Q3 2023 Qualcomm Inc Earnings Call

Ladies and gentlemen, thank you for standing by.

Welcome to the Qualcomm third quarter fiscal 2023 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 throw your question Press Star then the number two.

If you're using a speakerphone please pick up your handset before pressing the numbers.

Please limit your questions to one question and one follow up.

As a reminder, this conference is being recorded August 2nd 2023.

The playback number for today's call is 8776606853.

International callers, please dial 201.

Six one to 7415.

The playback reservation number is 137.

397 to nine.

I would now like to turn the call over to Mauricio Lopez, <unk>, Vice President of Investor Relations.

So if a person Diane please go ahead.

Speaker 1: Thank you and good afternoon everyone. Today's call will include prepared remorks by chrisistanaone and a cast PA AR. In addition, Alice Rogers will turnn the question-and-answer session.

Thank you and good afternoon, everyone. Today's call will include prepared remarks by Christiane them on and of course Pago wallet. In addition, Alex Rogers will join the question and answer session.

Speaker 1: You can AC the earnings release and slide presentation that accompanying this call on an Investor ation website. In addition, this call is being rebcast on the qucallcom com and a retail will be available on our website laterayer today.

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

Speaker 1: During the call today. We will use non-GAAP financial measures as defining regulations usees, and you can find the right 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.

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.

Speaker 1: Please refer to our SEC planans, include our most recent 10 -k, which contain important factors that could cause actual results to differ materureally from the forward-looking statements.

These 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.

Speaker 1: Thank you maurif, and good afternoon everyone. Thanks for joining us today. In our fiscal Q3, we delivered results consistent with our guidance, with non-GAAP earnings of $1 and 87 cents per share ofabove the midpoint of our guidance.

Thank you Mauricio and good afternoon, everyone. Thanks for joining us today in our fiscal Q3, we delivered results consistent with our guidance with non-GAAP earnings of one dollar and 87 cents per share above the midpoint of our guidance.

Speaker 1: We recorded fiscal Q3 non-GAAP revenues of $8.4 billion, including $7.2 billion from our chipstest business in $1.2 billion from our risicensing business.

We reported fiscal Q3, non-GAAP revenues of $8 $4 billion, including $7.2 billion from our chipset business in $1.2 billion from our licensing business.

Speaker 1: This quarter also marked our revenced straight quarter of year-over-year double-digit percentage growth in qity automotive revenuue.

This quarter also marked our 11th straight quarter of year over ear double digit percentage growth in Q City automotive revenues. We are pleased with our technology product and design win execution positioning us well for continued leadership in handsets in <unk>.

Speaker 1: We are pleased with our technology, product and design win execution, positioning us well for continued leadership enhancers in future growth and diversification in automotive and IoT.

Future growth and diversification in automotive and Iot.

I will now share some highlights from across the business.

Our Snapdragon H series mobile platforms continue to set the benchmark for premium tier mobile experiences smartphones powered by our Snapdragon eight gen. Two represent the top devices. According to until two benchmarks and enjoyed out already.

Speaker 1: Smartphones forward by our Snapdragon eight ginto, represent the top devicis according to on Q2 benchmarks and enjoyed authority.

We're also pleased that the snapdragon eight gen. Two for Galaxy will again powered samsung's newest flagship device lineup globally. The Galaxy Z flip five Galaxy Z fold five and the Galaxy tab S nine series.

Speaker 1: Our fastest, best Dragon ever for standfg defines a new standard and smartphone computing capabilities. Ai experiences desk top level gaming features, professional grade photography, enhance mobile productivity and more.

Our fastest snapdragon ever for Samsung defines a new standard in smartphone computing capabilities AI experiences desktop level gaming features professional grade photography enhanced mobile productivity and more.

Speaker 1: This launch underscores qualum and Samsung's neutal commitment to delivering premium consumer experiences for flagship Galaxy devices.

This lounge underscores Qualcomm in samsung's mutual commitment to delivering premium consumer experiences for flagship Galaxy devices. We are extremely proud of our successful partnership with Samsung mobile.

We are also pleased to extend snapdragon experiences to mass market <unk> smartphones.

Speaker 1: We are also pleased to extend snaptagon experiences to mass market five G smartphonesthe redesign snaptag and for into mobile platform willbring premium experiences at reduced prices to help drive four G to five G migration, especially in new five G deployments worldwidewe're looking forward to the right announcements in the second half of 2020. -three.

Quest Street is the first virtual in mixed reality headset he'll be power by a next generation Snapdragon XR platform developed in collaboration with meta. The quest three features two times the graphical performance higher resolution and a slimmer more comfortable form factor than the quest.

Two.

Speaker 1: We're also helping to drive the growing ecosystem of DR and MR developers in chinaop recently announced their opal MR glass developer edition powered by ssmnap Dragon xstar two plus.

We're also helping to drive the growing ecosystem of V R and and more developers in China, Opal recently announced their opal M or glass developer edition power by Snapdragon XR two plus.

In in computer our next generation P. C platform was integrated custom Orion Cpu's in a significantly upgraded AI engine remains on track for commercial readiness, we look forward to sharing more information at our Snapdragons summit in October.

In networking Iot, we continue to gain momentum with Wifi seven customer design wins as an example, T. P link expanded its retail small medium business lines by launching five new routers spinning indoor and outdoor deployment scenarios all based on Qualcomm networking pro Wifi.

Seven platforms.

Lastly, we're very pleased to share that we have begun shipping or fixed wireless access solutions in support of reliance deals upcoming five G. F. W way service in India.

Speaker 1: In industrial IoT, we launched a video collaboration platforms suite which provides OEM choice and flexibility for the design and deployment of immersive video conferen devices across conference rooms, Healthcare settings, in at-home video calling with friends and family.

In industrial Iot, we launched a video collaboration platform suite, which provides Oems choice inflicts the ability for the design and deployment of immersive video conference devices across conference rooms health care settings, and at home video, calling with friends and family.

Enabling windows, Android and Linux on our platforms offers the ability to customize and deploy videoconferencing products across diverse environments. Additionally, our platforms offer industry, leading aib's noise suppression and dynamic framing.

We also launched a Q C. S 80, 550, an <unk> 44, 90 or for software defined Iot solutions at Hanover Messy. This solutions enable next gen smart cameras drones robotics cloud gaming industrial handhelds panels point of sale.

Devices and more <unk>.

Lastly, together with Arrow electronics, we announced a strategic collaboration to accelerate edge Nai adoption to the formation of edge Labs, and Arrow Center of excellence designed to help customers alleviate Iot development challenges, while you're increasing adoption of H AI.

Across.

With an update on our progress in generative AI since the last call.

We're very pleased and encouraged by the rapid acceleration of Gen AI at the edge.

This presents a significant opportunity for Qualcomm across our end markets.

Use cases at the edge are evolving differently than the cloud given the inherent context immediacy privacy security application reliability impersonally capabilities available on device for example in handsets models such as stable the fee.

<unk> and contour net or changing user experiences for content creation and photography, largely English models embedded in the user interface can also enable enhanced virtual assistance.

In personal computing real time, Copilots can bring significant enhancements to productivity and creativity.

Benefits of which are well understood and very compelling for enterprises across industries. We believe the automotive industry will use some of the most advanced edge capabilities from large languish model for Personalised and curated content and services driver, an occupant monitoring and AI virtual.

Speaker 1: We believe the automotive industry will use some of the most advanced edgeingi capabilities from large language model for personalizing curated content and services, driver in occupied monitoring and AI verualwork acsystems to contextual search, AED as an auttronomy applications can be enhanced by diffusion of data from cameras and other sensors for combined reaward proceptction, drive path projection and morewe're helping enable this capabilities and expect gaining iu cases to extend for xraredge networking and industrial IoT.

Assistance to contextual search.

<unk> applications can be enhanced by diffusion of data from cameras and other sensors for combined real ward perception drive fast prediction and more we're helping enabled this capabilities and expect Jenny I use cases to extend to XR edge networking.

<unk> and industrial Iot.

Speaker 1: Within the quarter, we spended our collaborations across the ecosystem and we are engaged with multiple hyperskillers, OEMs and isle.

Within the quarter, we expanded our collaborations across the ecosystem and we are engaged with multiple hyperscalers Oems and <unk>.

Notably, we recently announced a collaboration with meta on Lemme to base AI implementations on flagship smartphones mpc's that will enable developers to create new and exciting journey I applications using the AI capabilities of snapdragon platforms begin.

Ending in 2024.

Speaker 1: Together with Meta, we're working to optimize the execution of MES lammat two large language models directly on device.

Together with meta we're working to optimize the execution of met US Lemme two large languish models directly on device. We also announced a focus collaboration with Microsoft to scale AI capabilities and bring best in class AI experience to users across consumer and.

Speaker 1: We also announced a focused collaboration with Microsoft to scale AI capabilities and bring invbest-in-class AI experienced to users across consumer, enterprise and industrial devices. As the Microsoft build developer conference, our own device stable diffusion was showcaseed on a Windows on snnat driand-powered laptop.

Price and industrial devices at the Microsoft build developer conference.

Our own device Stabled effusion was showcased on a windows on Snapdragon powered laptop. We're also working with them to enable a host of productivity based applications with multiple large models running on the device.

Speaker 1: We're also working with them to reenable a host of productivity-based applications with multiple large models running on the device.

Speaker 1: As part of this collaboration, our AI engine direct SDK is now available to Windows developers to easily accelerate their AI apps on that Dragon compute platforms.

As part of this collaboration our AI engine direct SDK is now available to windows developers too easily accelerate they're AI apps when snapdragon computer platforms.

This marks a significant milestone.

In summary, we are uniquely positioned to help shape and capitalize on the upcoming one device Jan AI opportunity.

AI technology is highly differentiated with best in class high performance low-power heterogeneous computing across our C. P. U G P U and N P U N.

<unk> multi billion Powermeter Jen AI model shrunk pervasive Lee and continuously on device, we believe our N P use unparalleled AI processing performance and power efficiency will become a requirement we look forward to sharing more about our journey capable products at <unk>.

Dragon Summit in October.

Speaker 1: Before I turn the call over to okash, I D like to provide an update on how we are managing our business in the current macroeconomic environment.

Before I turn the call over to a <unk> I would like to provide an update on how we are managing our business in the current macroeconomic environment.

Speaker 1: We remain focused on executing our strategy and prioritizing capital and resource allocation on our future growth and diversification opportunities. Simultaneously, we are focused on long-term operating margin targets, all while maintaining technology leadership across rolet connectivity high-performance, low-power processing and artificial intelligence.

We remain focus on executing our strategy and prioritizing capital and resource allocation, when our future growth and diversification opportunities simultaneously. We're focused on long term operating margin targets, all Wyoming painting technology leadership across wireless connectivity <unk>.

High performance low-power processing and artificial intelligence to that and were taken a conservative view of the market and will be proactively taking additional cost actions to ensure question is well positioned to deliver maximum value for stockholders in an uncertain environment I would now like to turn to.

Speaker 1: To that end, we're taking a conservative view of the market and will be proactively taking additional cost options to ensure focome is well positioned to deliver maximum value for stockholders in an uncertain environment. I would now like to turn the call over to oash.

Over to what cash.

Thank you crescendo and good afternoon, everyone.

I'll start with our third fiscal quarter results.

Speaker 2: We delivered non-GAAP revenues of $8.4 billion and EPS of $1 80 cent cent which was about at point of our guidance.

We did the word non-GAAP revenues of $8.4 billion in EPS of $1.87.

Which was about the mid point of our guidance.

Speaker 2: qtal recorded revenues of $1.2 billion and ebitd margin of 66%, reflecting slightly lower than expected global devices.

QTL recorded revenues of $1.2 billion in EBIT margin of 66%, reflecting slightly lower than expected global devices.

Speaker 2: dity revenues of $7.2 billion and ebitd margin of 24% were 10 substcent with the midpoint of our guidance.

<unk> city revenues of $7.2 billion in EBIT margin of 24% were consistent with the midpoint of our guidance.

Handset revenues of $5.3 billion reflected the industry landscape you previously outlined.

Iot revenues increased 7% sequentially to $1.5 billion, driven by consumer and industrial Iot customers.

Speaker 2: We saw sted momentum in automotive for our snap, Dragon digital, gasic products, with revenues of $434 million, a grow of 13% year-over-year.

We saw continued momentum and automotive for a snapdragon digital chassis products with revenues of $434 million a growth of 13% year over year.

non-GAAP operating expenses were flat sequentially at $2.2 billion.

Speaker 2: We have successfully executed on our fiscal 23 cost actions and are on track to exceed commitment of a 5% reductction relative to fiscal 22 exit rate.

We have successfully executed on our fiscal twenty-three cost actions and are on track to exceed our commitment of a 5% reduction relative to physical twenty-two exit right.

Speaker 2: During the quarter the sale of reir's active safety business to mag never was completed for near cash proceeds of $1.5 billion.

During the quarter the sale of real nearest active safety business too man that was completed for net cash proceeds of $1.5 billion.

Speaker 2: Before turning to the four fital order guidance, I'll update you on global three G, four G, five G, handset units and channel inventory.

Before turning to the fourth fiscal quarter guidance I'll update you on global three G. Four G. Five G handset units and channel inventory.

Speaker 2: We continue to estimate that calendar 23 handset units will be done at least a high single digis percentage relative to calendar 22, reflecting the macro environment and a floor recovery in China.

We continue to estimate that calendar twenty-three handset units will be down at least a high single digit percentage relative to calendar twenty-two, reflecting the macroenvironment and a slower recovery in China.

This forecast contemplates growth enhancer to units going into the holiday season.

In Iot channel inventory remains elevated due to weaker demand driven by the broader macroeconomic conditions.

Speaker 2: Since this remains difficult to predict the dining of a sustained recovery and customers remain cautious with purchases, we continue to operate into the assumption that inventory draw-down dynamics will be a factor through the end of the calendar year.

Since it remains difficult to predict the timing of a sustained recovery and customers remain cautious with purchases. We continue to operate under the assumption that inventory drawdown dynamics will be a factor through the end of the calendar year.

Turning to guidance for the fourth fiscal quarter.

Speaker 2: We are forecasting revenues of eight point one to eight by $9 million and non-capyps of $1 eight itreturnends to $2.

We are forecasting revenues of $8.12819 billion, and non-GAAP EPS of $1 and $82.

Speaker 2: In QTL, we estimate revenues of one point one five toone $35 million and ebiting margins of 64 to 68%, driven by a slight sequential increase in global handset units.

And QTL, we estimate revenues of $1.15 billion to $1.35 billion in EBIT margin of 64% to 68% driven.

Driven by a slight sequential increase in global handset units.

Speaker 2: In quity. We expect revenues of six point nine to seven $25 billion and EBIT margins of 24 to 26%.

And Q city, we expect revenues of $6 $97.5 billion in a BT margins of 24% to 26%.

Speaker 2: This forecast is consistent with our prior guidance of mutic's usasonality in qupity revenues primarily due to the timing of courses by a motor onlying handset customer.

This forecast is consistent with our prior guidance of muted seasonality and Q city revenues, primarily due to the timing of voices is by a modem only handset customer.

Speaker 2: On a sequential basis, we are forecasting Android enhandanset revenues to be roughly flat, with nidsingle-digit decline in I and low double-digit growth in automotive.

On a sequential basis, we are forecasting Android handset revenues to be roughly flat with mid single digit decline in Iot and low double digit growth and automotive.

Lastly, we expect non-GAAP operating expenses to be approximately flat relative to the third quarter.

Speaker 2: As we approach fiscal' 24, our revenue growth will largely depend on macroeconomic environment, global handset units and China recovery.

As we approach physical 24, a revenue growth will largely depend on macroeconomic environment global handset units in China recovery.

And the first fiscal quarter, we expect to drivers of sequential revenue growth Q.

Qtl's seasonality and handset launched by a modem only customer <unk>.

In addition, we expect a sequential decline in Iot, an automotive revenues consistent with a seasonal trend we've seen in the last couple of years.

As you'll recall, we had previously communicated we would evaluate additional cost actions as the environment continues to evolve.

Until we see sustained signs of improving fundamentals are operating framework does not assume an immediate recovery.

Speaker 2: Given our commitment to operating disciplines, we will proactively implement additional cost actions in the first half of fiscal' twenty-four.

Given our commitment to operating discipline, we will proactively implement additional cost actions in the first half of fiscal 24.

This will be incremental to the reductions we have successfully completed and physical twenty-three.

Speaker 2: Despite these actions, we will preserve investments in our strategic priorities and position ourselves to much stronger as the recovery from the broader industry begins to take hold.

Despite these actions, we will preserve investments that our strategic priorities and position ourselves to be much stronger as the recovery from the broader industry begins to take hold.

Speaker 2: In closing, we remain focused on executing on our vision to bring connectivity high-performance, low power computing and on-device generatori to the edge.

In closing we remain focused on executing on our vision to bring connectivity high performance low bar computing and on devised generator to the edge.

Speaker 2: Our guiding principles remain the same: prioritizede technology leadship, accelerate thediversification and drive earnings growth to create value for our stockholders.

Guiding principles remain the same prioritize technology leadership accelerated diversification and drive earnings growth to create value for our stock holders.

This concludes our prepared remarks back to you Mary Sue.

Thank you costs, operator, we're not ready for questions.

To cure question Press Star then the number one.

Throw your question press Star too.

If you're using a speaker phone please pick up your handset before pressing the numbers.

One moment please for the first question.

The first question is from that Ramsey with television Cowan.

Thank you very much good afternoon, guys Ah Ah cash I guess for for my first question. You were you were kind enough to give us a little bit of color and your required prepared script now on on December and it went through a few things there pretty quickly so I wanted to.

Speaker 3: Double click on a few maybe it could be recap for us just and that the trend you expect enhancese versus higher fee auto that you gave and.

Double click on a few maybe you could recap for us.

<unk>, you expect and handsets versus Iot an auto that you gave in in particular, you talked about some seasonality being better in the fourth calendar quarter in the handset market.

Speaker 3: The fourth calendar quarter in enhanceset market. But that inventory BU T burn was still going to be part of the dynamics, So you can talk through that in a little bit more detail. What kind of magnitude you expecting for the industry in the fourth quarter was stillt in your your' estimates.

But that inventory Bill Byrne was still going to be part of the dynamics. So you could talk through that in a little bit more detail what kind of magnitude are you expecting for the industry and in the fourth quarter. What's built into your your estimates and is the inventory burn just an Android dynamic or do you think the pretty purchases from cupertino are still.

An effect in the December quarter.

Speaker 4: Sure yes. So there was a lot in that. I'll tryed to onunpket. Let me div it into parts. So first, starting with the market, our forecast does see sequential growth into the December quarter as we go into the holiday season.

Sure Matt. So there was a lot of them that I've tried to one bucket, let me divided into parts. So first starting with the market our forecast does assume sequential growth into the December quarter as we go into the holiday season.

Speaker 2: From a financial perspective consistent with the historical years, we typically have two significant drivers of growth going into deptemberfrom septemberfirst this Q, DL and we expect to see that growth as the market market growes as well, and then second is a hand that launched by a motitem only customer of of the base we have in September we expect to see had growth as well.

From a financial perspective are consistent with historical ears, we typically do significant drivers of growth going into December from September 1st.

First this cutie L and we expect to see that growth is the market market grows as well and then second is a handset launch by a modem only customer off of the Bay's. We have in September we expect to see that growth as well. So those would be the two significant growth drivers into the quarter from I O T. An automotive perspective, we.

Speaker 2: So those would be just two significant growth drivers into this quarterfrom our IoT automotive perspective, if we look at the last couple of, we've seen a trend of a slightide decline in both areas quarter-over quarter from September to deptember. So we just think that we think seasonality will play out, not something that goes beyond that, just normal timing that we've seen in the market in the past.

If you look at the last couple of years, we've seen a trend of a slight decline in both areas quarter over quarter from September to December. So we just think this the same seasonality will play out not not something that goes beyond that it's just a normal timing that we've seen in the market in the past.

Speaker 2: If the mayd last comment I'll say is, our forecast for September and September quarter does assume nomaterial revenues from huaweias. You are aware we have a four G license for shipping into Huawei. We do not have a five G license and we are not assuming anywithateryour revenue going forward.

Maybe the last comment I would say is our forecast for September and December quarter does assume Ah no material revenues from Huawei as you are aware, we have a four G license for shipping into Huawei, We do not have a five G license and we are not assuming any material revenue going forward.

So hopefully that covers all the different parts.

The next question is from semi charity with J P. Morgan.

Hi, Thanks for taking my question and I have a couple, but maybe we can start with.

The got into it.

You just had.

Look back at some of the seasonality that you've typically.

B C White green.

Instead of.

Plus two something somewhat of a higher number as well in the double digits.

Give us a bit more followed in terms of as you'd think about you said in your smartphone.

<unk>.

In terms of volumes, Oh, you're thinking about it.

Six.

<unk>.

Speaker 2: yessmica, maybe no additional comments, what I just said. I think if you look at our history with the growth in the smart phone market, we see Q tl grow with it and so we expect a similar gain this year and then I'd probably say similar to on the modem customers side as well, we see something similar to what we've seen in the past. So I think using using historical trend the way to model it going forward is a reasonable way of doing.

Yeah, so as to make maybe no additional comments to what I. Just said I think if you look at our history with the growth in the smartphone market, we see QTL grow with it and so we expect a similar game. This year and then I'd, probably say is similar to on the on the modem customer site.

As well, we'd see something similar to what we've seen in the past so I think using using historical trend as a way to model of going forward is a reasonable way of doing it for those two factors.

Speaker 2: Get those two factors.

Okay. Okay.

Follow up I mean.

The C D inventions balance sheet did come down a bit but how are you thinking about.

Opportunity here too.

Okay.

The balance sheet or even from.

From my investors perspective, how should we think about the risk about.

Inventory right down if the recovery is sluggish for a period of time, how how should we think about those drivers given the inventory.

Speaker 2: longuation. Yes, So SEM obvious, our analysis is reflected in our results. We think you well understand that. Drivers that got it to the industry. The inventory balance. It is the overall industry being weaker and with six months leadave time. You are planning for a different market and what we're comfortable with is that we have the inventory and the right parts.

Along with an expected duration.

Yeah, So somebody called basically our our analysis is reflected in our results. We we we think you real understand the drivers that got us to the industry the inventory balance the overall industry being weaker than with six months lead time, you're planning for a different market and and what we're comfortable with it.

Is that we have the inventory on the right parts there as long lifetime on it and there is demand for it so Ah our latest analysis on the topic is reflected in our results.

Speaker 2: There is long lifetime on it and there is demand for it. So our latest analysis and the topic is reflected in our results.

The next question is from like or Walkley with Canaccord Genuity, let's see with your question.

Speaker 5: S Christian. I just want to talk about the snap Dragon forge to that you talked about. How is the initial uptick in terms of Android demand from your customer looking at that, and do you think, given the supply demand in balance, that you'll be able to now make things share in 2024? You were downstream or androy.

Okay. Thank to Cristiana I, just wanted to talk about the snapdragon for Jen to let it talked about.

How is the initial uptick in terms of androids demand from your customers looking at that and do you think given the supply demand.

Imbalance that you'll be able to know gain share in 2024, he moved downstream and Android.

Yeah.

Speaker 1: I might think to the question. So let me just start with there's not trying to forge into what we like about it is in. First, I think the market needs to drive now the next wave of four to five G migration. This is an example, shall me just rethink. Ly launched the Red me 12, five G smart phone, yesed in India AFP, at one hundred and thirty five U's dollars.

I might thanks for the question. So let me just start with.

You know that there is enough dragging a forge into what we like about it is it <unk> I think the market needs to drive now the next wave of four G. Five G migration just as an example show me just recently launched a red meat 12, five G smartphone yesterday in India and Ah ESP.

135 U S dollars. So we're very encouraged with now the ability to create this four G. Five G. Migration I think there are a number of markets now that are the 0.5 G in developing economies and and as you pointed out now we don't have supply constrained anymore at the mast here and our new <unk>.

Speaker 1: So we're very in couraged with now the ability to create this four G to five migration. I think are a number of markets now there are the twenty five G in the developing economy and and, as you pointed out, now we don't have to supply conidering any more at the mast year. And are you product growth not re in cour about the ability to drive that four G to five G migration?

<unk> roadmap, we're encouraged about the ability to drive that four G to five G migration at those price points.

Speaker 1: pedthose price points?

Alright take just a quick follow up just on the Iot business.

Speaker 5: Can you give a dis upate on a three frgmentattorany of the segments doing better than others in terms of the payventory believer, the outlooktake provider?

Can you give us this update on it three segments hearing into segments doing better than others in terms of the inventory bleed or the outlet provided.

Speaker 4: Sure Mike. So this is a ourhe start and med cationalneo on top of it. So in the short term the business is seeing some of the same dynamic does we're seeing come through with our peers from a demand side and what the impact it has on the inventory channel. Inventory: when we saw the initial busakness it started with consumer but we did see it go across whether parts of IV as well, especially within China.

Sure Mike. So this is a gosh I'll start on maybe Cristiana can add.

On top of it so in the short term the already business is seeing some of the same dynamics as you were saying come through with our peers from a demand side and what the impact that has on the inventory Chunlin dory.

When we saw the initial weakness it started with consumer but we did see it go across to other parts of I O D as well, especially within China.

Speaker 2: But we're pretty happy with the results we had in the June quarter. We re up approximately 7% on revenue and it was really growth across industrial and consumer that drove that benefit. Difficult to kind of predict the timing of recovery and the inventory got down. We did say that it would be a factor to the end of the calendar year. But that's the framework for the very short term.

But we're pretty happy with the results we had in the June quarter were.

Approximately 7% on revenue and and it was really growth across industrial and consumer that drove that benefit.

Difficult to go to.

Predict the timing of recovery in the inventory drawdown, we did say that it would be a factor through the end of the calendar year, but that's the framework for the very short term on either side.

Speaker 2: On OT side.

Speaker 1: To be the only thing I was going to add my, as we indicated multiple times, there's a lot of things in our IoT segment and there are some of those things that they have yet to materialize. I think we we talk about our PC space, which we re excited about, the new product. We have been developing our custom CPS. We were still the beginning of virtual reality.

Maybe the only thing I was gonna add Mike as we indicated multiple times, there's a lot of things in the audio segment and there is some of those things that they have yet to materialize. I think you know we we talk about R. P. C space, which were excited about you know the new product we have been <unk>.

Eloping with our customer Cpus, we were still in the beginning of a of a.

Virtual reality were encouraged by now or their players entering the market, which will ignite the developer ecosystem.

Speaker 1: wewere encouraged by now other players sensoring the market which will eachignite the developer ecosystem and, I think lastactually, on a net working we like win the right like seven designment pipeline that did materialize in a new cycle into the future, So as as the outliners, a number of different things ING that segment.

And and I think lastly on on networking Ah, we like to win the Wifi seven design, we pipeline that could materialize in a new cycle into the future. So as as as we outlined there's a number of different things within that segment.

Speaker 4: Good next question from the line of Stacy raska obernstein research. Please use their questions.

The next question is from the lineup Stacey Rascon with Bernstein research assist you with your questions.

Mr asking on your line is open for questions.

Perhaps you on mute.

Hello.

Sorry about that I wanted to ask about a trip gross margins.

Speaker 6: It see reasonable before in the court. Even with revenues down there they seem like maybe they were implied out a bit sequentially. The guide seems pretty stable in September . Can you he any given for for drivers of the margin pricing mix you talked about from some additial cost SP namics, there's anything that they're on the cost of good side, some of the dynamic dynamicster and how should we expect that to evolve?

They seemed reasonably strong in the corner, even with revenues down they they seemed like maybe they weren't quite up a bit sequentially. The guide seems pretty stable into September can you give us any feeling for drivers all of the margin pricing masks and talk about some some additional cost dynamics and if there's anything in there on the on the cost of goods side. Some of the again dynamics era and how should.

Speaker 6: It just mix the drive you, going forward to their other fingers, should think about.

We expect that to evolve and he just makes it drives me going forward are there other things that would you think of that.

Speaker 4: First state of the Ash. Yes, we did come in a little bit better than forecasted for the for the September quarter and it was really primily driven by mix of products in guiding approximately flat margins going into into September from June and that's a reasonable way of forecasting our margins going forward, what we expect to be in the range as we go forward.

Sure Stacey gosh, Yeah, we we did come in a little bit better than forecasted for the for the September quarter, and it was really primarily driven by a mix of products.

In your guiding approximately flat margins going into going into September from June and that's a reasonable way of forecasting our margins going forward as well. So we expect to be in the range as we go forward.

Thank you if I could ask her one more briefly pressure on you're talking a lot about AI and and how that's gonna contribute how does a I actually contribute to the mall or going for like <unk> are you anticipating it eventually drive an upgrade cycle or is it more content or is it you know asp's for the chips fall less than they would otherwise like how do how do we think about.

How that actually drive to the model almost as adoption happens.

Very good thanks for the question Stacy look I think Ah one pack the answer to the question and first of all we're we're very confident in what we see happening at the edge own device I think there's a number of reasons AI is developing on devices or a little bit different in the cloud everything that is real.

Hold time May I always on AI context Ah Ah.

Latency reliability personality, <unk> and I think that can apply to Ah products across all of our end markets.

When it will happen I you know we are going to announce a new setup products that they're snapdragon tech sammut that are all going to be Jenny I capable products that on phones on computing products on on on all of the other segments in Alto in Iowa, and we thank the monetization will happen.

Two ways right the easiest way to think about it is.

If our customers and our partners that are working with last we mentioned a few in the prepared remarks come up with a new use cases and you have now on a journey I capable of smartphones that changes the size of the phone market it could create an upgrade cycle.

In between five and six G and changes the same size of the market I also improve the mix towards our product lines and ASB increases.

For you to do device Jenny I own device you needed different computing platform. That's why we have been doing with our N. P. U I think it's probably the unmatched by any of our peers and the ability to do high performance AI pervasive late and continuously at low power and we look those things.

Could create an inflection point is hard to predict the timing, but we we can see how it changes the mix and improve the ASB in our products.

Our next question comes from Ross humor with Deutsche Bank. Please proceed with your question.

Speaker 7: Hi guys, the question is said one question 1: follow-up upon the December quarter soft guide that you gave, because you talked about your load-only customer having its typical seasonality in the fourth quarter calendar. Fourth quarter: lo typical seasonality andro, your expectations for the Android side of things in that quarter.

Hi, guys. Thanks May I ask a question just have one question one follow up on the December quarter Soft guide that you gave akashi talked about your modem only customer having it's typical seasonality in the fourth quarter calendar fourth quarter, what is a typical seasonality and or your expectations for the Android side of things in that quarter.

Speaker 4: Yes from an Android perspective, we expect that qualterwe ve plan to be consistent. That history, if you look at what typically happens for us in Android, is we launched our new chips in the March quarter and that's when the new premium jurch comes out and that's typically the stronger quarter for us. So it's really driven by timing of product launches.

Yeah. So from an Android perspective, we expect the quarterly trained to be consistent with history. If you look at what typically happens for us in Android as we launch our new chips in the in the March quarter, and that's when the new premium Dear chip comes out and that's typically the stronger quarter for us so.

It's really driven by timing of product launches, but fundamentally when you look at our position with an Android even within 23, we've actually grown share of sale true from 22 to 23. So we continue to be in a very strong position and it's just the market dynamics, that's kind of driving the cyclicality.

Speaker 2: But fundamentally, when you look at our position withinthe Android, even within 23, we've actually grown share of sell-through from 22 to 23. So we continue to be in a very strong position and it's just the market dynamics that's kind of driving the cyclicality in the business.

In the business.

Speaker 7: Thanks that and I guess, if I follow us, sing with you csh. On the OpEx side of things, you talked about macro still being uncertain and so you were going to take actions in the first half to fiscal 24 on the cost side of the equation. Can you give a any more color on that? I assume it's largely on the OpEx side as you guys have been successful in hitting your 5% reduction of that beating is exiting this year versus last, any sort of the quantification you can provide and what your expectation for for OpEx in that new cost cutting print?

Thanks for that and I guess it was my follow up sticking with you a cash on the Opex side of things you've talked about macro still being uncertain and so you are going to take actions in the first half of your physical 24.

The cost side of the equation could you give us any more color on that I assume it's largely on the Opex side you guys have been successful I'm hitting your five per cent reduction if that beating it exiting this year versus last any sort of qualification you can provide on what are your expectations are for opex and that new cost cutting plan.

Sure. So let me let me give you the framework of how we're thinking about it and I don't have quantification at this point, but we we on in twenty-three we exceeded the darn good reset and as we've said before will continue to look at additional reductions as as the environment. The walls. So given that what we're planning to do.

Speaker 4: Sure for me. Let me give you the frawork of ourwe're thinking about it and I don't have quantification at this point, but we in 23 we exceed that joint get re that and, as we've said before, we will continue to look at additional reductions, the environmental walls. So, given that what we're planning to do is proactively implement additional actions in first half of 24 and the framework for it is, we're going to preserve our strategic priorities, we're going to to reduce in certain areas but then also have the capability to invest in new technology, especially I, and continue to invest in our diversalification planass.

Who is proactively implement additional actions and first half of 24 and the framework for it is we're going to preserve our strategic priorities, we're going to to good use in certain areas. But then also have the capability to invest in new technology, especially I and continue to invest in our diversification black.

Speaker 2: So it's really an effort to get on investment portfolio right as consistent with the priorities going forward for the company.

So it it's it's it's really an effort to get out and restaurant portfolio right does is consistent with the priorities going forward for the company.

Our next questions from the line of Kris K Subtler Wolf Research. Please proceed with your question.

Yes. Thank you it as a first question if perhaps you could talk a bit about mix, where is your mix sitting as compared to where it was last year and you know obviously, the <unk> skewed higher during times of supply constraints and and now there's there's greater availability.

So how is that affecting margins are avenue that as things go forward.

How do you expect that to change as well you know I guess there. There's you know some concern that mix shifts down to perhaps some some lower end of the portfolio as the five G cycle matures and and the emerging markets tend to become a bigger part of the five G. M X.

Speaker 4: yesash, if you look at the mixed change, it really happen through the year where we expanded our position in the lower tiers of it and it's already reflected in the comments I made earlier to sty's question on growth margin. So really no incremental comments, what I said earlier. As we look forward, one of the key opportunities for us is really how do we expand the ASPs?

Chris that's a gosh if.

If you look at them mixed change it truly happened through the year, where we expanded our position in the lower tiers, a bit and it's already reflected in the comments I made earlier to stay.

Stacey question on gross margin, so really annoying incremental comments to what I said said earlier as we look forward one of the key opportunities for US is really how do we expand the S. B is just continuing to see incremental demand across all tears for more capability and the chipset and two cristiana as earlier.

Speaker 2: Just, we're continuing to see incremental demand across all the for more capab in the chip set and the questionushsha's earlier point would generative aare becoming so critical and as gy devices going forwardit's going to drive an inflection pointints in terms of our presence there and our ability to expand content.

And would generate a V I, becoming so critical an edge of devices going forward, it's going to drive an inflection point in terms of our presence there and our ability to expand our content.

That's helpful. Thank you just to follow up a question about a geographic Ah the revenue in particular to the handset business and we've been hearing about you know.

Perhaps greater macro concerns in China as compared to elsewhere in terms of Normalising, the business and getting the global handset market back to where where it. Once was is this mainly a situation where we need to see trying to come back and normalize or is is is more of.

The global trend, what what what needs to improve in other words.

Get back to what used to be normal.

[noise], Yeah, I'd I'd say a couple of bars. So we've we've seen weakness across China and other emerging markets. Those are definitely the two areas in developed markets to Mark. It is largely held there is some smaller impact but not as much.

Speaker 4: Yes i'would say couple parts. So we've seen weakness across China and other emerging markets. So there are definly two areas in developed markets. The market- it has largely held some smaller impact, but not as much. I think the opportunity is really across the Board. I think one is just some an overall replacement pres Grace perspective. You could see that increase going forward driven by new technology cycles, but also within the emerging markets in China you could see some normalization of return demand as as things stabilized.

I think the opportunity is really across the board I think one is just from an overall replacement repressed men great perspective, you could see that increase going forward driven by new technology cycles.

But also within the emerging markets in China, you could see some normalization of return on demand.

As as things stabilized so those would be the opportunities.

Speaker 2: So those would be the opportunities, just topically clear. In the guidance that we're giving at this point we're not including those and that would be upside to plan.

Just to be clear in the guidance that we're giving at this point, we're not including those and that would be upside to our plan.

Our next question is from the live Brett Simpson with research. Please proceed with your question.

Yeah. Thanks, very much Ah cash I had a near term question on smartphones I mean, some of your <unk>.

Speaker 7: Smartphone peers are reporting better for the ental your term I think needed next J courtter, of 6% smartphoneones, and they're talking about midteen flow sequentially in September , cour and I think co was also talked about. A quite, if you never up less in September - and I know you said we else where, and C, C But if may be home this smartphone business and you know, can you reconcile with some of the pears and we are guiding what you're guiding.

Smartphone peers are reporting better fundamentals near term I think immediate tax.

June quarterly were up 6% in smartphones and they're talking about mid teens grow sequentially in September quarter, and I think card was also talked about quite a significant uplift in September.

And I know you said, there's weakness elsewhere in Q C. T. But can you just need to be home and on the smartphone business and no can you reconcile with some appears in with a guide and what your guiding is it just really Apple and Huawei is going through a volatile patch four orders or is it something more structural you think at work and maybe.

Speaker 7: Is it just really Apple and badway is going through the Bo help patch for orders or is it something more structural? You think it work? And really? Second question for Chris Journal: you Tal earlier this from your, I think it mobile conger actually, that you were assuming the Apple business in turning 24 because you didn't have orders and orders there.

Second question for Cristiana.

You talked earlier this year I think it mobile will Congress actually that you were assuming no apple business in 2024, because you didn't have orders and your orders. There has has anything changed with regards to Apple and how should we think about this relationship beyond talent twenty-three. Thank you.

Speaker 8: Has had anything changed with regard to Apple and how should we think about this relationship your own counattornically, Thank you.

Speaker 2: butread. I'll start with the first question, if we let me break it down into Android and Apple and two parts. So, within Android, two comments to keep in mind. First is we don't think there's been any significant shift in share between the players over the last last few months. However, what has what has happened is when you look at our total share ofoursell through for 23 relative to 22, as I mentioned earlier, we've actually gained share withinan Android, So we continue to have a very strong position and the the seasonality across the quarters for Android is really the reflection of when devices are launched and which peri plane, which is the P and high year, which the tender around the holiday season, workes midway through the years.

Yeah Breaths I'll I'll start with your first question. If you let me break it down into Android and Apple in two parts so within with an Android.

Two comments to keep in mind first as we don't think there's any there's been any significant shift and shared between the players over the last last few months. However, what has what has happened is when you look at our total share of sell through for twenty-three relative to 22.

As I mentioned earlier, we have actually gained share with an Android. So we're going to need to have a very strong position and the god of the.

The sea seasonality across the quarters for Android is really a reflection of when devices are launched in which tiers, we blame which is the premium and high tier, which they center around the holiday season horses midway through the years. So that's that's how I would think about the Android market on Apple as I've said before.

Speaker 2: So that' that's how I would think about the Android market. On Apple, said before, we expected we seasonality in the fourth quarter due the timing of tips purchases. We did see them by additional tiips that earlier in the year, and so what we are forecasting now is expected demand, expected shipments into the next quarter. So that really just speak two timing gener rather than some fundamental trend.

We expected muted seasonality in the fourth quarter due to the timing of chipset purchases.

We did see them by additional chipsets earlier in the year and so what we are for guessing now is expected demand expected shipments into the next quarter. So it's that really just speaks to a dining again rather than some fundamental trend as you know we expect to be a majority of their share in the new upcoming luncheon. So it's not.

Speaker 2: As we know, we expect to be a majority of the share in the new upcoming launch and so it's not really a shared question.

Really a short question.

Speaker 1: But to your second question: for the iPhone that is launching this year, we are going to support the modem. We're now making any updates to a Pal. Plans for two thousand and thirty-four.

But to your second question for the iPhone that is launching this year, where we are going to support the modem, we're not making any updates to a primal plans for 2034.

Okay. Thank you guys.

Our next question is from the line of <unk> Bank of America assist you with your question.

Yes, hi.

Speaker 7: Ota market. We spoke a lot about the handinsets. I had two questions related. Ota market was also weak. Can you give an update on why it grew 13% versus 16%? The three expectagations.

ODO market, we spoke a lot about the headsets I have two questions related auto market was also week can you give an update on why it grew 13% versus 16% Street expectations.

Speaker 7: But this 13% is also lower than what we've seen before. So can you talk about the trend there? Iot was in lineh with expectations, but it's still definining 24% a year. So what is the trend over there?

But this 13 per cent is also lower than what we've seen before so can you talk about the trains there.

I O T was in line with expectations, but it's still declining 24 per cent a year. So what is the trend over there.

And on the headset side I'm, just wondering if there was deterioration throughout the quarter or it was.

Improvement throughout the quarter kind of what was the intraquarter trend. Thanks.

And I'm sorry, the city.

Understanding on on the handset side really largely in line with what we had expected so no no trend one way or the other auto and our actual game in and game in a slightly below our expectations. However, if you see what we are guided for the upcoming quarter quarter over quarter growth, where guiding low double digit growth.

Speaker 4: On the entset side, really largely in line with what we'd expected: the no th trend when we or the other auto in our actual slightly with our expectations. However, if you see what we guided for the upcoming quarter-quter-over-quarter growth, we're guiding low, double-digit growth So it's just timing between the quarters that that's impacting is within, ioti'd say, very consistent with comments earlier in the call.

So it's just diming between the quarters, that's that's impacting it within Iot I'd say very consistent with comments earlier in the call. It's really the overall environment and and how it impacts demand an impact on inventory.

Speaker 4: It's really the overall environment and how it impacts demand and impact on inventory is what reflected in our numbers, very consistent with what some of our peers have seen as well.

Is what's reflected in our numbers are very consistent with what some of our peers I've seen as well.

Speaker 9: In a con classification of something you said. You said the December should be lineing normal seasonality. I Tri to look back at seasonality. It's inconsistent, very hard to speak about normal what. How do defindine normal seasonality for December ?

And the cost is just clarification on something you said you said the December should be in line with normal seasonality I tried to look back at seasonality. It's inconsistent it's very hard to speak about normal what what how do you define normal seasonality for for the second.

If you break it down into parts I think if you look at Q T. L growth, we've consistently seen QTL grill as a result of mixed up with devices and go to the market size.

Speaker 4: If we break it down into parts- I think you look at ql growth. We've consistently seen ql growth as a result of mix of devices and total market size, So that we part one the second is we've seen the handset market grow primarily due to the launch of flagship device by a more to only customer, and so we would see that as well. So those are the two factors that would drive majority of our growth.

So that'd be part one the second is we've seen the handset market grill, primarily due to the launch off flagship device my modem only customer and so we would see that as well. So those are the two factors that would drive majority of our grilled into into the December quarter.

Speaker 4: The December quarter.

Great. Thank you.

Thank you.

My last question is from the line of Timothy carry with you B S places here with your question.

Speaker 10: Thanks lot. I had to. So cash, I'm wondering if you can provide more colors just on these channel. You know headwinds. You gave a $2 billion number, I think, for decem and then that came down to billion or it was, let's go about, to a billion in large and it was pedto have been gone by June . You know, obviously it's not on. Can you kind of quantify what the headwind is and you know, may also talk: is that component inventory, your customers still coming down, or is that handsets, that in the building about handset to well through.

Thanks, a lot I had two so I'm wondering if you can provide more color just on these channel you know headwinds you gave a 2 billion dollar number I think for December and then that came down to a billion or it was supposed to come down to a billion in March.

I'm supposed to have been gone by June you know obviously it has not gone can you kind of quantify what the headwind is and you know maybe also talk is that component inventory at your customers still coming down or is that handsets cell in still being about the handset sell through and that I had a you know a second time question as well.

Speaker 11: And then I had a you know second question as well.

Speaker 4: Yes when we talk about general inventory, we've Tal about total inventory across beyond us. So it's customers and channel both combined. Clearly we've gone through the year. The headwinds are being meaningfully higher than we'd expected going into the fiscal year. So that is reflected in the updates that we're getalting. No fundamental change to our view of our share position and overall market we've talked about as well.

Yeah. So when we talk about channel inventory, we talk about total inventory across beyond us so its customers and channel both combined I mean, clearly as we have gone through the year the headwinds are being meaningfully higher than we had expected going into the fiscal year.

So that is reflected in the updates that we're giving no no no fundamental change to our view off our share position and overall the market we've talked about as well. So it's just those factors running through our numbers. We don't have an updated estimate of how much the total impasse.

Speaker 4: So's those factors run to our numbers. We don't have an updated estimate of how much the total impact would be, but it's the same factors that we've been talking about through the year. We've not chchanging the total market size since the last call.

That would be but it's it's it's the same factors that we've been talking about two the year, we've not change the total market size since the last call.

Speaker 10: Got it. And then just last thing: So de othering data on the refurbished market. It means it has gotten pretty large and maybe Suspecting the new Android market.

[noise] got it. Thanks, and then just last thing. So do you have any data on the refurbished market. It seems that it has gotten pretty large and maybe it's affecting the new Android market.

Speaker 10: You know sort of what portion of the handset hand this year do you think is used? Or you know we've heard could it be- I mean recent numbers in the FE and six million unit range, something like that. So the market is flat down but the market for new phones is really actually done quite a bit. Can you have taltalk about thing?

You know sort of what portion of the handset him. This year do you think is used or reverb could it be I mean, we've seen numbers in the 350 million unit range something like that so the market is flat down but the market for a new phones is really actually down quite a bit can you actually talk to that thanks.

Speaker 2: Yes So, So we have the same data you do on the refurbished phones. It has grown over the last couple of years. When we give the market the global handset unit information, we're not talking about the refurbished phones, we are talking about new phones, and so it's already factored into the tagancy.

Yeah. So the so we have the same data as you do on the refurbished phones. It has it has grown over the last couple of years, when we give the market. The global handset unit information, we're not talking about the refurbished phone, we're talking about a new phones and so it's already factored into the guidance weekend.

Thank you.

This concludes the question today's question and answer session. Mr amount do you have anything further to add before or during the call.

Speaker 1: Thank you. We just like to thank all of our employees or customers or suppliers and partners. I think the key messages where we like the strategy continue to execute on our strategy. We're executing to plan. I think we have want Ed invest our product road maps in our history. We like to design traction in de coing a certain environment with this focus on pay action, on the things we can control and make sure we we're prepared to when the market reounds.

Thank you, we just like to thank all of our employees or customers or suppliers and partners.

The key messages where.

We like our strategy continue to execute on our strategy. We're executing to plan I think we have one of the best product Roadmaps in our in our history. We we liked the design interaction and and the current uncertain environment or just focus on taking action on things, we can control and make sure we are.

We're prepared when the market rebounds last.

Speaker 1: Last comment is: we see a new inflection point, as I mentioned before, on the edge for Jai and what we like about it. It for that what happen on device? Fundamentally, you'll need a new computing engine.

Last comment is we we see any way inflection point as I mentioned before on the edge for Jen AI and what we like about it it for that to happen on device fundamentally you need a new computing engine.

Speaker 1: We have cpugpu, but you need something different, which is the npu. I think we have invested this for over a decade. We're very happy how it performs and I will like everybody to follow what we're going to show and announce at the upcoming text Sumit in October . Thank you very much.

We have we have Ah C. P. U G. P U but are you all you need something different which is a N. P. U I think we have been invest in this for over a decade, we're very happy how it performs and I would like everybody to follow what we're going to show in announced at the upcoming Tech summit in October. Thank you very much.

Ladies and gentlemen. This concludes today's conference call you may now disconnect.

[noise].