Q2 2022 Qualcomm Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Qualcomm second quarter fiscal 2022 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question. During this time press Star then the number one on your telephone keypad.
To withdraw your question Press Star then the number two.
If youre 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 April 27th 2022.
The playback number for today's call is 870 76606853 international callers. Please dial 20161 to 7415.
The playback reservation number is 137 to eight to eight eight I would now like to turn the call over to Mauricio Lopez, the Doyon Vice President of Investor Relations. Mr. Lopez. The Doyon. Please go ahead.
Thank you and good afternoon, everyone. Today's call will include prepared remarks by Christiane them on and of course Parker Wala. In addition, Alex Rogers 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 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 include 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, President and Chief Executive Officer Christiana Mall.
Thank you Mauricio and good afternoon, everyone.
Thanks for joining us today.
As we shared at our Investor Day last November Qualcomm is at the intersection of transformative trends, they're generating demand for our broad technology portfolio across virtually every industry.
Is this creating strong growth and diversification opportunities beyond handsets.
This trench, which include the enterprise transformation of their home convergence of mobile and PC merging our physical and digital spaces. The digital transformation of industries connectivity and processing at the edge the automotive digital chassis and five G.
Have only continued to accelerate.
Our driving our financial outperformance in a greater than seven times addressable market expansion to approximately $700 billion into next decade.
As you can see from our results, we delivered record revenues of $11.2 billion and non-GAAP earnings of $3 in 'twenty, one cents per share representing year over year growth of 41% and 69% respectively. Both.
Exceeding the high end of our guidance.
In Q C T R chipset business and the growth engine of the company, we saw strength across the entire portfolio.
Revenues of $9 $5 billion were also a record and reflect our continued diversification.
Our automotive design win pipeline is now over $16 billion up more than $3 billion since fiscal Q1, Iot revenues grew 61% year over ear with strong growth across all three categories of consumer edge networking and industrial.
RF front end revenues grew 28% year over ear enhance their revenues grew 56% year over ear.
This results demonstrate that our growth drivers remain unchanged and our strategy is working.
Our one technology roadmap across wireless connectivity advanced edge processing and power efficient AI is in comparable across our peer group in fact advanced processing and artificial intelligence are the fastest growing silicon content areas for Qualcomm.
As such we can no longer be define just as a communications company, serving one industry, rather Qualcomm is a leading connected processor company for the intelligent edge, serving multiple new end markets and enabling the growth of the cloud connect.
With the economy.
As we continue to expand we remain on track to meet our Investor day financial projections and I will now provide an update on our progress to date.
In automotive our horizontal platform. The snapdragon digital chassis is a significant driver of our growing design win pipeline and is increasingly becoming a key asset for automakers are digital chassis comprises our full suite of open flexible.
And as scalable platforms for telematics connectivity digital cockpit, Adas and autonomy and cloud services.
With leading system solutions expertise and capabilities across multiple domains Qualcomm is fast becoming the preferred industry partner for the auto industry and its well positioned for continued growth.
Since our last earnings call, which significantly expanded our snapdragon digital chassis capabilities first the arrival acquisition enhanced our ability to deliver open fully integrated and competitive a desk solutions to alto makers and tier one suppliers at scale.
As a result of the acquisition, we are incorporating a reverse computer vision drive policy and driver assistance assets into Snapdragon ride.
Second we recently announced a long term cooperation with BMW to jointly develop and extend BMW automated drive softer to the Snapdragon ride platform. The core developed solution is scalable and customizable and can be offered by Qualcomm too.
They're out of motive Oems across all tiers.
We also pleased with our multiyear technology collaboration with still Lumpiness, which will be utilizing our snapdragon automotive cockpit platforms across the automakers 14 brands.
Coming still enter vehicles will also be featuring five G capabilities for telematics systems based on our Snapdragon Alto five G modem RF platforms.
In consumer Iot Android tablets are becoming collaboration tools and increasingly demand is shifting from entry level commodity tablets to premium connected computing devices, a clear validation of the convergence of mobile and PC. We are pleased that snapdragon H N one inspiring.
The newest flagship tablets, such as the Galaxy tab S. H series globally. Additionally, we are growing in premium and high tier devices with Oems, such as Lenovo HP and Opel.
We're also pleased to see the announcement of the first ever premium windows on arm enterprise focused laptop the Lenovo Thinkpad X 13 S powered by the new Snapdragon eight CX gentry compute platform.
This new Thinkpad features five G millimeter wave H I celebrated experiences advanced camera and our technology and ultra Slim families design in up to 28 hours of battery life on a single charge we.
We are encouraged by the broad interest in our upcoming products utilizing our industry, leading Cpus designed but our new via team. We continue to drive the inevitable transition to arm based computing, while redefining the future of mobile productivity.
In etch networking, we continue to benefit from the demand for global connectivity required for remote work school in play and we provide industry, leading solutions, enabling the migration Wi Fi six and Wi Fi six feet mesh technologies.
We also recently announced the awards first and fastest Wi Fi seven commercial solution, which we believe will further extend our leadership position.
With multi gigabit Wi Fi performance ultra low latency and unmatched spectrum versatility, we believe our Wi Fi seven solutions will unlock a new era of advanced consumer and industrial applications.
Our five <unk> fixed wireless access solutions also continue to gain traction as a last mile broadband solution. We now have more than 125 fixed wireless access designs announced or in development by more than 40 Oems.
We also introduced next generation features such as stand alone five millimeter wave support and our RF sensing suite to enable operators to extend their five G service offerings to their home and enterprise.
Industrial Iot experienced the fastest year over year revenue growth within Iot This quarter driven by continued demand for both connectivity and advanced processing at the edge.
Notably this quarter, we saw a celebrated the man for Ruggedized handheld devices for warehousing logistics and health care industries as well S for robotics platforms.
Going forward, we're actively building an ecosystem of system integrators and channel partners to support the scale of our industrial Iot platforms as they become critical for the digital transformation of multiple verticals.
In handsets, we had record revenues of $6 $3 billion, driven by continued traction with leading smartphone Oems such as Samsung Xiaomi, Oppo, vivo and honor, where snapdragon continues to be the mobile technology platform of choice for <unk>.
Premium and high tier Android.
We now have approximately 75% of the premium to your processor volume for Samsung's Galaxy S 22 smartphones up from approximately 40% in the Galaxy S 21.
Samsung's strategy to adopt Qualcomm for the majority of volume is significant and validates our platform leadership as well as consumer preference for the Snapdragon brand.
Our Snapdragon mobile solutions continue to define premium smartphone experiences let me highlight a few examples from our snapdragon eight gen. One.
In imaging devices enabled by this platform achieved the highest dx so mark ever making it the best smartphone camera in the world and connectivity. Our solution features the awards first five G. AI processor in a modem RF system, enabling AI base performance thing here.
Smits antenna tuning network's election and more.
In AI, Oh, seven generation AI engine doubles, the computation of performance versus the previous generation.
Our handset strategy as outlined at Investor day is enabling share gains in enhancing our ability to capture the most significant portion of the revenue opportunity.
In RF front end will continue to drive five G modem RF leadership, our fifth generation modem RF system now implements advanced features such as AI integration millimeter wave and sub six dual connectivity and five G sub six carrier aggregation with F. D D.
D N T D D spectrum.
Looking forward in addition to growing handsets, we're expanding RF front end into automotive and Iot.
In our licensing business revenues of $1 $6 billion were above the midpoint of our guidance driven by the most valuable patent portfolio in the industry and we continue to develop and patent newest central innovations for future releases of five G and beyond.
Lastly, demand remains strong across all our technologies and continue to exceed supply we believe our multi sourcing and capacity expansion initiatives will continue to provide incremental improvements to our supply throughout the year.
With our one technology roadmap and demand for our products and solutions across virtually all industries. We are in an incredible position to continue providing high performance low power computing on device intelligence and everything wireless our plan remains on track and I.
I'm very excited for the future of Qualcomm.
I would now like to turn the call over to our cash.
Thank you Cristiano and good afternoon, everyone.
We're extremely pleased to report strong second quarter results.
We delivered non-GAAP revenues of $11 $2 billion, our third consecutive quarter of record revenues and non-GAAP EPS of $3 21 sentence.
These results reflect year over year increases of 41% and 69%, respectively, driven by strength across all qcd revenue streams.
QTL revenues of $1 $6 billion and EBT margin of 73% were above the midpoint of guidance, reflecting a slight decrease in lower tier units offset by a favorable mix.
This was another record quarter for QC D with revenues of $9 $5 billion, an EBT of $3 $3 billion, an increase of 52% and 111% respectively versus the year ago quarter.
We have now doubled Q C. D E B D dollars on a year over year basis in six of the last seven quarters.
Additionally, Q C D E B D margin of 35% surpassed the high end of our guidance and increased 10 points year over year, driven by revenue growth and diversification.
Handset revenues of $6 $3 billion increased 56% versus a year ago quarter.
The upside relative to guidance was driven by increased volume in premium tier and improved supply.
We gained share in samsung's flagship device the galaxy S twenty-two demonstrating leadership of our Snapdragon processor technology, and our ability to compete with internal chipset initiatives.
RF front end revenues of $1 $2 billion grew 28% versus the year ago quarter, an increased adoption of our products across major Oems.
We saw accelerated growth across Iot and automotive as we align supply to better meet the demand for our products.
Iot revenues were up 61% year over year to $1 $7 billion, primarily on increased demand for our chipsets for connected intelligent edge devices.
We saw strong performance across consumer edge networking and industrial with each of these categories growing by more than 50% compared to the year ago quarter.
We achieved record automotive revenues of $339 million, a growth of 41% versus the year ago period, driven by launches with our digital cockpit platforms.
With the strong adoption of our Snapdragon digital chassis, we have now increased our overall design win pipeline to greater than $16 billion.
Lastly, during the quarter, we announced a 10% increase in our dividends and returned $1 7 billion in dividends and stock repurchases.
Our strong free cash flow has positioned us to deliver attractive capital returns that are among the highest in the semiconductor industry, while maintaining flexibility for strategic investments.
Before turning to guidance I will provide an update on the arrival of acquisition.
On April 1st Ssw partner acquired we only or for $4 6 billion with substantially all of it funded by Qualcomm, Yes. That's W. Partners, then transferred arrival to Qualcomm and now plans to sell the remaining non arrived where businesses over the next several quarters.
We expect that Qualcomm will receive most of the cash proceeds from the sale.
We estimate our eyewear non-GAAP operating expenses of approximately $50 million per quarter.
However, our guidance for the third fiscal quarter does not include this impact since we plan to report arrived we're one quarter in arrears until the fourth quarter. Further details of the transaction are included in our 10-Q and earnings presentation posted on our Investor Relations website.
Two financial guidance for the third fiscal quarter, we are forecasting revenues of 10.5 to $11 $3 billion and non-GAAP EPS of $2 75 to $2.95.
We estimate QTL revenues of one four to one $6 billion and EBT margins of 69% to 73% our guidance contemplates global handset units consistent with the exit rate from the second fiscal quarter and assumes the end of Covid related impact in China by the end of the quarter.
In Q C. D. We estimate revenues of 9.1 $9.6 billion and EBT margins of 31% to 33%.
At the midpoint this implies year over year revenue growth of 44% and EBIT dollar growth of $1.2 billion.
On a sequential basis, we expect mid single digit revenue growth in Iot and automotive and a seasonal reduction in handsets and other front that.
Our strong forecast for Q city is driven by the same factors, which benefited our second quarter, including gains in handset premium tier volume strong demand in Iot and automotive and supply improvements, we anticipate non-GAAP operating expenses to be up 5% to 7% sequentially, reflecting select investments and product roadmap.
In closing we are pleased with our financial results and strong execution as we manage through supply constraints in the current macroeconomic environment.
Our QC D handset revenues are on track to grow by greater than 50% in fiscal 'twenty, two and we're well positioned for fiscal 'twenty three as we continued to benefit from increased processor content and share gains.
While we strengthen our mobile leadership diversification is the top priority for the company as evidenced by increasing design win pipeline in automotive and the accelerating revenue growth in Iot.
Back to you Murray Sir.
Thank you.
Operator, we're now ready for questions.
Thank you take care of a question Press Star then the number one to withdraw your question Press Star two if youre using a speakerphone. Please pick up the handset before pressing the numbers one moment. Please for the first question.
Our first question comes from Matt Ramsey with Cowen. Please proceed.
Thank you very much good afternoon, everybody and congrats guys on the strong results Cristina My My first question comes on the automotive business, obviously, there's a lot going on with.
The acquisition, that's Atlantis deal and and.
Are you guys talking about a one point $60 billion pipeline now I Wonder if we could go back and revisit some assumptions from the analyst day. I think you guys had talked about getting to $3 5 billion in revenue I'm on sort of a five year basis, you're running maybe a third of that now but the pipeline next expanded.
Dramatically. So maybe you could talk a little bit about the visibility on revenue and how youre thinking about the numbers that you laid out at the analyst day for that strong automotive growth. Thanks.
Thanks for the question, Matt look I think the simple answer to your question is looking really good.
The way the way you should think about that is as the cars are really becoming connected computer on wheels to digital chassis no assets of Qualcomm is really resonating with carmakers and and would probably you know winning ahead, even if her original projections. So we feel pretty good.
About our ability to meet what we outlined in analyst day.
Yeah.
Okay.
Yeah.
Thank you for that as a follow up just on the handset business and I think it's notable that the significant con I guess share expansion that you guys are highlighting at Samsung and if you go back to the analyst day I think he ties talked about growing Q C. T handset revenue sort of in that 12.
<unk> per cent range, either even while cupertino came out of of share and in the 'twenty 'twenty three phone in a pretty significant way so.
I guess there was some questions at that time about the ability to grow through the next two or three years Android revenue in such a significant way. So Cristiano you were thinking about that the content and share expansion at Samsung as being sustainable and on how is the RF attach on the on that expansion.
Expansion and share at Samsung trending thank you.
Great question, Matt look Oh, I wanted to pointed out it's a it's a pretty good trade actually instead of providing a modem will provide an entire snapdragon platform with AI Gpus Cpus and a lot of silicon content plus RF front end, it's a it's a it's a pretty positive trade if I can say that way.
This it's been a consistent what we said before you probably saw that in the making US a lot of the new form factor from Samsung both to forward them to flip with Qualcomm are globally, and I think the G. F. 'twenty two it kind of outlined the strategy its off a deeper partnership with Qualcomm and and go.
Going forward, we expect our relationship with Samsung only to increase so we're very pleased and I think it reflects that the strategy is working we've been focus on premium and high and that's that's the value share of the Android market and our technology, our investments our differentiation and even.
Nerf Dragon brand matters, and and I think that's reflected in what happened with G. F 'twenty two.
Yeah.
Thank you. Our next question is coming from Mike Walkley with Canaccord Genuity. Please proceed with your question.
Great. Thanks, you know Cristiana building on Matts question, just on the smartphone market, there's some investor concern or just industry concern about slowing five G or Android demand, but it sounds like you are still you know trying to meet demand with your with your ability to supply can you talk.
What kind of your design wins into the back half of the year and how you feel about the supply demand environment for premium tier Android.
Thanks for the question, Mike There's a lot in there I think both are both how we think about the design as well as supply. So in in handset. It is a good story I think akash outlined we're growing year over year for fiscal 'twenty two in the order of 50% we grew 56% in the quarter and its a story of our share gains are.
With Samsung.
As well as if you look at fiscal 'twenty, two comparative fiscal 2021 share gains in China, as well and it's and we continue to see snapdragon is probably be.
Did see synonymous with <unk>.
Premium and high Android flagship the design pipeline is very strong we've been reporting that as we talk about the number of designs and Oh I'll, let <unk> talk about the market, even though the market. It is a little bit more soft oh, we're not that exposed to lower tier units because of us.
Strategy is to be really focused on premium and high end and they are in the value share of the market maybe a country. If we can come in.
Yeah, Mike from a market perspective, we saw some softness relative to our previous expectations in the March quarter in the lower tier units, but as Cristiano said a lot of the driver for our revenue growth in our value.
Value proposition is very strong at the premium high tier and Youre seeing the benefit of that show up.
So the second question Mike on supply.
You know the to supply situation is going as as we plan I think.
Contemplated in our guidance contemplated into our projections that we made back in analyst day, having said that you're going to hear the same thing that you'll probably be hearing from us consistently we still have more demand than supply across all business.
Thank you. Our next question is coming from the line of Sumit Chatterji with J P. Morgan. Please proceed with your question.
Hi, Thanks for taking my question and congratulations on a great quarter here.
I guess I wanted to start with a question on.
Oh Gosh, you both mentioned the 50 plus in Q C. D hindsight kudos for the yield if you can put that in context, we all know that.
The market is either flat or down four times. This.
Oh it does.
Wondering if you can quantify how much of that growth is share versus content growth on an apples to apples basis I'm just trying to think about how you would try to sort of captured what how much of that growth is sustainable into next year and I have a follow up thank you.
Somebody could say gosh, maybe I'll address the question on at a higher level in terms of the key drivers there so.
First as we've talked about Samsung Sharon Grease, and so that has helped us at the premium tier.
Second is that supply has improved we've been able to meet more of the demand in in China as well so that that's a second key driver as we've said in the past as the OEM mix has changed it has opened up a larger portion of the market for us and so being able to access that portion of the market.
<unk> is also beneficial.
And then finally, it's we just the thing to remember is only 20% of the global handset units come from China right. So that the rest of the market you are still seeing strong demand at premium idea and so we've been able to participate in that.
And then finally from a content perspective, as you know well when you look at January one generation to the next door phones. The amount of computing that consumers are demanding keeps going up and that provides an opportunity for us not just from a competitive differentiation perspective, but also additional content per phone and so even if you.
Look at one generation five G phone to next generation five G phone.
Because of the increase in content on the processor side, you're seeing the benefit show up in our numbers.
Uh huh.
My follow up Oh, gosh, maybe how you're thinking about sort of baking in the impact.
The China Lockdown silver bullets in relation to demand.
On supply that you should think of.
Yeah. So we've looked at it both from a demand and supply perspective on the demand side as I mentioned earlier relative to our expectations. We saw some slight decrease in lower tier units in China. So we are projecting that forward into the June quarter, and and where our numbers assume a recovery in COVID-19 .
Related impact in China by the end of the quarter, but obviously, that's the evolving situation and we're going to continue to closely monitor it.
But as I said earlier, China is 20% of the global market you still have the remaining 80%, where we're seeing a lot of positive trends.
From a consumption perspective, with the strong demand for our premium high tier devices.
Thank you. Our next question is coming from Stacy Raskin with Bernstein Research. Please proceed with your question.
Hi, guys. Thanks for taking my questions.
I guess first you know in this environment with China, and Covid and everyday as you know we've been hearing.
Some players in the market you know talk about conservatism in their outlook and I mean, if this doesn't feel conservatism, but maybe that's wrong I guess the prior quarters.
The outlook look really strong and then you've been crushing it. So I guess can you just give us some feeling for.
You know that the degree of conviction you have in this outlook and I know you've given us a little bit not just into June you didn't give us a little bit on some of your end markets into September as well it sounds like the drivers are there, but can you just.
Maybe give us a little more a color on where your conviction levels are as yet as we're sitting here today.
Sure Stacy it's akash.
We we we obviously take a consistent approach when we guide the quarters going forward. So we've taken the same approach as we've done in the past certainly theres more more things that we don't don't given the situation in China, and then macroeconomic situation as well, but but the demand signals are strong and supply is improve.
Moving and a lot of the upside that you're seeing is those two factors coming together.
Got it.
For my follow up.
You gave us some color on on handsets handsets are up you know just 50% blanket in in the second half that would put them as you said down a little bit in June and you would probably be up 20% and in in September sequentially. If you just apply 50% year over year. So we have a little color on that into September is there any outlook you can give us either qualitative.
Or quantitative for the rest of the business into September .
Yeah from a September quarter perspective is as you know well, it's kind of a quarter, where we start seeing an inflection second inflection point of the year for us where we have launches flagship launches.
And in the August September timeframe going into a holiday season. So.
We still expect that to happen and that's going to help our performance as we go into those two quarters.
So if you look at the September quarter, we still we're seeing strong demand across our diversification plan. So that's that's playing out as or better than we had expected and so Iot automotive and our RF front end. We also expect strong year over year growth in those areas into the September quarter.
Yeah.
Thank you. Our next question is coming from Tal Leone with Bank of America. Please proceed with your question.
Hey, guys.
I have two questions one is on margins it's.
Last quarter was record margin this quarter again much better than expected can you discuss the puts and takes of margins and what we should expect going forward that's number one and number two.
I just wanted to understand just to go to a follow up on China entering the quarter. We saw China is gonna be weeks. We are also hearing and I want you to correct me if I'm wrong that a huawei share loss in China is not materializing, many want meaning Huawei is.
Still selling in the high end and <unk>.
Many miles away from China, So I would like to know what are the.
Kind of share dynamics in China, and what is the overall demand and if you can just elaborate a bit on the Chinese market.
Shoretel gosh, so on the operating margin side, we were obviously very pleased with our with our margin performance. We guided 32 to 34 and came in at 35%.
Pretty strong strong performance.
We're guiding a 31% to 33% going forward as well and it's really a combination of the three drivers we've discussed before revenue forecasts with diversification. That's that's really helping us gross gross margin says as I'm sure you'll see through the numbers were doing well, there and then being able to leverage the handset technology.
Energy into these new markets also make it accretive to diversify so it's it's the combination of those things then consistent with what we've said before the story is playing out as we would've expected.
From a China perspective.
You should think golf, we're participating in the revenue opportunity across all Oems in China, and so if if there's a particular OEM, that's winning a qualcomm would be participating in that as well.
So this is Christian I was just sort of add a couple of things so.
First of all I do.
The strategy for handsets for us it's different we really focus on premium and high tier we have been very disciplined how we think about pricing and we're really building on our technology differentiation preference for Snapdragon brand and I think that has had a.
Contribution on the gross margin, hence the business, but also we pointed out that our you know.
In China as represented 20% of the market are the premium tier devices, whether its vivo Opel xiaomi owner Huawei for <unk> as well.
It's you know devices, it's a samsung they all powered by Qualcomm and that is why we've been benefiting of growth and a richer mix of premium and high we're not that much impacted by the low tier units and we've been less interested in commodity units in the handset business.
Having said that regardless of what's happened to China market I think the story on Iot strong the story on Alto in strong and all of the new business, they're all accretive to margins or cash outline. Thank you.
Thank you.
Thank you. Our next question is coming from Rod Hall with Goldman Sachs. Please proceed with your question yes.
Yeah, Hi, guys. Thanks for the question I wanted to come back to the 50% growth in handsets when we calculate what that implies for Q4, it's about 1 billion more than we had anticipated for Q C. T revenues and I think we were above street. So you know a very strong number there I guess I wanted to try to ask the visibility question again, maybe in a different.
Way, which is.
Do you how much of that revenue is committed and and I'm, assuming this would be mainly high end Android.
Buyers that would be interested in shipping new units at the end of the year given your prior commentary about Apple exposure and so on but I Wonder if you could just confirm that is Android and then talk a little bit about how much of that revenue is in the bag now and how much still needs to be kind of developed in the order book and then I have a follow up.
Yeah Rod it it it it are the driver of the September quarter is typically a consistent with what you would have seen in the past right. So flagship launches that happen not just in Android, but apple as well, we see the benefit of that show up in our numbers in that quarter, and then going into December quarter.
So that's that's a that's a factor Android demand continues to be strong we have obviously significant demand and visibility in terms of.
The information, we're getting from all of our customers even with reconciling their demand signal for the market changes. So we're pretty confident as we look forward.
Okay, Great and then I for my follow up I just wanted to you haven't touched on Europe at all you've talked to about a little bit of weakness in China, we picked up some developing weakness in Europe , but I'm just curious what youre seeing there from a demand point of view it doesn't sound like anything, but you know maybe give us a little bit of color on what you see going on in the European market from a demand.
Perspective.
Yeah, I think maybe the only really thing to highlight that's inconsistent with the way we have seen the market before and the way we had outlined at our investor days the weakness in the lower tier when you when you're going to step a step back from that and look at the rest of the market on a global basis. It is playing out consistent with our expectations.
Thank you. Our next question is coming from Ross Seymore with Deutsche Bank. Please proceed with your question.
Hi, guys. Thanks for letting me ask a couple questions and congrats on the strong results I wanted to get back to the handset growth and the sustainability of it the 50% number in this fiscal year is as great significantly above my estimates just like what Rob just said about his butt.
But as you think about the moving parts that drove that how much of say the $10 billion Sam opportunity you talked about in China will already have been addressed and if you've gone from 40% to 75% penetration than the Samsung a G F 'twenty two.
How much more is there and so really what I'm getting at is how long can you outgrow the handset market by content and market share gains if youre doing so well now.
Okay.
Yeah, Ross, it's a gosh so when we look forward on the handset side, we still think that there is opportunity to gain share, especially as supply improves.
So that that'd be one driver second is a 45 day transition we have some ways to go on that for the rest of the market. So we should we should see that play out and that should benefit us as well.
The third driver is what we discussed earlier, where the amount of processing that's needed them. This is whether it's CPU or GPU AI camera audio video security. Each of these vectors are being pushed hard in terms of performance in the competitive landscape between the Oems.
<unk> is is a demanding that are all these capabilities get added to the handset. So that is also helping us from a content increase perspective, and then those are the drivers as we look forward.
Thanks for the color on that are causing I guess the follow up would be on the margin side of things you guys have done a great job expanding both the gross and the operating.
Margins, especially on the QC T side of things, but I'm, a little curious in the near term with your guidance.
The overt guidance I E. B T is down a couple points both on Q C. T in Q T L. A but more precisely it looks like you're guiding the gross margin down a little bit in Q C. T. Given the moving parts within that is is there something unique going on because I would've thought kind of the diversifying engines would've actually brought the margins up but it seems like the gross margins going down.
You know a point and a half two point something like that.
Yeah, So I think and in the quarter that we just reported our we had guided gross margin at a certain level and we came in even stronger than that and so as we look forward. We're guiding kind of in line with our recent history more in line with the way we've guided the March quarter as well so that you could have.
A potential opportunity based on the mix of products, but the inside that we have right now based on the mix. We think that's a good number.
Thank you.
Thank you. Our next question is coming from Joe Moore with Morgan Stanley . Please proceed with your question.
Great. Thank you.
Obviously, you've seen this really healthy environment in the premium tier handset market.
You've also had a shortage and I wonder has the shortage contributed to the pricing and margin strength that you've seen in any way as that shortage eases do you see a more competitive market and you talked about you know as your supply gets better you can take share does that imply they get more price aggressive or are these prices going to be.
Sticky and mix shift as the element to watch.
Thanks for the question Joe This Cristiana I think where you'll have to watch is the amount of processing content that is that is increasing its snow or beyond five G. A story just on on the premium tier for the next you know generations of our Snapdragon.
Coming up it is a significant increase in GPU in artificial intelligence and C. P. O. So content on the processor side has been the biggest driver of higher asp's in and gross margin enhancement.
The other thing we want to continue to pointed out which is.
As we leveraged our one technology roadmap to grow into other business and are in the quarter, 61% girlfriend Iot you know automotive we added 3 billion.
Off to the design win pipeline, that's all accretive to Mars and highly leveraged from the R&D that we do in mobile.
Okay.
Great. Thank you and then if I could follow up on the royalty side.
Nice to see that those numbers are solid in the first half of the year.
Can you help us put that in the context of the overall supply chain issues that your customers are dealing with and does that imply if they have pent up demand could that end up being better than seasonal royalty strength or just how should we correlate that with what we're seeing on the supply side.
Yeah. So so the easiest way to think about the audio business is really aligning it to the total handset market and then mix within that so as you'll recall at Investor Day, We had forecasted 2022 calendar units as flat to calendar 2020 one.
And what what we're seeing play out is slightly lower units at the low tier, but offset by a stronger mix and that's the combination of factors that's impacting both the actuals for QTL and our guidance for the next quarter.
Thank you. Our next question is coming from Chris Caso with Raymond James. Please proceed with your question.
I. Thank you and good evening I just wanted to go back to the the Samsung commentary and in the share gains that you've had there and of course at Samsung. Your competition is an internal a competition. There can you speak to your level of conviction that you know now that you've achieved this.
This new level of share within the Samsung Galaxy series, that's sustainable that you know what what what allows you to keep this business as you go forward with Samsung.
Conversion is very high and I would point you to something that I I would of course.
It will all to observe what's happening in the market in many of those markets that are now new markets to Qualcomm Samsung is actively advertising snapdragon as an ingredient brand twist. The Galaxy S 22, and I think that's a very significant data point.
And and as I said earlier, I think where we're very confident that Samsung relationship is going to continue to be an expanding relationship for us.
Okay.
Great. Thank you and.
And as a follow up I wanted to.
Revisit it.
The notebook market and your intentions on penetrating back with with Qualcomm Silicon. It's something you spoke about quite a bit at the analyst day could you give us an update on that and perhaps when would we be able to hear more on that and start to see some impact on that.
And to the results.
No absolutely thanks for the question.
We we are we are on track we have been working with Microsoft now for many years I think windows 11, as I mentioned before is it for the first time, you'll have full supporting clothing 64 bit Ah you know emulation on arm is the first time that you actually have a platform which.
Is it's ready for commercial and enterprise deployment.
We did it within the quarter launch with Lenovo the first enterprise think bed.
And we have a number of designs with our eight CX generation three.
As we think about the next generation, we have been developing our own CPU. That's been designed by the new V. A team and we are going after deep performance you know tier four you know focus about high scale.
In the enterprise and development is on track and we expect it to have that in the late 2023.
Our next question will come from the line of Blayne Curtis with Barclays. Please proceed with your question Hey, Thanks for taking my.
Question I wanted to ask you. If you look at the first half of the year I think the 50% growth in handsets.
Pretty much all higher revenue per chipset for your filings I mean, just kind of curious as you look at the second half obviously the compares on kind of content get harder just how you're thinking about that mix between unit growth, which I think you know Android units probably went positive this quarter, but were down as you have your starting with supply, but how you think about the second half.
In terms of the kind of a pull there to grow revenue.
Units are your share or more content.
It blend it took gosh so as as I mentioned earlier, we were seeing a growth in content, which is a driver for US. We're also seeing the share that we picked up at Samsung that we've discussed the strength in China.
And the improving supply all of these are combinations that are help us in the second half of the or also to keep in mind that are typically the new Apple phone launch happens in the fall timeframe and that would be a driver as well.
Gotcha, and then maybe just a follow up on the Iot just curious that the mixed tailwind you're seeing there I mean, assuming stuff like Wi Fi six he is helping but any color on the tailwind are you know within the Iot segment.
Yeah, so as a as we reported Iot AR grew total revenue grew by 61% year over year. So of course very happy about that when you kind of unpack it a bit and you look at our enterprise, our consumer and edge networking each of those portions of Iot grew by grade.
Other than 50 per cent individually. So it's it's not something that's concentrated in an area its very broad growth.
As Kristina mentioned in his prepared remarks, as well that the strongest growth came from the enterprise channel, which was which was really good for us I think that's a that's an area that the Sam is effectively unlimited theres a lot of digital transformation that needs to happen and our ability to expand our presence there and participate in it is is a is a tremendous.
Driver for Us long term.
Thank you that concludes today's question and answer session. Mr. Them on do you have anything further to add before adjourning the call.
Yes. Thank you.
Thanks to everyone for joining us on the call today I will also like to take this opportunity to thank the hard working dedicated brilliant Qualcomm employees. Thank all of our partners and I just wanted to say why we love all the questions about handsets and hence it's always going to be a very big part of.
Our business.
I wanted to point you all that the Qualcomm is changing from a communications company for the mobile industry into a really a connected processor company for the intelligent edge, even how we think about Hamzah is no longer about modems and in the quarter were super pleased that Iot.
<unk> alone was $1 7 billion. If you look at the Iot bus out of combined plus our RF business in excess of 3 billion and we're just busy executing on one of the biggest opportunities in our history. Thank you very much.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Yeah.
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Okay.
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