Q1 2023 Qualcomm Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm's first quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Welcome to the Qualcomm first quarter fiscal 2023 earnings conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session. If you'd 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 you'd like to ask a question. During this time press Star then the number one on your telephone keypad.
So Australia a 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.
Please limit your questions to one question and one follow up.
As a reminder, this conference is being recorded February 2nd, 2023. The playback number for today's call is 8776606853. International callers, please dial 2016127415. The playback reservation number is 13735295.
Second 2023.
The playback number for today's call is 8776606853.
International callers, please dial 201.
Six one to 7415.
The playback reservation number is 13735 to 95.
I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.
Mauricio Lopez-Hodoyan: Thank you and good afternoon, everyone. Today's call will include prepared remarks by Christiano Amon and Akash Palkhiwala. 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, 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 President and Chief Executive Officer, Christiano Amon.
Cristiano Renno Amon: Thank you Mauricio and good afternoon everyone. Thanks for joining us today.
In fiscal Q1, despite the ongoing macroeconomic headwinds and short term challenges impacting the semiconductor industry, we delivered revenues of $9.5 billion and non-GAAP earnings of $2.37 per share, including year over year growth in QCT Automotive and Iot.
Automotive and Iot.
QCT revenues of $7.9 billion were down 11% year over year as a result of weaker handset demand and inventory draw down. In the current quarter combined auto and Iot revenues represent 27% of total Q2 revenues reflecting continued progress on revenue diversification.
QTL delivered $1.5 billion in revenues within Q1. As the handset industry continues to experience reduced demand, we are now expecting elevated channel inventory levels to persist at least through the first half of calendar '23. In addition, multiple end industries within Iot are also experiencing weaker than expected demand and elevated inventory levels.
The handset industry continues to experience reduced demand, we are now expecting elevated channel inventory levels to persist at least through the first half of calendar 'twenty three in.
In addition, multiple end industries within Iot are also experiencing weaker than expected demand and elevated inventory levels.
Given the current macroeconomic and demand environment, we're implementing further spending reductions and streamlining operations without losing sight of the significant growth and diversification opportunities ahead. This is consistent with our commitment to actively manage operating expenses as indicated during our last earnings call.
This is consistent with our commitment to actively manage operating expenses as indicated during our last earnings call.
Combined with the actions we have already taken in the quarter, we expect to reduce non-GAAP operating expenses by approximately 5% relative to our run rate exiting fiscal '22.
Despite near term headwinds, our long term growth opportunities remain unchanged.
Our leading technologies such as advanced wireless connectivity, high performance low power compute and on device intelligence are enabling the ongoing trends of digital transformation across industries.
From a product and technology perspective, we believe we are in the strongest position in our history. Our strategy is working and we remain focused on expanding our addressable market to approximately $700 billion in the next decade and firmly establishing Qualcomm as the connected processor company for the intelligent edge. I will now provide key highlights from across our business.
Our strategy is working and we remain focused on expanding our addressable market to approximately $700 billion in the next decade and firmly establishing Qualcomm as <expletive> connected processor company for the intelligent edge I will now provide key highlights from across our business.
In automotive, the industry continues to evolve at an unprecedented rate driven by the adoption of digital technologies. The software defined vehicle is at the core of this transformation, offering automakers a significant opportunity to deliver enhanced connectivity, improves safety and security features, increase levels of autonomy as well as new business models and revenue streams.
improves safety and security features, increase levels of autonomy as well as new business models and revenue streams.
We believe the Snapdragon digital chassis is the industry's preferred purpose built platform to help drive this innovation for the next generation of vehicles.
At CES, we announced Snapdragon ride flex, which enables digital cockpit, advanced driver assistance systems, and automated driving functions to coexist on a single SOC, a first for the automotive industry.
And our automated driving functions to coexist on a single Soc a first for the automotive industry out.
Auto makers and tier ones can now scale a unified central compute and software defined vehicle architecture across their portfolio.
We also demonstrated our expansion into two wheelers with the latest infotainment and car connected digital services to enhance safety and deliver a more personal experience for riders.
Our solutions also enable OEMs and fleet providers to deliver over the air updates, subscription services, remote diagnostics, Geo fencing, tests protection, and more.
We are very proud of the progress we have made in automotive and we believe that we are the best positioned technology partner to help drive this industry into the future.
In handsets, our recently announced Snapdragon eight Gen Two mobile platform begins a new era of AI accelerated experiences for smartphones. The Snapdragon eight Gen Two includes our first ever AI powered camera processor that enables real time semantic segmentation for photos and videos.
Dragon eight Gen. Two includes our first ever. AI powered camera processor that enables real time semantic segmentation for photos and videos.
AI powered camera processor that enables real time semantic segmentation for photos and videos.
A dedicated 5G AI processor that can enhance 5G data speeds, coverage, latency and battery life and an updated general purpose AI engine with a larger tensor accelerator for increased performance.
We are also pleased to enable the world's first satellite base two way capable messaging solution for Android smartphones. Snapdragon satellite will provide global connectivity for messaging, utilizing a readings weather resilient L band spectrum and will initially be available on next generation premium smartphones using Snapdragon eight Gen.Two within the second half of 2023.
On next generation premium smartphones using snapdragon eight gen. Two within the second half of 2023.
Yesterday I was pleased to join Samsung's Unpacked event, where they launched the Galaxy S23 family of smartphones powered by the Snapdragon eight Gen Two mobile platform for Galaxy globally. This premium platform features accelerated performance and unique customizations made possible by our expanded strategic partnership with Samsung. The Galaxy S23 represents the first smartphone announced from this partnership. In Iot, which is poised to become our largest addressable market, our revenue stream spans across three categories: consumer, edge networking, and industrial.
Yesterday I was pleased to join Samsung's Unpacked event, where they launched the Galaxy S23 family of smartphones powered by the Snapdragon eight Gen Two mobile platform for Galaxy globally. This premium platform features accelerated performance and unique customizations made possible by our expanded strategic partnership with Samsung. The Galaxy S23 represents the first smartphone announced from this partnership.
<unk> made possible by our expanded strategic partnership with Samsung The Galaxy S. Twenty-three represents the first smartphone announced from this partnership.
In Iot, which is poised to become our largest addressable market.
In Iot, which is poised to become our largest addressable market, our revenue stream spans across three categories: consumer, edge networking, and industrial.
Revenue stream spans across three categories consumer edge networking and industrial.
In consumer Iot, our next generation PC platform with integrated custom Orion CPUs and upgraded AI engine has simple on time and is exceeding our internal KPIs, delivering disruptive CPU performance per watt across tiers.
Across tiers.
In addition, Snapdragon's AI capabilities, and leading battery life opens unique new possibilities for differentiated user experiences for the modern workforce. Key examples are windows studio effects, including portrait blur, eye framing, and noise cancellation with voice focus.
Focus.
Together with Microsoft, we're broadly engaged with the App ecosystem and are pleased that native applications have been launched for windows on Snapdragon by market, leading ISPs, such as Zoom, Amazon Prime video, VMware carbon black, Cisco Any Connect, and Crowd Strike.
Additionally, as Adobe announced at our Tech summit, its creativity suite of apps, including Adobe Photoshop, Lightroom, Fresco in acrobat will run natively on Snapdragon.
We're now engaged with major PC OEMs with multiple platform design wins across their product roadmaps for consumer and commercial.
In etch networking Iot, our WiFi infrastructure and networking products continue to gain share led by strength in enterprise WiFi access points in carrier gateways.
We see several trends that are favorable to our WiFi solutions. WiFi mesh networking continues to grow in popularity worldwide increasing the number of WiFi chipsets installed per home.
Wifi mesh networking continues to grow in popularity worldwide and increasing the number of Wi Fi chipsets installed per home.
The hybrid work trend appears to have had lasting impacts on enterprise networking with workers relying on real time collaboration tools, regardless of whether they are in the office or remote. Broadband internet service providers are turning increasingly to a modular software development model, creating new opportunities for Qualcomm in next generation home gateways routers, and the transition from WiFi six and 68 to WiFi seven which we're currently leading across home, enterprise, and carrier segments. In 5G fixed wireless access, we're encouraged by the significant momentum in India following the recent 5G auctions. Operators have publicly stated their ambition to provide broadband services to 100 million homes using 5G FWA.
This work will come in next generation home gateways routers and the transition from Wi Fi six and 62 Wi Fi seven which we're currently leading across home enterprise and carrier segments in five G fixed wireless access we're encouraged by the significant momentum in <unk>.
Following the recent five G auctions operators have publicly stated their ambition to provide broadband services to 100 million homes using five G. F. W way.
Qualcomm is well positioned to enable the 5G FWA ecosystem in India with our leading product portfolio on 5G millimeter wave based high power CPEs complemented by small cell and compact macro cell infrastructure modem RF platforms. We're currently working with CPE and infrastructure OEMs on the commercial rollout in India spanning both millimeter wave and sub six spectrum.
Working with CPE and infrastructure Oems on the commercial rollout in India spanning both millimeter wave and sub six spectrum.
In industrial Iot, digital transformation is still in the early phases and the scale of the opportunity for Qualcomm in the long term across many verticals is significant. In the tracking and logistics space, we believe we have established one of the largest ecosystems of manufacturing partners.
<unk> partners.
Last month, we announced a new Iot optimized modem, the QCX 216 for applications such as smart utility meters, trackers, E-mobility, parking meters, home automation and security, and other location based solutions.
The QCX 216 reduces power consumption by up to 80% versus the previous generation solution, while also enabling customers to design modules with an up to 40% lower cost structure.
In retail, our point of sale solutions continue to drive the transition from traditional terminals to full feature Android based terminals. We have shipped over 70 million Snapdragon devices since 2016 into handheld and desktops point of sale terminals worldwide.
Good.
In enterprise video collaboration, we're leading this rapidly growing segment, powering many of the key OEMs such as Poly, Logitech, Neat, Cisco, [inaudible], Eva, and Alibaba. These are just a few examples of our traction within industrial and we remain excited about the growth prospects as digital transformation accelerates.
These are just a few examples of our traction within industrial and we remain excited about the growth prospects as digital transformation accelerates.
In summary, the overall long term growth opportunity for Qualcomm remains unchanged as demand for technology extends to virtually every device at the edge.
Our track record of innovation provides a unique perspective and capability to be at the forefront of the digital transformation across new and diverse end markets.
I would now like to turn the call over to Akash.
Akash Palkhiwala: Thank you Cristiano and good afternoon everyone. And thank you for joining our call during a busy earnings week. I'll start with our first fiscal quarter results.
And thank you for joining our call during a busy earnings week.
I'll start with our first fiscal quarter results.
Consistent with our prior guidance, we delivered revenues of $9.5 billion and non-GAAP EPS of $2.37.
QTL recorded revenues of $1.52 billion and EBT margin of 73%, reflecting slightly lower global handset units.
Reflecting slightly lower global handset units.
QTC revenues were $7.9 billion and EBT margin was at the high end of our guidance range at 28%.
Handset revenues of $5.8 billion reflected the impact of industry-wide headwinds we had previously communicated.
Iot revenues were up 7% year over year to $1.7 billion, mainly driven by growth from our edge networking products.
Automotive continued its momentum with year over year revenue growth of 58% to $456 million, driven by the adoption of our Snapdragon digital chassis.
Driven by the adoption of our Snapdragon digital chassis.
Non-GAAP operating expenses were lower than our guidance decreasing 6% sequentially, which includes the benefit of certain cost actions we outlined last quarter.
Our balance sheet remains strong with $8.2 billion in cash and marketable securities at the end of the first fiscal quarter.
In addition, we expect to receive a majority of the transaction price of $1.5 billion on the completion of the sale of REO [inaudible] active safety business to Magna by SSW partners. We expect the transaction to close by the end of the fiscal year.
We expect the transaction to close by the end of the fiscal year.
We returned $2.1 billion to stockholders, including $1.3 billion in stock repurchases and $842 million in dividends in line with our capital return program.
Lastly, our GAAP EPS results included a 10 cent benefit from the US tax requirement to capitalize and amortize R&D expenses. This benefit is excluded from our non-GAAP results.
From the U S tax requirement to capitalize and amortize R&D expenses.
This benefit is excluded from our non-GAAP results.
Before turning to the second fiscal quarter guidance, I'll provide an update on short term cyclical headwinds facing the semiconductor industry.
The environment continues to be dynamic with challenging macroeconomic conditions and COVID-19 headwinds in China driving industry-wide demand weakness.
Given this uncertainty, we are incorporating a negative bias for 3G, 4G, 5G handset volumes for calendar '23 relative to calendar '22.
The impact of broadening demand weakness across handset and Iot products and the easing of supply constraints has contributed to elevated channel inventory.
Based on our current assessment, we expect QCT customers to continue to draw down on inventory at least through the second and third fiscal quarters.
At this point, we are optimistic that the demand and channel inventory may normalize during the second half of the calendar year and we remain in a strong position to take advantage of the opportunity when it occurs.
While our business is not immune to the macro environment, we're confident in our ability to navigate this landscape. As Cristiano summarized, we have continued to expand our actions to reduce operating expenses beyond the initiatives we've previously outlined.
As Cristiana summarized we have continued to expand our actions to reduce operating expenses beyond the initiatives. We've previously outlined.
While we are reducing spending on handsets on SG&A, we continue to fund our diversification investments in Iot and automotive, which is consistent with our long term strategy for the business.
The initial benefit of these actions is reflected in our fiscal first quarter results and second quarter guidance. Overall, we are targeting a combined 5% reduction in non-GAAP operating expenses relative to our fiscal '22 exit rate.
Overall, we are targeting a combined 5% reduction in non-GAAP operating expenses relative to our fiscal 'twenty two exit rate.
Turning to guidance for the second fiscal quarter, we are forecasting revenues of $8.7 to $9.5 billion and non-GAAP EPS of $2.05 to $2.25.
We are forecasting revenues of $8 seven to $9 5 billion and non-GAAP EPS of $2 five to $2 25.
The midpoint of our guidance includes an assumption of lower end market demand and the continued drawdown of channel inventory.
We are forecasting QTL revenues of $1.25 billion to $1.45 billion and EBT margins of 66% to 70%, reflecting a sequential seasonal decline in handset units.
Reflecting a sequential seasonal decline in handset units.
In QTC, we estimate revenues of $7.4 billion to $8 billion and EBT margins of 25% to 27%.
We expect handsets and automotive revenue to be flat sequentially, offset by a reduction in Iot revenues due to the factors I just outlined.
Offset by a reduction in Iot revenues due to the factors I just outlined.
We estimate non-GAAP operating expenses of approximately $2.25 billion. This reflects the typical calendar year increases for certain employee related costs, offset by the savings from our cost reduction actions.
This reflects the typical calendar year increases for certain employee related costs.
Offset by the savings from our cost reduction actions.
In closing, with the uncertainty of the macro environment, we will remain focused on operating discipline and managing the factors we control. Our diversification strategy is on track as evidenced by our design win pipeline across Iot and automotive customers.
Our diversification strategy is on track as evidenced by our design win pipeline across Iot and automotive customers.
In addition, our long term secular growth opportunity remains unchanged. We are focused on executing on our strategy enabled by our leading technology road map and best in class product portfolio. Thank you and back to you Mauricio.
We are focused on executing on our strategy enabled by our leading technology Road map and best in class product portfolio.
Back to you Mary Sue.
Mauricio Lopez-Hodoyan: Thank you Akash. Operator, we're now ready for questions.
Operator: To queue a question, press star then the number one. To withdraw your question, press star two. If you're using a speakerphone, please pick up your handset before pressing the numbers. One moment please for the first question.
To withdraw your question press Star two.
If you're using a speakerphone please pick up your handset before pressing the numbers.
One moment please for the first question.
The first question is coming from the line of [inaudible] with JP Morgan. Please proceed with your question.
First question is coming from the line of Cemig <unk> with Jpmorgan. Please proceed with your question.
Unknown: Hi, thanks for taking my questions, I have a couple. Maybe for the first one, I hear you on the inventory digestion, but maybe one of the other concerns that investors have had for this year on the handset side is sort of delay if any in terms of launch plans from the Android OEMs about them sort of related to their new handsets or any changes in their pricing strategy and sort of the chips that they intend to then sort of prioritize or sort of at the high end versus maybe the chips that they want to prioritize to achieve those pricing strategies in the market. Maybe if you can give us some color in terms of what are you seeing from the OEMs on that front outside of the inventory digestion. I have a follow up. Thank you.
I hear you on the inventory digestion, but maybe one of the other concerns that investors have had for this year on the handset side is sort of daily if any on in terms of launch plans from the Android Oems about then sort of related to their new handsets or any changes in their pricing strategy and so the chips that they intend to do.
Then sort of prioritize oh sort of at the high end versus maybe the chips that they want to prioritize to achieve those pricing strategies in the market. Maybe if you can give us some color in terms of what are you seeing from the Oems on that front outside. Outside of the inventory digestion I have a follow up thank you.
Outside of the inventory digestion I have a follow up thank you.
Akash Palkhiwala: Sure. [inaudible] it's Akash. Really from a handset launch perspective, especially in the tiers that Qualcomm is very strong at, we're continuing to see our customers launch on time. So we obviously saw the Samsung launch happen yesterday, our Chinese OEMs are also planning to launch their devices on schedule. So no change from our perspective on launch timing in the key tiers for us.
Perspective on.
On launch timing and key deals for us.
Unknown: Okay. Maybe just a final follow up on the Iot side, you mentioned the weakness that you're seeing in that market, but maybe if you can delve into that a bit more, are you seeing sort of more weakness just sort of being higher on consumer Iot or is that more of a worsening across industrial Iot and edge networking as well? And if you can quantify how to think about the opportunity relative to India in 2023. Thank you.
Maybe just a final follow up on the Iot side, you mentioned the weakness that you're seeing in that market, but maybe if you can delve into that a bit more are you seeing sort of more weakness just sort of being hired on consumer Iot or is that more of a worsening across industrial Iot and edge networking as well and if you can quantify what.
How to think about the opportunity relative to India in 2023.
Akash Palkhiwala: Sure. So from an Iot perspective, it's very similar impact to other parts of the industry, it's truly the short term cyclical headwinds that the entire industry is seeing, we're seeing are a factor of that as well and so it's two parts. It's demand weakness and then OEM inventory drawdown, both of those factors similar to handsets. And within our product line, we obviously started seeing impact in consumer Iot that we've talked about previously and we've seen that expand a bit into industrial and edge networking. But as we look at this, we see these as short term factors that are clearly kind of driven by the cyclicality in the industry that's going on, but when you step back and look at our design win pipeline, it still reflects the opportunity in front of us.
It's two parts, it's demand weakness and then OEM inventory drawdown are both of those factors similar to handsets and within within our product line. We're seeing we obviously started seeing impact in consumer Iot that we've talked about previously and we've seen that expand a bit into industrial and edge networking.
But as we look at this these we see these as short term factors that are clearly kind of driven by the cyclicality in the industry, that's going on but when you step back and look at our design win pipeline. It still reflects the opportunity in front of us.
Cristiano Renno Amon: Hi, this is Cristiano. [inaudible] just to add one thing, you asked about India. As we said in our prepared remarks, we're excited about that opportunity. It's probably likely is going to be one of the largest opportunity for 5G fixed wireless access. And as we mentioned, the opportunity it will be across all of the operators to connect in the order of 100 million homes so that could be very significant. What we like about it is that millimeter wave has been utilized as well for fixed wireless access, so that's a great opportunity for us. Thank you.
So Mike just to add one thing you asked about India, Yes, we as we said in our prepared remarks, we're excited about that opportunity. It's a it's probably likely is going to be one of the largest opportunity for five G. S.
Fixed wireless access.
And as we mentioned you know the opportunity it will be across all of the operators to connect in the order of 100 million homes. So there could be very significant what we like about it is that millimeter wave has been utilized as well for fixed wireless access. So that's a great opportunity for us. Thank you.
Operator: Our next question is from Matt Ramsey with Cowen. Please proceed with your question.
Matthew D. Ramsay: Thank you very much. Good afternoon guys. Akash, I wanted to ask a couple of questions about margins. You talked pretty explicitly about Opex, but we're seeing no surprise, maybe with the dynamics and the macro and the inventory correction that the QTC operating margins have come down some and maybe you could just walk us through the puts and takes on margins from here as it marches to the bottom end and how should we model sort of gross margin in QCT as we go forward given the mix of the segments might be a bit different during this inventory correction.
Our Kashi I wanted to ask a little bit of a question a couple of questions about margins.
Talk pretty explicitly about.
Opex, but we're seeing.
And no surprise, maybe with the dynamics and the macro and the inventory correction that <unk> operating margins have come down some and maybe you could just.
Walk us through the puts and takes on margins from here. It is March the bottom end and how should we model sort of gross margin in Q C. T. As we go forward given the mix of the segments might be a bit different during this inventory correction.
Akash Palkhiwala: Sure, Matt. So let me address it in two parts. First from a gross margin perspective, we did slightly better than our expectations and the results that we announced for the first fiscal quarter and then we're guiding similar margins into the second quarter. So from a gross margin perspective, we are holding well and even in the challenging environment we're in we're doing a relatively good job.
From a gross margin perspective.
We are holding well and even in the challenging environment. We're in.
We're doing a relatively good job.
As we've said in the past, we always expected that once we get through supply constraints there'll be some gross margin pressure and that was factored into our long term target. So it's really nothing nothing new that we haven't told you before on the gross margin side.
On operating leverage which is really the second driver here is the impact that we're seeing from the inventory drawdown reduces the operating leverage in the business temporarily in the short term and so you're seeing the operating margins being impacted by that. But kind of once you step back and abstract out of that change, you should see the operating margin more in line with our expectations.
Operating leverage which is really the second driver here is the impact that we're seeing from the inventory drawdown.
It reduces the operating leverage in the business temporarily in the short term and so youre seeing the operating margin is being impacted by that but kind of once you step back and abstract out of that change.
You should see the operating margin more in line with our expectations.
Operator: The next question is from Mike Walkley with Canaccord Genuity. Please proceed with your question.
Mike Walkley: Great, thanks. Cristiano, what Qualcomm has done really well in premium tier Android with supply easing, what's the appetite to maybe go down tier into the mid to high tier Android? And if so will it be timeline to maybe take share if you are interested in that market?
Cristiana, what Qualcomm has done really well in premium tier Android.
With supply easing whats the appetite to maybe go down to down to you into the mid to high tier Android.
And if so will it be timeline to maybe take share. If you are interested in that market.
Cristiano Renno Amon: Thank you Mike for your question. Actually it's a great question. What we have seen in this current demand environment as well as the inventory draw down, the premium tier had done a little bit better than what the mass tier has been impacted I think consistent with our expectations. I think you saw that in some of our customers' earnings calls as well. However, we expect that as you get to the second half of the calendar year, we hope that the inventory drawdown situation improves as well as China reopens, and we will see an opportunity for the mid and the low tier to come back in. Our design traction is good in those tiers with the OEMs and we'll see what happens. So we're not factoring that better second half yet in our planning assumptions so I think we're waiting, but I think there's optimism just because of the inventory drawdown as well as China reopening.
The demand environment as well as the inventory draw them accurately.
The premium tier had done a little bit better.
Then what the message here is been impacted I think consistent with our expectations. I think you saw that in some of our customers' earnings calls as well however.
We expect that as you get to the second half of the calendar year.
we hope that the inventory drawdown situation improves as well as China reopens, and we will see an opportunity for the mid and the low tier to come back in. Our design traction is good in those tiers with the OEMs and we'll see what happens. So we're not factoring that better second half yet in our planning assumptions so I think we're waiting, but I think there's optimism just because of the inventory drawdown as well as China reopening.
And the low tier to come back and our design traction is good in those tiers with the Oems and we'll see what happens. So we're not we're not factoring that better second half yet in our planning assumptions I think we're waiting but I think there's optimism just because of the inventory drawdown as well as China reopening.
Operator: Our next question is from Stacy Rasgon with Bernstein Research. Please proceed with your question.
Stacy Aaron Rasgon: Hi, guys. Thanks for taking my questions, I have two. The first one, Akash you're talking about the inventory correction for March as well as in June. You're guiding handsets kind of flattish in March. I was wondering if there's any sort of like preliminary color you could give us on the June quarter trajectory. Like do you guys think March quarter in general is the bottom? And then I have a follow up.
Yeah.
I have a I have two the first one of course youre talking about the inventory correction I mean, mark as well as in June you're guiding handsets kind of flattish in March I was wondering if theres any sort of like preliminary color you could give us on the June quarter trajectory like do you guys think March quarter in general is the bottom and then.
I have a follow up.
Akash Palkhiwala: Yes, so the way Stacy we are thinking about how things play out is the short term headwinds cyclical headwinds that we're seeing, that uncertainty remains and we're seeing that in handsets and Iot, so both from a demand perspective and inventory drawdown. So we expect our QTC customers to be cautious and until there is more visibility they're going to be careful with additional purchases in drawdown inventory. So that's what's factored in our updated guidance. When we look at the second half of the year, as Cristiano said, we're pretty optimistic that demand and channel inventory normalizes. And that allows us to take advantage of the growth from that point on given our strong position when the dynamic occurs. In terms of bottom, the way I think about it is we're going to see impact for the March and June quarters, and I think there's an opportunity from that point on as we grow in the second half of the year.
That uncertainty remains and we're seeing that in handsets and Iot. So both from a demand perspective, an inventory drawdown. So we expect our customers to be cautious and until there is more visibility they're going to be careful with additional purchases in drawdown in inventory. So that's that's what's factored in our updated guide.
<unk>.
When we look at the second half of the year. That's Casciano said, we're pretty optimistic that demand and channel inventory normalizes.
And that allows us to.
Take advantage of the growth from that point on given our strong position when the dynamic of course.
In terms of bottomed the way I'd think about it is we're going to see impact for the for the margin June quarters, and I think theres an opportunity from that point on AR as we grow in the second half of the year.
Stacy Aaron Rasgon: Got it, thanks. If I could ask a quick follow up. You talked about you had a $344 million tailwind from a higher average selling price year over year in the quarter and that was for the overall chip segment, but you used to give that number strictly for handsets, can you give us some feeling for how pricing has been trending in the handset business relative to that overall benefit you've seen in QTC?
In your Q, you talked about you had a $344 million tailwind from a higher average selling price year over year in the quarter and that was for the overall chip segment, but you used to give that number strictly for handsets can you give us some feeling for how pricing has been trending in the handset business relative to that.
Overall benefit you've seen QC team.
Akash Palkhiwala: Yeah, so if you think about pricing in the handset business, it's usually a function of two things. First is, within a given tier more capability is being added to the device, especially on the application processor side and so you've seen us benefit significantly from that over the last three years. And as we look forward, we are continuing to see demand for additional functionality. So that's kind of a tier for tier improvement opportunity for us and for the overall industry. And then the second factor is mix within tiers and that of course changes across quarters, and so that goes up and down based on what sells through in that quarter, and which customer it is but that's more timing versus kind of a fundamental trend of revenue growth.
So that's a that's kind of a tier four tier improvement opportunity for us and for the overall industry and then the second factor is mix within tiers and that of course changes across quarters, and so that goes up and down based on what sells through in that quarter, and which customer it is but that's that's more timing.
Versus kind of a fundamental trend of revenue growth.
Operator: Our next question is from Ross Seymore with Deutsche Bank. Please proceed with your questions.
Ross Clark Seymore: Hi, guys. Thanks for letting me ask a question. I wanted to focus on the handset guidance for the next quarter fiscal 2Q being flat sequentially. Can you just talk about the puts and takes that are getting you to flat? And Akash, last quarter you gave a framework about I think $2 billion of inventory burn headwind, I just wonder if you were indeed successful in getting halfway through that or is the issue now pervasive because just demand has dropped so just the puts and takes on that would be helpful.
in getting halfway through that or is the issue now pervasive because just demand has dropped so just the puts and takes on that would be helpful.
Akash Palkhiwala: Yeah, Ross, so from a handset perspective, what we've assumed in the March quarter is a standard seasonal decline, and I said this in my prepared remarks from December into March. So it's what you'd expect seasonally happens once you go between the quarters and so that's what we've assumed and that informs our QTL cash for the quarter as well. But you guided flat sequentially, so I'm just trying to--From December to March are you saying it would be down except for now it is going to be flat because you're burning less inventory? Okay, so I understand the confusion. So the
Akash Palkhiwala: Yeah, Ross, so from a handset perspective, what we've assumed in the March quarter is a standard seasonal decline, and I said this in my prepared remarks from December into March. So it's what you'd expect seasonally happens once you go between the quarters and so that's what we've assumed and that informs our QTL cash for the quarter as well. But you guided flat sequentially, so I'm just trying to--From December to March are you saying it would be down except for now it is going to be flat because you're burning less inventory?
Akash Palkhiwala: Yeah, Ross, so from a handset perspective, what we've assumed in the March quarter is a standard seasonal decline, and I said this in my prepared remarks from December into March. So it's what you'd expect seasonally happens once you go between the quarters and so that's what we've assumed and that informs our QTL cash for the quarter as well.
Cash for the quarter as well.
Ross Clark Seymore: But you guided flat sequentially, so I'm just trying to--From December to March are you saying it would be down except for now it is going to be flat because you're burning less inventory?
Yeah.
But you guided flat sequentially. So I'm just trying to from December to March are you, saying it would be down except for now it is going to be flat, because you're burning less inventory. Okay. So I understand the confusion so the.
Akash Palkhiwala: Okay, so I understand the confusion. So what I talked about was the total handset market, which we are expecting to be down quarter over quarter consistent with seasonal trends. What we said was flat was QCT handset revenue, we expect to be flat and of course that's a function of mix of chips and also inventory drawdown differences.
what I talked about was the total handset market, which we are expecting to be down quarter over quarter consistent with seasonal trends. What we said was flat was QCT handset revenue, we expect to be flat and of course that's a function of mix of chips and also inventory drawdown differences.
Operator: The next question comes from Joe Moore with Morgan Stanley . Please proceed with your questions.
Joseph Lawrence Moore: Great, thank you. Going back to how much inventory you are reducing in handsets, what's your visibility into that? I mean, are there certain customers where they sort of didn't take anything in December and so you know that they're coming back? Can you give us a sense of are you sure this is all inventory reduction and not end demand?
Going back to how much inventory you are reducing in handsets, but what's your visibility into that and I mean are you.
Are there certain customers, where they sort of didn't take anything in December and so you know that they're coming back just can you give us a sense of are you sure. This is all inventory reduction and not end demand.
Akash Palkhiwala: Yeah, Joe we have a sense of kind of what sell through the OEMs had because of our QTL business and then we have the ability to compare that with what is happening in QTC so we do have a pretty good sense of what is happening in the industry and we're confident that a large portion of it was inventory drawdown.
Inventory drawdown.
Joseph Lawrence Moore: Okay, great. And then specific to the China region, I think you mentioned some new launches in the March quarter, but it sounds like the situation there is pretty challenging in terms of visibility. Is China different than the rest of the world for you right now?
It sounds like the situation there is pretty challenging in terms of visibility.
China different than the rest of the world for you right now.
Akash Palkhiwala: The uncertainty in China definitely reflects in our customer support and that's what we talked about that we expect until there is more visibility we expect customers to be careful with additional purchases in drawdown on inventory, but in terms of handset launches, we are still seeing the OEMs being extremely active and planning and set launches on the regular cadence and driving functionality within the market.
The uncertainty in China definitely reflects in our customer support users and that's what we talked about that we expect until there is more visibility we expect customers to be careful with additional purchases in drawdown on inventory, but in terms of handset launches we are still seeing the Oems being <unk>.
The active and planning and set launches on the regular cadence in and driving functionality within the market.
Cristiano Renno Amon: This is Cristiano, let me just add one thing. If you look at the China handset market, the majority of sales, even though they have a big online component, the majority of sales is offline market. So as we have seen with the lockdowns and the COVID situation there was a big impact in the handset market in China. Common sense, that's how some of our OEMs are also thinking is as the COVID-19 gets behind China, you should expect the markets to open up. And where we have visibility right now is a lot of the new device launches preparing for that and some of it which is going to be announced at Mobile World Congress. It's too early to draw a conclusion so it's go back to that conversation that there is optimism that second half could be better.
And indeed in the handset market in China.
Common sense you know what.
That's how some of our Oems are also thinking is S. S. The COVID-19 gets behind China, you should expect the markets to open up and what we have visibility right. Now is a lot of the new device launches preparing for that and some of it which is going to be announced at mobile World Congress.
It's too early to draw a conclusion. So it's go back to that conversation that there is optimism that second half could be better.
Operator: Our next question is from Blayne Curtis with Barclays. Please proceed with your questions.
Blayne Peter Curtis: Thanks for taking my question. I guess kind of a combination of [inaudible], I'm curious, inventories are up on your balance sheet Akash, just kind of curious whether you need to work those down as well. And then I guess for Cristiano, just going back to a prior question on the mid range, I am curious about the pricing environment. I mean, Mediatek is having a tough first half as well, can you just comment on what that environment is and then you kind of just thoughts in general about pricing and moving for share within the modem business. And you did a good job navigating at the high end during the shortages, but just kind of curious favoring profitability versus share what are your thoughts? Thanks.
I'm curious.
Inventories are up on your balance sheet at cost just kind of curious whether you need to work those down as well and then I guess for Christiane I was just going back to a prior question on the mid range I am curious about the pricing environment. I mean, mediatek is having a tough first half as well can you just comment on what that environment is and then you kind of just thoughts in general.
About pricing and moving for sure within the modem business.
And you did a good job navigating at the high end during the shortages, but just kind of curious.
Favoring profitability versus share what are your thoughts thanks.
Akash Palkhiwala: Sure Blayne, it's Akash, I'll take the first one and I think Cristiano will take the second one. From an inventory perspective on our balance sheet, you're seeing something similar to what you're seeing on our peers and customers as well, the same set of drivers. As you know well for leading edge nodes, which is where we operate the lead time is five to six months now for the foundry and chip production. And so we were clearly starting wafers based on a different market expectation and before the inventory drawdown. So we've calibrated that down, we're working with our suppliers, and over time, we'll get to a reasonable place.
From an inventory perspective on our balance sheet, you're seeing something similar to what youre seeing on our peers and customers as well the same set of drivers.
As you know well for leading edge nodes, which is where we operate the lead time is five to six months now for the foundry and chip production and so we were clearly starting wafers betas, Don a different market expectation and before the inventory drawdown. So we've calibrated that down we're working with our suppliers.
And over time, we'll get to a reasonable place.
It is important to also remember that when you look at three years ago versus today, we've grown tremendously in terms of revenue and scale across our businesses, and then also supply has caught up with demand. So those two factors would naturally increase inventory anyways, but the remaining we'll be working through as I mentioned.
When you look at three years ago, where it is today, we've grown tremendously in terms of revenue and scale across our businesses. And then also supply has caught up with demand. So those two factors would naturally increase inventory anyways, but the remaining will be working through as I mentioned.
And then also supply has caught up with demand. So those two factors would naturally increase inventory anyways, but the remaining will be working through as I mentioned.
Cristiano Renno Amon: Hi Blayne, Cristiano, I'm going to take your second question. Look, as is probably clear, both us and the other chip supplier in the handset market dealing with the same challenges which is demand weakness and inventory draw down. In the areas that we have more competition, which is mid to low tier, we also saw that's the one that is most impacted by the demand weakness. So as we think about the market opening up, our view is we're very well positioned from a competitive perspective. We have visibility into the design pipeline and we will remain disciplined on pricing, which is consistent with how we have behaved over the past few years.
Both us and the other chip supplier in a handset market dealing with the same challenges which is demand weakness.
And in the inventory draw down.
We in the areas that we have more competition, which is mid to low tier. We also saw that's the one that is most impacted by the demand weakness.
So.
As we think about the market and open up our view is we're very well positioned from a competitive perspective, we have visibility into the design pipeline and we will remain disciplined on pricing, which is consistent with how we have behaved.
Over the past few years.
Blayne Peter Curtis: Thank you.
Operator: The next question comes from the line of Brett Simpson with Arete Research. Please proceed with your questions.
The next question comes from the line of Brett Simpson with Arete Research. Please proceed with your questions.
Brett William Simpson: Yeah, thanks very much. I wanted to ask about fixed wireless access and I think you talked about in the prepared remarks that you saw a big opportunity in India playing out over the next couple of years with fixed wireless access, but can you maybe just talk a bit about the ASPs that Qualcomm gets from a typical device in fixed wireless access and how do you see the business evolving in the next couple of years as you start to attack that Indian opportunity and you could see some of the success you've had in the US so far here and maybe other markets. Just maybe help us understand how this really plays out for Qualcomm. Thank you.
I think you talked about in the prepared remarks that you saw a big opportunity in India, playing out over the next couple of years with them.
With fixed wireless access, but can you maybe just talk a bit about the asp's that Qualcomm gas from a typical device and fixed wireless access.
How do you see the business evolving.
Next couple of years as you start to attack that India opportunity and you could see some of the success you've had in the U S. So far here and maybe other markets just maybe help us understand how this really plays that far for Qualcomm. Thank you.
Cristiano Renno Amon: Thank you for your question. So I will start by saying that we really like that market and we think that market is a long term market. I think it's clear to see now that home broadband for the first time, you'll have a wireless solution that can augment fiber and it's really about fiber and 5G, you don't find cable everywhere outside the United States. So we think that's an opportunity for both developed and developing economies. And of course, if you look at the size of India that's why we're very excited about it. We saw the auctions, the investments are being put into place by the operators and infrastructure. When we sell into that market, I think while I can't really talk about ASP, I'd tell you it's accretive in margins to our handset business, especially because we have a lot of content. In many cases, we also have the ability to do WiFi access point in addition to the 5G modem and we are very well positioned with millimeter wave technology.
Thank you for your question.
So I will I'll start by saying.
That will really like that market and we think that market is a long term market I think the it's.
It's clear to see now that.
Home broadband for the first time, you'll have a wireless solution that can augment our fiber and it's really about fiber and <unk> you don't find a.
Cable everywhere outside.
The United States. So we think that's an opportunity for both developed and developing economies and of course, if you look at the size of India. That's why we're very excited about it we saw the auctions the investments are being put into place by the operators and infrastructure.
When we sell into that market I think while I. Can't really talk about the ESP I'd tell you it's accretive in margins to our handset business, especially because we have a lot of content in many cases, we also have the ability to do on Wi Fi access point. In addition of the <unk> modem and we are very well positioned with millimeter wave technology.
Can't really talk about the ESP I'd tell you it's accretive in margins to our handset business, especially because we have a lot of content in many cases, we also have the ability to do on Wi Fi access point. In addition of the <unk> modem and we are very well positioned with millimeter wave technology.
Brett William Simpson: Okay. Sorry Cristiano, did you say you book that in mobile systems or is it an Iot business?
And Iot business.
Cristiano Renno Amon: It's within the Iot revenue stream.
Brett William Simpson: Okay, fantastic.
Cristiano Renno Amon: Yeah, what I mentioned is compared to our handset business, the ASPs that we have for fixed wireless is really accretive to margins, that's what I meant, but it's in the Iot business. Thank you.
Speeds that we have for fixed wireless is really accretive to margins.
That's what I think all of that but it's in the Iot business. Thank you.
Brett William Simpson: Okay, and maybe just a follow up. I wanted to ask about the recent US restrictions on Huawei. Are you seeing any impact from this at all? And it looks like Huawei has been shifting quite a little 4G devices recently. Have you been shifting components to Huawei and if so, can you just help with the impact of the latest restrictions on the business? Thank you.
The recent U S restrictions on Huawei.
Are you are you seeing any impacting this at all and then it looks like while we've been shifting quite a little foggy.
Devices.
Recently.
Have you been shifting components to Huawei and if so can you just help with the impact of the.
Latest restrictions on the business. Thank you.
Alex Rogers: So this is Alex, I'll start and then maybe Akash can fill in if he has anything further. I don't think its fair to characterize it as the latest restrictions on Huawei. What we've seen are news reports to the effect that commerce is considering not issuing new licenses to Huawei. And we haven't heard anything from commerce itself. Qualcomm has a set of licenses that we've had for a while that basically allow us to ship 4G and other chipsets including Wi Fi to Huawei. Those licenses were issued because Congress reached the determination that they don't affect national security issues. Those will continue for some number of years, and so within the scope of those licenses, we don't see an impact. Akash, anything else?
Anything further.
I don't think its fair to characterize it as the latest restrictions on Huawei, what we've seen our news reports.
To the effect that.
E Commerce is considering not issuing new licenses to Huawei.
And we haven't heard anything from Commerce itself Qualcomm has a set of licenses that we've had for a while that basically allow us to ship <unk>.
The chipsets, including Wi Fi to Huawei those.
Those licenses were issued because Congress reached the determination that they don't affect national security issues. Those will continue for some number of years and so within the scope of those licenses, we don't see an impact of caution or anything else.
Akash Palkhiwala: Nothing to add. Thank you.
Operator: The next question is from the line of Tal Liani with Bank of America. Please proceed with your question.
Tal Liani: Hi, guys. Two questions--Inventory days doubled and it has been going up every quarter in the last four quarters, five quarters, can you talk about the inventory days and what is it composed of if there is any anything special we need to discuss just because of the high value?
Two questions.
Inventory days doubled and it has been going up every quarter in the last four quarters five quarters can you talk about the inventory days.
And what is it composed off if there is any any anything special we need to discuss just because of the high value.
And second, more qualitatively, I want to understand what is the lag or what should be the lag on sales in China from inventory levels versus demand recovery as China reopens? Meaning from the time that China reopens and there is demand for handset, how should we think about the lag from that to being translated into demand from you?
What is the lag or what should be the lag on sales in China.
From inventory levels versus demand recovery.
As China reopened.
Meaning from the time to China Reopens and there is demand for handset how should we think about the the lag from that to being translated into demand from you.
Akash Palkhiwala: So Tal, it's Akash. From our perspective, the way, we think about our inventory and it's really not necessarily inventory. It's really wafer starts what we would like to do is given the lead time of five to six months. <unk> dot wafers five to six months in advance plus some. Room on top for mix changes that might happen during the period. So that's the framework under which we operate. You're right that our current inventory balances are higher than where we'd like it to be and earlier in the call I went through the rationale as to how we ended up there. So we're working with our suppliers and we will kind of normalize it overtime and we feel confident we can do that.
From from our perspective, the way, we think about our inventory and it's really not necessarily inventory. It's really wafer starts what we would like to do is given the lead time of five to six months.
<unk> dot wafers five to six months in advance plus some.
Room on top for mix changes that might happen during the period. So that's the framework under which we operate.
You're right that our current inventory balances are higher than where we'd like it to be and earlier in the call I went through the rationale as to how we ended up there. So we're working with our suppliers and we will kind of normalize it overtime and we feel confident we can do that.
So we're working with our suppliers and we will kind of normalize it overtime and we feel confident we can do that.
On your second question on the lag, I think that's already embedded in the way we provided our view into the future which is as we expect inventory drawdowns to happen through the March quarter then going into the June quarter, but as we go into the second half of the calendar year, as demand comes back and normalizes we have the ability to benefit from it.
That's already embedded in the way, we provided our view into the future which is.
As we expect inventory drawdowns to happen through the March quarter, then going into the June quarter, but as we go into the second half of the calendar year as demand comes back and normalize as we have the ability to benefit from it.
Tal Liani: Got it. Last question--I'm getting repeated question on your licensing part. I saw today what you said about Nokia and Ericsson, can you discuss licensing portion in terms of any forthcoming discussions, negotiations, or anything that we need to be aware of or is it as stable as it was the previous year?
Last question I'm getting a repeat question on your licensing part I saw today. The what you said about Nokia and Ericsson can you discuss licensing portion in terms of. Discussions negotiations or anything that we need to be aware of or is it as stable as it was the previous year.
Last question I'm getting a repeat question on your licensing part I saw today.
The what you said about Nokia and Ericsson can you discuss licensing portion in terms of. Discussions negotiations or anything that we need to be aware of or is it as stable as it was the previous year.
Any forthcoming.
Discussions negotiations or anything that we need to be aware of or is it as stable as it was the previous year.
Alex Rogers: So this is Alex. It really is just as stable as we've described previously. All of the major OEMs are signed up long term. No other new renewals are coming up until fiscal year '25. The Nokia license basically split into a couple of parts infrastructure to Nokia, handset to Microsoft. Those licenses as they evolved were no longer material to the QTL business, so that's pretty much where things stand.
It really is just stable as we've described previously all of the major Oems are signed up long term.
No other new renewals are coming up until fiscal year 'twenty five.
The Nokia license basically split into a couple of parts infrastructure to Nokia handset to Microsoft.
Those licenses as they evolved.
No longer material to the QTL business, so that's pretty much where things stand.
Tal Liani: Got it, thank you.
Operator: Our next question comes from C.J Muse with Evercore ISI. Please proceed with your questions.
C. J. Muse: Thank you for taking the question. Two if I may. The first one, if you look back three months ago, you talked about kind of a two quarter correction, now it's at least three. So just curious to level set kind of how things have transpired over the last three months. How much of the change statement here is just end demand declining versus your customers working down Qualcomm's semiconductor inventory? And then the second question, you kind of spoke to it earlier around building inventory and we'd love to hear your thoughts around kind of wafer start volume commitments, how to think about the impact to QTC margins in calendar '23 and is there any risk of a onetime catch up payment on reduced volumes? Thanks so much.
If you look back three months ago, you talked about kind of a two quarter correction.
We screen. So just curious to level set kind of how things have transpired over the last three months how much of the change statement here is just and demand declining versus.
Your customers working down.
Welcome to semiconductor inventory and then the second question. You kind of spoke to it earlier around building inventory and we'd love to hear your thoughts around kind of wafers. Wafer start volume commitments, how to think about the impact to <unk> margins in calendar 'twenty three and is there any risk of a onetime catch up payment on reduced volumes. Thanks, so much.
You kind of spoke to it earlier around building inventory and we'd love to hear your thoughts around kind of wafers. Wafer start volume commitments, how to think about the impact to <unk> margins in calendar 'twenty three and is there any risk of a onetime catch up payment on reduced volumes. Thanks, so much.
Wafer start volume commitments, how to think about the impact to <unk> margins in calendar 'twenty three and is there any risk of a onetime catch up payment on reduced volumes. Thanks, so much.
Akash Palkhiwala: So on your first question C.J, from an inventory perspective, there are a couple of drivers to it. So first is the weaker market, second is inventory drawdown and both are significant factors. And then the third I would say is we've also seen Iot having the same some of the characteristics and so you're seeing a combination of those factors impacting the time period for which the drawdown last. Again, as we look at it, this is a shorter term thing that when you step back it the drawdown doesn't necessarily impact the strength of the business and so as the recovery happens, we'll be in a position to benefit from it.
There are a couple a couple of drivers to it. So first is the weaker market second is inventory drawdown and both are both are significant factors and then the third I would say is we've also seen Iot having the same same some of the characteristics and so youre seeing a combination of those factors.
Impacting the time period for which the drawdown last again is as we look at it. This is a shorter term thing that when you step back it doesn't necessarily the drawdown doesn't impact the strength of the business and so.
As the recovery happens, we'll be in a position to benefit from it.
C. J. Muse: Can you repeat your second question? I'm not sure I understood it well. Yeah sure. As it relates to your wafer commitments, particularly with [inaudible] if they're taking down the volume purchases any risks to pricing and to catch up payments?
They're taking down the volume purchases.
Any risks to pricing and to catch up payments.
Akash Palkhiwala: Yeah, so a lot of our commitments were more in the form of prepayments rather than volume commitments. So that just means you get the prepayment back over a longer period of time but we're navigating through those and nothing to report at this point.
We're navigating through those and nothing to report at this point.
Operator: That concludes today's question and answer session. Mr. Amon, do you have anything further to add before adjourning the call?
Cristiano Renno Amon: Yes, thank you. Maybe just to summarize I think how we see the earnings call. I think beyond 2023 for Qualcomm, we see many of our growth initiatives increasing scale, including Alto, PCs, XR and 5G [inaudible] we talk about it in industrial. When we look at the current environment, we remain very confident in our ability to navigate the economic downturn in the short term challenges given our strong balance sheet and consistent history of strong free cash flow generation.
Maybe just a summary.
To summarize I think how we see the earnings call I think.
Beyond 2023 for Qualcomm, we see many of our growth initiatives, increasing scale, including Alto Pcs.
<unk> XR and <unk>, who would talk about it in industrial.
When we look at the current environment, we remain very confident in our ability to navigate the economic downturn in the short term challenges given our strong balance sheet and consistent history of strong free cash flow generation.
As you can see, we're taking action where we can control and we believe we will emerge even stronger as we continue to execute on our strategy. We're focused on Qualcomm's long term success and we will work diligently to continue to drive growth, especially Auto and Iot, diversify the company, and deliver value for stockholders. I would like to thank all the employees for the dedication contributions to Qualcomm as well as our many partners and suppliers, and thank you all for attending the call, I know it was a popular earnings day today. Thank you.
We will work diligently to continue to drive growth, especially auto and Iot diversify the company and deliver value for stockholders would like to thank all the employees for the dedication contributions to Qualcomm as well as our many partners and suppliers and thank you all for attending the call and I know it was a popular earnings day today. Thank you.
Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.