the top line numbers that you're seeing the result of executing on long term agreements with the major handset Oems.
So Mike on the non handset side, we've had license agreements in place for a long time some of those agreements go.
Or on a percentage basis some of the agreements are on a dollars per unit basis, we don't break out those individual agreements or the collective non handset revenue.
But we are moving forward successfully with 5 gene in the automotive space and then you know Iot space as well.
It's just that the overall revenue is a relatively smaller part of it.
Overall, non handset revenues relatively smaller part of our overall licensing revenue. So we don't break it out.
Thank you. Our next question comes from Brett Simpson with Arete Research. Please proceed with your question.
Yes, thanks, very much Christie I know you you made a lot of references to the Snapdragon 8 day T. H <unk> in your prepared remarks, and I wanted to ask more broadly about the Android flagship opportunity you see ahead.
I guess, I guess, historically, Huawei and Samsung that's kind of dominated the segments and that's limited your share to some extent and flagship but can you share with US just your perspective on how you think this market plays out for Qualcomm.
What sort of market share you think you can attain.
And what sort of timeframe.
Do you think it takes to be able to fully supply the segment of the market. Thanks.
Great question look day.
Market right now, it's a lot more favorable and I wanted to take a minute to outline this.
He used to be highly concentrated if you look at the opportunity right. Now we have we have a great relationship with Samsung, which.
Which is expanding we have a relationship with xiaomi.
Opal vivo all in the premium tier we have a relationship with honor in record time, we launch a snapdragon 888 with honor the magic to a device. So if you look at a much healthier market you have at least 5.
5 companies at scale that driving the premium tier and that creates an incredible opportunity for us and and as you know the snapdragon <unk>.
Premium tier devices. There are a lot more revenues in earnings compare for example to just the modem technology alone.
And the last comment I.
You know into this we're just at the beginning of this opportunity that we're showing with 5 G. A much better mix across the devices. The market is moving towards premium and high we're very well positioned in this space and over time with our investments have been doing in CPU with new via weeks, we expect to take the differentiation.
I Wanna mill another level. Thank you.
Thanks, Christian and maybe just a quick follow up on automotive because.
Obviously with it with a backlog growing to $10 billion.
What sort of silicon content do you think Qualcomm can address and autos.
You talked about digital cockpit and that'll obviously.
<unk> 2 O G and those RF when you add it all up.
What what sort of total silicon can can correlate dress day by the middle of the decade and typical cars.
It's there is there is a lot of silicon opportunities for Qualcomm and you know not to make an ESP disclosure we will provide.
Say 5 color in our analyst day, especially how all of the different elements of the digital channel is evolving but.
You, you'll see in the automotive business an opportunity for a lot more.
Silicon content and much higher asps that we see in other business.
Thank you.
Our final question is coming from the line of trainee Padre with F. N. B C. Please proceed with your question.
Thank you I have a clarification on a question first on the RF business in the quarter that you reported a gosh.
You know historically I've seen kind of handset in RF move hand in hand, but this quarter I think.
Think RF grew about 5 or 6% in the handsets declined about 4.5% just trying to understand.
What explains the discrepancy.
Yeah, Hi, Shirley.
There's a couple of reasons..1 is are you you will see some differences in part just timing for various.
Things within within our portfolio. So sometimes RF components are point just earlier that are not explicitly tied to a specific cancer. So sometimes you'll see us I mean timing difference that impacts these things.
And then second is design wins right to you why a lot of it is largely thought off as an attach business for a Qualcomm baseband.
Ben we do have business outside of a Qualcomm baseband. So we do attached to other devices and so that that also becomes a different factor.
Got it and then on the QTL side I think you said for the Q4 the run rate should be about $1.7 billion in the quarter.
Just trying to understand how we should think about growth in this business our caution because obviously you're guiding for a handset units to grow high single digits, and obviously you know 5 G is potentially doubling or even more than that and in some of the adjacencies are adapting 5 G. So as we look into next year or 2 can.
Can you talk about some of the potential growth drivers I mean, whether it's low end or mid end smartphones adopting 5 G or some other adjacencies I'm just curious as to why we're not seeing in a bit more pronounced growth here.
Thank you.
Yeah sure I'll reiterate what we said at analyst day, a couple of years ago when you when.
You look at our our licensing business, we have we kind of have a base case for the business and we think of it other things is upside opportunities and in the way to model. Our business is really you have our June quarter numbers and then we are forecasting September and then we gave a data point for December so those are reasonable data points to project forward.
To get to get to an annual number for the licensing business.
There are a few things that could drive upside on top of that but again, we think of it as upside opportunities are the growth outside handsets as a factor second is as I mentioned earlier in the call. We're seeing a mix shift that's very positive for us.
And so as mix shift continues we will see the benefit in UCD, but we'll also see the benefit in Q T L and so that'd be another upside driver in especially with 5 G. Penetrating the lower tiers that'll be a factor for QTL as well and again it would show up through better S B's and as a result better.
Revenues, so hopefully that helps in our framing they'll flow it back for it.
Thank you that concludes today's question and answer session. Mr. Online do you have anything further to add before adjourning the call.
Thanks to everyone for joining us on the call today once again I would like to say.
Thank you to our employees, who were staying focused and delivering results I look forward to leading Qualcomm leading in 5 G and building on the success of our diversification strategy.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Okay.
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