Q2 2024 Qualcomm Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm second quarter fiscal 2024 earnings conference call. At this time, all participants are in listen-only mode. Later, we'll conduct a question and answer session. If you'd like to ask a question during this time, press star then the number 1 on your telephone keypad. To withdraw your question, press star then the number 2. If you're using a speakerphone, please pick up your handset before pressing the numbers. Please limit your questions to one question and one follow-up.
Ladies and gentlemen, thank you for standing by.
I'll come to the Qualcomm second quarter fiscal 'twenty 'twenty four 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 Australia question Press the Star then the number two.
If you're using a speakerphone please pick up your handset before pressing the numbers. Please.
Please limit your questions to one question and one follow up.
Operator: Just a reminder, this conference is being recorded May 1st, 2024. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 137-45-532. Now, I'm turning the call over to Mauricio Lopez-Sedoyan, Vice President of Investor Relations. Roger Lopez-Addoin: Please go ahead.
To remind you. This conference is being recorded may 1st 2024.
The playback number for today's call is 877660.
Five three.
International callers, please dial 20161 to 7415 play.
The playback reservation number is 13745532.
Now, let's turn the call over to Mauricio Lopez, <unk>, Vice President of Investor Relations person loved person to join please go ahead.
Mauricio Lopez: Thank you and good afternoon, everyone. Today's call will include prepared remarks by Cristiano 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 accompanies this call on our investor relations website. In addition, this call was 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.
Mauricio Lopez: Thank you and good afternoon, everyone. Today's call will include prepared remarks by Christiane them on and of course Parker Wala. In addition, Alex Rogers will join the question and answer session.
Mauricio Lopez: You can access our earnings release and slide presentation that accompany this call on our Investor Relations website.
Mauricio Lopez: In addition, this call is being webcast on Qualcomm Dot com and a replay will be available on our website later today.
Mauricio Lopez: 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.
Mauricio Lopez: We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. However, 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 statement. And now for comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon.
Mauricio Lopez: 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.
Mauricio Lopez: And now to comments from Qualcomm's, President and Chief Executive Officer Christiana Mall.
Cristiano Renno Amon: Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q2, we delivered non-GAAP revenues of $9.4 billion, and non-GAAP earnings per share of $2.44 was above the high end of our guidance. Revenues from our chipset business of $8 billion reflect strong premium tier demand for Android smartphones and continued momentum in the automotive business. Licensing business revenues were $1.3 billion. During the quarter, we also made significant progress on our leading technology and product roadmaps as well as executing on our growth and diversification opportunities. Let me share some key highlights from the business.
Christiana Mall: Thank you Mauricio and good afternoon, everyone.
Christiana Mall: For joining us today.
Christiana Mall: In fiscal Q2, we delivered non-GAAP revenues of $9 $4 billion.
Christiana Mall: non-GAAP earnings per share of $2.44 was above the high end of our guidance.
Christiana Mall: Revenues from our chipset business of $8 billion reflect strong premium tier demand for enjoyed smartphones and continued momentum in automotives.
Christiana Mall: Licensing business revenues were $1 3 billion.
Christiana Mall: During the quarter. We also made significant progress on our leading technology and product roadmaps as well as executing on our growth and diversification opportunities.
Speaker Change: Let me share some key highlights from the business.
Cristiano Renno Amon: As we drive intelligent computing everywhere, we're enabling the ecosystem to develop and commercialize on-device Gen-AI applications across smartphones, next-generation PCs, XR devices, vehicles, industrial edge, robotics, networking, and more. To that end, we recently launched the Qualcomm AI Hub, a gateway for developers to enable at-scale commercialization of on-device AI applications. It features a library of approximately 100 pre-optimized AI models for devices powered by Snapdragon and Qualcomm platforms, delivering four times faster inferencing versus non-optimized models as AI expands rapidly from the cloud to devices.
Speaker Change: As we drive intelligent computing everywhere, we're enabling the ecosystem to develop and commercialize on device Jenny I applications across smartphones next generation P. Six X sorry devices vehicles, industrial edge robotics networking and more.
To that end, we recently launched the Qualcomm AI hub, a gateway for developers to enable at scale commercialization of one device AI applications.
Speaker Change: It features a library of approximately 100 pre optimized AI models for devices powered by Snapdragon and Qualcomm platforms, delivering four times faster inferencing versus non optimized models.
Speaker Change: S. AI expands rapidly from the cloud to devices, we are extremely well positioned to capitalize on this growth opportunity given our leadership position at the edge across technologies, including on device AI.
Cristiano Renno Amon: We are extremely well-positioned to capitalize on this growth opportunity, given our leadership position at the edge across technologies, including on-device AI. In the automotive industry, the Snapdragon Digital Chassis is the industry's leading technology solution, and we're pleased to announce that our design wing pipeline has increased to approximately $45 billion. We're growing faster than the addressable market and remain on track to achieve more than $4 billion in automotive revenues in fiscal 2016.
In automotive the Snapdragon digital chassis is the industry's leading technology solution and we're pleased to announce that our design win pipeline has increased to approximately $45 billion, we're growing faster than the addressable market and remain on track to achieve more than.
Speaker Change: $4 billion of automotive revenues in fiscal 'twenty six.
Cristiano Renno Amon: In premium and high-tier smartphones, our Snapdragon mobile platforms continue to set the bar for performance and on-device Gen-AI capabilities. Recently launched flagship Android devices powered by Snapdragon 8 Gen 3 are seeing strong demand globally, especially in China. We are extending the most sought-after 8-series capabilities, including on-device AI, to a broader range of flagship and high-tier smartphones with the new Snapdragon 8S Gen 3 and Snapdragon 7 Plus Gen 3 mobile platforms launching in the second half of 2024.
Speaker Change: In premium and high tier smartphones, our snapdragon mobile platforms continues to set the bar for performance and own device Gen AI capabilities reset.
Speaker Change: Recently launched flagship Android devices powered by Snapdragon agent tree are seeing strong demand globally, especially in China. We are extending the most sought after H series capabilities, including one device AI to a broader range of flagship and high tier smartphones.
Speaker Change: With the new Snapdragon eight S gentry, and Snapdragon seven plus Gen. Three mobile platforms launching in the second half of 2024.
Cristiano Renno Amon: In cellular modems, we have again established a new industry benchmark with the Snapdragon X80, the world's most advanced 5G modem RF. The X80 supports 5G advanced, the next era of 5G, in addition to direct-to-mobile, 3GPP compliant, satellite communications, and leading release 1850s.
Speaker Change: In cellular modems, we have again establish a new industry benchmark with the snapdragon exiting the worlds most advanced five G modem RF system there.
The X 80 supports <unk> advanced the next era of five G. In addition to direct to mobile three GPP compliant satellite communications and leading released 18 features.
Cristiano Renno Amon: Additionally, our networking solutions continue to gain traction as the Wi-Fi 7 transition expands to the enterprise. We are excited about the upcoming launches of next-generation Windows AI PCs powered by Snapdragon. The Snapdragon X Elite is the leader in performance, on-device AI, and power efficiency for the Windows ecosystem and is optimally positioned to lead the transition to true AI PCs. I'm also pleased to share that we recently expanded our compute portfolio with the Snapdragon X Plus platform, which is designed to address a broader range of device tiers.
Speaker Change: Additionally, our networking solutions continue to gain traction as the Wi Fi seven transition expense to the enterprise.
Speaker Change: We are excited about the upcoming launches of next generation Windows, a ipc's powered by Snapdragon. The Snapdragon ex elite is daily there in performance on device AI and power efficiency for the Windows ecosystem and is optimally positioned to lead the transition to true AI Pcs.
Speaker Change: I'm also pleased to share that we recently expanded our compute portfolio with the Snapdragon X plus platform, which is designed to address a broader range of device tiers.
Cristiano Renno Amon: In XR, we're seeing good momentum in augmented and virtual reality. In particular, the Ray-Ban Metaglass is powered by our Snapdragon AR1 Gen1 platform, continuing to gain traction with consumers. Additionally, the MetaHorizon OS running on Snapdragon is now open and available to third-party hardware makers.
Speaker Change: In XR, we're seeing good momentum in augmented and virtual reality in particular, they ray ban manta glasses powered by our Snapdragon <unk> Gen. One platform continue to gain traction with consumers. Additionally.
Speaker Change: Additionally, the met that Horizon OS running on Snapdragon is now open and available to third party hardware makers. This is a significant milestone as it will expand the device ecosystem.
Cristiano Renno Amon: This is a significant milestone as it will expand the device ecosystem. Finally, at the Embedded World Conference in Germany, we announced two new solutions for the industrial IoT ecosystem, the Qualcomm QCC730 Micropower Wi-Fi SoC and the Qualcomm RB3 Gen2 Plasma. The QCC730 is specifically designed for IoT connectivity in battery-powered industrial, commercial, and consumer applications, featuring 88% lower power consumption than previous generations. And the RB3 Gen2 platform is a complete hardware and software solution designed for a wide range of products, including various types of robots, drones, industrial handheld devices, and more.
Speaker Change: Finally at the embedded World Conference in Germany, We announced two new solutions for the industrial Iot ecosystem.
Speaker Change: Qualcomm QC C 730, Micropower Wifi SLC and the Qualcomm are between Gen II platform.
Speaker Change: <unk> 730 is a specifically designed for Iot connectivity in battery power industrial commercial and consumer applications, featuring 88% lower power consumption than previous generations.
Speaker Change: And they are between Gen. Two platform is a complete hardware and software solution designed for a wide range of products, including various types of robots drones industrial handheld devices and more the RB tree is supported by the recently announced AI hub and also feature.
Cristiano Renno Amon: The RB3 is supported by the recently announced AI Hub and also features support for Qualcomm Linux, a comprehensive package of operating system, software, and developer tools for our IoT platform. In summary, we're very pleased with the continued progress on our growth and diversification strategy. Beyond handsets, we have established leadership positions across automotive, XR, and networking, and we are well positioned to do the same in PCs, industrial, and edge AI. We're optimistic about the opportunities ahead for the company and will continue to execute on our plan to deliver long-term growth and value for shareholders. I would now like to turn the call over to Akash.
Speaker Change: Support for Qualcomm Linux, a comprehensive package of operating system software and developer tools for our Iot platforms.
Speaker Change: In summary, we're very pleased with the continued progress on our growth and diversification strategy beyond handsets, we have established leadership positions across automotive XR and networking and we are well positioned to do the same in bce's industrial and edge AI, where.
Speaker Change: We're optimistic about the opportunities ahead for the company and will continue to execute on our plan to deliver long term growth and value for shareholders I would now like to turn the call over to our cash.
Akash Palkhiwala: Thank you, Cristiano, and good afternoon, everyone. I'll start with our second fiscal quarter earnings. We are pleased to announce another quarter of strong non-gap results, with revenues of $9.4 billion and EPS of $2.44, which was above the high end of our guidance. QTL revenues of $1.3 billion, an EBT margin of 71%, were in line with our expectations. QCT delivered revenues of $8 billion, and an EBT margin of 29%, which was at the high end of our guidance range, reflecting strength across handset and automotive.
Speaker Change: Thank you Krishna and good afternoon, everyone I will start with our second fiscal quarter earnings. We are pleased to announce another quarter of strong non-GAAP results with revenues of $9 4 billion and EPS of $2 44.
Cash: Which was above the high end of our guidance range Qt.
Cash: QTL revenues of $1 3 billion and EBT margin of 71% were in line with our expectations.
Cash: <unk> delivered revenues of $8 billion in.
An EBIT margin of 29%, which was at the high end of our guidance range, reflecting strength across handset and automotive.
Akash Palkhiwala: QCT hands-up revenues of $6.2 billion included the benefit of flagship Android smartphone launches powered by our Snapdragon 8 Gen 3 mobile platform. QCT IoT revenues increased 9% sequentially to $1.2 billion, which was slightly better than our expectations. We had another record quarter in QCT Automotive, with revenues increasing by 35% on a year-over-year basis, reflecting increased content in new vehicle launches with our Snapdragon Digital Chassis product. We returned $1.6 billion to stockholders during the quarter, including $731 million in stock repurchases and $895 million in dividends.
Cash: Qcd handset revenues of $6 2 billion included the benefit of flagship Android smartphone launches powered.
Cash: By our Snapdragon eight Gen III mobile platform.
Cash: Qcd Iot revenues increased 9% sequentially to $1 2 billion.
Cash: Which was slightly better than our expectations.
Cash: We had another record quarter in Q city automotive with revenues, increasing by 35% on a year over year basis, reflecting increased content in new vehicle launches with our snapdragon digital chassis products.
Cash: We returned $1 6 billion to stockholders during the quarter, including $731 million in stock repurchases and $895 million in dividends.
Akash Palkhiwala: During the quarter, we also announced an increase in our quarterly dividends from $0.80 to $0.85 per share, consistent with our commitment to dividend growth. Lastly, the sale of the restraint control system business successfully completes the divestitures of the non-arrival businesses related to our acquisition of Vioneer. We are very pleased with this acquisition, and the Arriva team is executing on the development of our computer vision and drive policy ADAS software stack, targeting vehicle launches starting in late 2025. Now, turning to guidance.
Cash: During the quarter, we also announced an increase in our quarterly dividends from 80 to 85 per share consistent with our commitment to dividend growth.
Cash: Lastly, the sale of the restraint control system business successfully completes the divestitures of the non arrival businesses related to our acquisition of year on year.
Cash: We are very pleased with this acquisition and the arrival team is executing on the development of our computer vision and drive policy Adas software stack.
Cash: Getting vehicle launches starting in late 'twenty five.
Akash Palkhiwala: Our forecast for global 3G, 4G, and 5G handset units remains unchanged for calendar 24. We estimate that global handset shipments will be flat to slightly up on a year-over-year basis. This includes expected growth of high single-digit to low double-digit percentage in 5G hands-on. For the third fiscal quarter, we're forecasting revenues of $8.8 to $9.6 billion and non-cap EPS of $2.15 to $2.35. In QTL, we estimate revenues of $1.2 to $1.4 billion and EBT margins of 69 to 73 percent, reflecting normal seasonality for handset units.
Cash: Now turning to guidance our forecast for global <unk> handset units remains unchanged for calendar 'twenty four we estimate that global handset units will be flat to slightly up on a year over year basis.
Cash: This includes expected growth of high single digit to low double digit percentage in <unk> handsets.
Cash: For the third fiscal quarter, we are forecasting revenues of eight 8% to $9 6 billion and non-GAAP EPS of $2 15 to $2 35.
Cash: In QTL, we estimate revenues of one two to $1 4 billion and EBT margins of 69% to 73%, reflecting normal seasonality for a handset units.
Akash Palkhiwala: In QCT, we expect revenues of $7.5 to $8.1 billion and EBT margins of 25 to 27%. Consistent with our previous comments, we anticipate QCT handset revenues to decline by a mid-single-digit percentage sequentially, reflecting a seasonal trend due to the absence of flagship handset launches in the quarter. We expect QCT IoT revenues to grow sequentially by a low to mid-single-digit percentage as we continue to see a gradual recovery from the macro factors impacting the industry.
Cash: In <unk>, we expect revenues of seven 5% to $8 1 billion and EBT margins of 25% to 27%.
Consistent with our previous comments, we anticipate <unk> handset revenues to decline by mid single digit percentage sequentially, reflecting the seasonal trend due to the absence of flagship handset launches in the quarter.
Cash: We expect Q city Iot revenues to grow sequentially by low to mid single digit percentage as we continue to see a gradual recovery from the macro factors impacting the industry.
Akash Palkhiwala: Following our record performance in the second fiscal quarter, we expect QCT automotive revenues to grow by a low double-digit percentage quarter-over-quarter as the increase in our designment pipeline continues to materialize. Lastly, we expect non-GAAP operating expenses to be approximately $2.2 billion.
Cash: Following a record performance in the second fiscal quarter, we expect UCT automotive revenues to grow by low double digit percentage quarter over quarter.
Cash: The increase in our design win pipeline continues to materialize into revenue.
Cash: Lastly, we expect non-GAAP operating expenses to be approximately $2 2 billion.
Akash Palkhiwala: In closing, we are pleased with our execution and financial performance for the first half of the fiscal year. Specifically, we saw year-over-year handset revenues from our Chinese OEM increase by greater than 40% in the first half of fiscal 24, reflecting our strong competitive positioning and recovery of demand. Looking forward, our technology leadership positions us to continue to execute on our diversification strategy across IoT and automotive. In IoT, we look forward to normalization and demand across our customer base, ending fiscal 24.
Cash: In closing we are pleased with our execution and financial performance for the first half of the fiscal year.
Cash: Specifically, we saw a year over year handset revenues from our Chinese Oems increased by greater than 40% in the first half of fiscal 'twenty four.
<unk>, our strong competitive positioning and recovery of demand.
Cash: Looking forward, our technology leadership positions us to continue to execute on our diversification strategy across Iot and automotive.
In Iot, we look forward to normalization in demand across our customer base exiting fiscal 'twenty four in.
Akash Palkhiwala: In addition, we're excited about the launch of our next-generation AI PCs powered by our Snapdragon X Elite and X Plus platforms from all leading PC OEMs starting in mid-24. These PCs will deliver industry-leading processor performance, advanced on-device Gen AI features, and extended battery life. In automotive, we are pleased that our design and pipeline has increased from $30 billion on September 22 to approximately $45 billion, providing confidence in executing on our long-term revenue target. This concludes our prepared remarks. Back to you, Mauricio.
Cash: In addition, we're excited about the launch of our next generation AI Pcs powered by our Snapdragon Exolete, an X plus platforms from all leading PC Oems starting in mid 'twenty for these species will deliver industry, leading processor performance advanced on device Jenny I features and extended battery life and auto.
Cash: Motive, we're pleased that our design win pipeline has increased from $30 billion in September 22 to approximately 45 billion.
Cash: Providing confidence in executing to our long term revenue targets.
Cash: This concludes our prepared remarks back to you Mary Sue.
Mauricio Lopez: Thank you, Akash. Operator, we are now ready for questions.
Mary Sue: Thank you.
Speaker Change: Operator, we're now ready for questions.
Operator: To queue a question, press star, then the number 1. To withdraw your question, press star 2. If you're using a speakerphone, please pick up your handset before pressing the numbers. One moment, please, for the first question from Matt Ramsay with Cowan.
Speaker Change: To your question press the Star then the number one.
Speaker Change: The Australia question Press Star two.
Speaker Change: If you're using a speakerphone please pick up your handset before pressing the numbers.
Speaker Change: One moment. Please for the first question from Matt Ramsey with Cowen.
Matthew D. Ramsay: Thank you very much. Good afternoon, everybody.
Matthew D. Ramsay: Thank you very much good afternoon everybody.
Matthew D. Ramsay: Cristiano, I wanted to ask you a question about handset modem and RF architecture as we move into sort of the era of AI in handsets and mobile devices where I think it is likely that the compute system and the memory system of the phone take up more battery life potentially as we try to compute some of these applications for AI inference on the device. And I wonder how that changes your potential opportunity for your modem business integrated with your RF business.
Matthew D. Ramsay: Christina I wanted to ask you a question about sort of handset modem and RF architecture.
Matthew D. Ramsay: We move into sort of the era of AI in handsets and mobile devices, where I think.
Likely that compute system and the memory system of the phone take up more battery life potentially as we try to compete some of these applications are for for AI inference on the device and I Wonder if that.
Matthew D. Ramsay: How that changes your potential opportunity for for your modem business integrated with your RF business there was that.
Matthew D. Ramsay: One of your competitors talked about a socket loss last night, and I think it went to you guys. I wonder if you might comment on how or why, but I think it's a bigger picture question as the compute subsystem of the phone puts pressure on the modem and RF. Does that give you opportunities for further integration? Thanks.
One of your competitors talked about a socket loss last night and I think it went to you guys I Wonder if you might comment on how or why but I think it's a bigger picture question.
Matthew D. Ramsay: The curfew subsystem of the phone puts pressure on the modem and RF does that give you opportunities for further integration.
Cristiano Renno Amon: Hello Matt, thanks for the question. Well, let me unpack this.
Speaker Change: Hello, Matt Thanks for the question well, let me unpack this I think as far as more than RF.
Matthew D. Ramsay: We believe we have a very competitive our effort and our portfolio and we have been really delivering unique features.
Speaker Change: Cross the modem RF assistant, especially on power I, Yeah, as a general comment not related to AI, but a general economy I think as you look Fai running on device Nai running.
Cristiano Renno Amon: I think as far as ModenRF is concerned, we believe we have a very competitive RFRNN portfolio, and we have been really delivering unique features across the ModenRF ecosystem, especially in power. As a general comment, not related to AI, but a general comment, I think as you look at AI running on devices and AI running on the cloud modem becomes more important, especially things like latency of response or hybrid AI models have a new importance in real-time connectivity.
Speaker Change: On the cloud modem becomes more important, especially things like latency of response or hybrid AI models has a new importance of real time connectivity. So we're starting to see more and more of the modem and becoming more important.
Cristiano Renno Amon: So we're starting to see the modem becoming more important. The real advantage for Qualcomm is not only the modem RF, even though I think we're very proud of having the leadership position there, but the fact that we actually created the ability to run AI pervasively on devices without compromising battery life. And that has been reflected in our NPU performance, both on phones as well as on PCs, in cars. And I think that's the key, I think, technology leadership position for AI, which is the best possible performance per watt. Thank you.
Speaker Change: The real advantage for Qualcomm is not only on the modem RF, even though I think we're very proud of having the leadership position. There is the fact that we actually created the ability to run AI pervasive on devices without compromising battery life and that has been reflected within our NPL performance both on phones as well as <unk>.
Speaker Change: And in cars and I think that's that's the key I think technology leadership position for <unk>, which is the best possible performance per watt. Thank you.
Operator: Our next question is from the line of Samik Chatterjee with J.P. Morgan. Please proceed with your question.
Speaker Change: Our next question is from the line of Cemig challenging with J P. Morgan. Please proceed with your question.
Samik Chatterjee: Hi, thanks for the question, and maybe if I can start with Cristiano asking, sort of, you mentioned the strong performance you're seeing in the China market, but maybe any more details in terms of just what you're seeing in the market relative to any specific numbers that you can share, because there's been a lot of conflicting data points about the market being strong in one queue and then maybe taking a breather, so curious to understand what you're seeing on the ground there in terms of the China market, also it's always been sort of a leader in adopting new technology and seems like the AI phones are doing well, so how much of the recent trend do you attribute to the AI led upgrade cycle versus a normal market rebound, and I have a quick follow-up after that.
Speaker Change: Hi.
Cemig: Thanks for the question and then.
Cemig: Maybe if I can start with Cristiano asking sort of you've mentioned the strong performance youre seeing in the China market, but maybe any more details in terms of.
Cemig: What youre seeing in the market relative to any specific numbers that you can share because there's been a lot of conflicting data points about the market being strong in <unk> and then may be taking a breather. So curious to understand what you are seeing on the ground. There in terms of the China markets also it's always been.
Cemig: Sort of a leader in adopting new technology and seems like the iphones are doing well so how much of the recent trend do you attribute to the AI led upgrade cycle versus a normal market rebound and I have a quick follow up after that thank you.
Speaker Change: Thank you Simeon.
Cristiano Renno Amon: Thank you, Samik. So what moves the market for us is premium and high tier. And I think what we're seeing in the Chinese market is that the mix is improving. As the market has stabilized and returned to some form of normality, what we really liked is that within that market, the premium and high tiers, as a percentage continue to increase, and that's actually what's driving the results. And we are seeing the very first instances of on-device AI and Gen AI being launched in premium devices, and that has been responding well to consumers, so it's a positive trend that we like.
Cemig: So what moves the market for us.
Speaker Change: This is premium and high tier and I think what we've seen in the China market is that the mix is improving as the market has stabilized it.
Speaker Change: When when and returned to some form of normality, what we really liked is that within their market premium and high tier as a percentage continue to increase and that's actually what's driving the results and we are seeing the very first.
Speaker Change: Instances of one device and <unk> been launching premium devices and that has been resonating well with consumers. So it's a positive trend that we like.
Cristiano Renno Amon: The other color I'd like to add is that we have not seen signs of weakness in the Android premium market in China, especially with our OEMs. So a lot of the strength is really coming from premium devices from Xiaomi, Honor, OPPO, OnePlus, Vivo. And I think Huawei entering that market actually increased the overall TAM of premium Android.
Speaker Change: The other color I would like to add is.
Speaker Change: We have not seen signs of.
Speaker Change: Weakness in the Android premium market.
Speaker Change: In China, especially with our Oems So a lot of the strength really coming from premium devices from Xiaomi on her Opel oneplus vivo and I think Huawei entering that market actually increase the overall Tam of premium Android.
Akash Palkhiwala: Maybe Samik, to add a couple quick data points on top, as we mentioned in our prepared remarks, for the first half of fiscal 24, our revenue from Chinese OEMs grew by greater than 40% year over year, and that is also reflected in our third quarter guidance. So it's a trend that's holding up as we look forward. And then from a roadmap perspective, as you look into our new premium tier launches coming up later this year, in addition to Gen AI, we'll have our Orion custom CPU cores coming in as well. So we're very excited about the roadmap. I got it.
Speaker Change: Okay, and maybe you can make to add add add a couple of quick data points on top.
Speaker Change: As we mentioned in our prepared remarks first half of fiscal 'twenty for a revenue from Chinese Oems grew by greater than 40% year over year and that is also reflected in our third quarter guidance. So it's a trend that's holding up as we look forward and then from a roadmap perspective as you look into our new prime.
Speaker Change: Liam launches coming up later this year in addition to <unk>.
Speaker Change: We'll have our Orion custom CPU cores coming in as well. So we're really excited about the road map.
Samik Chatterjee: And for my follow-up, maybe, Akash, this is more for you. I mean, when you talked about the seasonality into the June quarter, handshake seasonality is sort of the typical seasonality that you see, and the aggregate results or revenue being better than seasonal is really being driven by autos here with the low double-digit growth that you talked about. Clearly, a very strong pipeline of wins, but how sustainable is this sort of pace of improvement quarter over quarter in terms of revenue?
Speaker Change: And for my follow up maybe because there is more for you I mean, when you talked about the seasonality into the June quarter, Hence if seasonality is sort of the typical seasonality that you see.
Speaker Change: The aggregate results, our revenue being better than seasonal is really being driven by autos yield with the low double digit growth that you talked about clearly very strong sort of pipeline of wins, but how sustainable is this sort of pace of improvement quarter over quarter in terms of revenue just wanted to get a sense. If this is when we start to see more sort of.
Samik Chatterjee: Just want to get a sense if this is when we start to see more sort of an inflection in auto revenue given the strong pipeline you have, and that drives better seasonal results going forward even into the September quarter. Thank you.
Speaker Change: Inflection and auto revenue was given the strong pipeline you have in that drives better seasonal results going forward even into the September quarter. Thank you.
Akash Palkhiwala: Yeah, from an automotive perspective, as you know, we've given out a target of greater than $4 billion in revenue in fiscal 26. And what you're seeing is really our design-win pipeline materializing into revenue on our way to that number. And so that's the framework as to how I think about it. Two key kinds of data points on our design-win pipeline. So, as you'll recall, the last number we'd given was $30 billion in September, about 18 months ago, September 22.
Speaker Change: Yes from a from an automotive perspective as you know we've given out a target of greater than 4 billion revenue in fiscal 'twenty six and what Youre seeing is really our design win pipeline materializing into revenue on our way to that number and so that's that's our that's the framework as to how I'd think about it.
Speaker Change: Two key kind of data points on our design win pipeline. So as you'll recall the last number we had given was 30 billion in September about 18 months ago in September 'twenty two.
Akash Palkhiwala: The updated number that we just provided is $45 billion in design-wins, so obviously, a very significant increase. And an aside: within that, approximately one-third is driven by ADAS. So we're seeing tremendous success now in ADAS, and that's adding to our design-win pipeline.
Speaker Change: The updated number that we just provided is $45 billion of design wins, so obviously, a very significant increase.
Speaker Change: And of note within that approximately one third is driven by a desk. So we're seeing tremendous success now in Adas and that's adding to our design win pipeline.
Operator: Our next question is from Mike Walkley with Canaccord Genuity. Please proceed with your question.
Speaker Change: Our next question is from Mike Walkley with Canaccord Genuity. Please proceed with your question.
Thomas Michael Walkley: Right, thanks. And maybe just building off, you know, the 40% increase in shipments to the Chinese OEMs holding, you know, through the June quarter guidance, just based on your expanding device AI portfolio, is this level of demand sustainable into the back half of the calendar year? Or, put another way, do you expect the smartphone market to have kind of normal seasonal trends after the June quarter dip?
Thomas Michael Walkley: Great. Thanks, maybe just building off that 40% increase in shipments to the Chinese Oems holding.
Thomas Michael Walkley: During the June quarter guidance, just based on your expanding on device AI portfolio.
Thomas Michael Walkley: Level of demand sustainable into the back half of the calendar year or asked another way do you expect the smartphone market to have kind of normal seasonal trends after the June quarter dip.
Akash Palkhiwala: Yeah, so as you'll recall, Mike, we had said earlier that we expect the third quarter to be the lowest quarter from a financial perspective, just given the seasonality of our business. That still holds true.
Speaker Change: Yes, so as you'll recall, Mike we had said earlier that we expect the third quarter to be the low quarter from a financial perspective, just given the seasonality of our business.
Thomas Michael Walkley: So as we go from the third to the fourth quarter and then into fiscal first quarter, which is the December quarter, we expect growth as new launches of phones happen across all major OEMs. And as I said earlier, we're going to have the launch of our Snapdragon 8 Gen 4 chip as well, and we're extremely excited about what that chip does and the launches that will come through that chip later in the year. Specifically, as you think about the fourth quarter, we expect the EPS growth from the third to fourth quarter to be consistent with fiscal 23 and then will grow beyond that into December.
Thomas Michael Walkley: That still holds true so as we go from third to fourth quarter, and then into fiscal first quarter, which is the December quarter, we expect our expect growth.
Thomas Michael Walkley: As new launches our phones happen across all the major Oems and as I said earlier, we're going to have the launch of our Snapdragon eight Gen four chip as well and we're extremely excited about.
Thomas Michael Walkley: What that chip does and the launches that will come through that chip later in the year.
Thomas Michael Walkley: Specifically as you think about fourth quarter, we expect EPS growth from third to fourth quarter to be consistent with fiscal 'twenty three and then we will grow beyond that into the December quarter.
Akash Palkhiwala: Great. That's very helpful. Maybe just for a quick follow-up on the IoT business, it sounds like March is the bottom, as you laid out. Can you maybe update us on the three segments, just what you're seeing in terms of the inventory correction?
Speaker Change: Great that's.
Speaker Change: That's very helpful. Maybe just a quick follow up on the Iot business. It sounds like March is the bottom as you laid out.
Speaker Change: Maybe update us on the three segments, just what youre seeing in terms of the inventory correction.
Akash Palkhiwala: Yeah, so Mike, we talked about December's fiscal first quarter as the bottom quarter. We grew from that into March by 9% sequential growth, which was better than our expectations, and then now we're guiding low to mid single-digit growth into the September quarter.
Speaker Change: Yes, so Mike talked about December fiscal first quarter as the bottom quarter. We grew from that into March by 9% sequential growth, which was better than our expectations and then now we're guiding low to mid single digit growth into into the September quarter. So it's.
Operator: So it's As we outlined at the beginning of the year, we would see improvement through the year, and that trend is holding, and we expect it to hold in the fourth fiscal quarter as well. In terms of different parts within IOT, the consumer is more aligned with phones, so we've seen that recover faster. And then the industrial networking is consistent with what our peers are seeing within those industries, and the recovery timeline is aligned with that.
Speaker Change: As we had outlined at the beginning of the year, we would see improvement through the year and that trend is holding and we expect it to hold in the fourth fiscal quarter as well.
Speaker Change: In terms of different parts within Iot.
Speaker Change: Zuma is more aligned with phones, so we've seen that.
Speaker Change: Recover faster and then the industrial networking is consistent with what our peers are seeing within those industries and.
Speaker Change: And the recovery timeline is aligned with that.
Operator: If you're going to step back and think about our business there, we're pretty excited about new products that are coming out. So Cristiano talked about the PC set of products coming out later this year, and the device launch coming out later this year. But then, in addition to that, we also have new products in industrial and Wi-Fi 7 that will drive growth in this IoT segment as well.
Speaker Change: If you kind of step back and think about our business. There we're pretty excited about new products that are coming out so cristiana talked about the PC set of products coming out later this year.
Speaker Change: Device launch coming out later this year, but then in addition to that we also have our new products and industrial and Wifi seven that will drive growth into.
Speaker Change: Into this Iot segment as well.
Stacy Aaron Rasgon: Our next question comes from Stacy Rasgon with Bernstein Research. Please go ahead with your question.
Speaker Change: Our next question comes from Stacy Raskin with Bernstein Research. Please go ahead with your questions.
Stacy Aaron Rasgon: Hi, guys. Thanks for taking my questions. For my first question, just on the PC Outlook, it does sound like devices are going to be available for purchase in the back half. So, like, how much PC is actually in the Q3 outlook and what should we expect for the PC in the numbers, like, into the second half and beyond? Like, when does PC actually get big enough for us to see it?
Stacy Aaron Rasgon: Hi, guys. Thanks for taking my questions.
Stacy Aaron Rasgon: My first question just on the PC outlook. It does sound like devices, they're going to be available for purchase in the back half. So like how much PC is actually in the Q3 outlook and what should we expect for the PC.
Stacy Aaron Rasgon: In the numbers like into the second half and beyond like when does it actually you get big enough for us to see it.
Akash Palkhiwala: Hey Stacy, thanks for the question. We have a lot of product momentum right now, and especially with all the launches, I would encourage everybody to watch the Microsoft Build event, especially what is happening with on-device AI. There's a lot of product momentum and launches. As those devices start ramping up in volume, and since a lot of them are going to be back to school, it's going to be more of a fiscal 25 event in terms of being material within the IoT segment. Anything
Speaker Change: Hey, Stacy thanks for the question.
Speaker Change: We have a lot of product momentum right now and especially with all the launches I would encourage everybody to go watch the Microsoft build event, especially what is happening with one device AI, there's a lot of product momentum and launches as those devices start to ramp up in volume and since a lot of them are going to be back to school.
Speaker Change: It's going to be more of a fiscal 'twenty five event in terms of being material within the Iot segment anything you'd like to add just maybe in our June quarter guidance, there isn't a material PC volume forecasted in our numbers.
Akash Palkhiwala: This may be in our June quarter guidance; there isn't any material PC volume forecasted in our numbers. Yeah, one thing we're going to do. I'm sorry, just real quick, one thing we're going to do, like we provided an update on Alto this quarter; we're going to provide a more detailed update next quarter on PCs, especially as we're going to have those devices outlaunched.
Speaker Change: One thing we're going to do.
Speaker Change: Sorry, just real quick one thing we're going to do like we provide an update on alto. This quarter, we're going to provide a more detail update next quarter on PC, especially as we're going to have those devices are launched.
Stacy Aaron Rasgon: That's helpful. For my follow-up, I wanted to ask about Huawei revenue. So in the queue, it says that you're not expecting any further product revenue from Huawei beyond the end of the calendar year. So I know it's only low-end 4G that's left, but like, how big is that now in the numbers, and how much of that will be going away at the end of the year?
Speaker Change: Got it that's very helpful.
Speaker Change: For my follow up I wanted to ask about quality revenues in the Q. It says that you're not expecting any further product revenue from Huawei beyond the end of the calendar year. So I know, it's only low end <unk>, that's left but like how big is that now in the numbers and how much of that will be going away I ended the calendar year.
Akash Palkhiwala: Yeah. So, Stacy, if you look at Huawei, as you've seen, they've launched multiple tiers of 5G devices already with their own chips, and clearly, we don't participate in those devices. What we are shipping at this point is the license that we have is for 4G chips, and as you rightly pointed out, it's at the low end of the spectrum. What we outlined in the queue is, since the devices will eventually transition all to 5G, we don't expect any revenue from the Huawei product business in 2014.
Speaker Change: Yeah. So Stacy if you look at Huawei as you've seen they've launched multiple tiers of five G devices already with their own chips and clearly we don't participate in those devices.
Speaker Change: What we are shipping at this point is the license that we have is for <unk> and as you as you rightly pointed out it's at the low end low end of the spectrum.
Speaker Change: What are what we outlined in the Q is.
Speaker Change: Since the devices will eventually transition to <unk>, we don't expect any revenue from Huawei product business in 2005.
Operator: Our next question comes from the line of Chris Caso with Wolf Research. Please go ahead with your question.
Speaker Change: Our next question comes from the line of Chris Caso with Wolfe Research. Please go ahead with your question.
Christopher Caso: Yes, thank you. Good afternoon, The question is on QTL, and, you know, it sounds like you're starting to see some degree of improvement, you know, particularly among the Chinese OEMs in the QCT business, but that has so far hasn't translated to the QTL business. Can you talk about, you know, sort of the lag between the recovery in those segments and, you know, what your level of optimism or not is for, you know, sort of breaking out of this range in the QTL business?
Christopher Caso: Yes. Thank you good afternoon.
Christopher Caso: <unk> is on QTL and.
Christopher Caso: It sounds like that Youre, starting to see some degree of improvement, particularly among the China Oems in the <unk> business, but that has thus far hasnt translated to.
Christopher Caso: To the QTL business can you talk about sort of the lag between.
Christopher Caso: The recovery in those segments and what your level of optimism or not is.
Christopher Caso: So breaking out of this range in the QTL business.
Akash Palkhiwala: Yeah. So, as you know, the QTL business is really driven by the size of the market, and there is a cap on the total ASPs up to which the percent royalty rate applies. So, as we've seen, the benefit on the QCT side is a lot driven by more units at the premium tier, especially above $400 in price. But it's not something that benefits the QTL business directly the way the royalty program is structured. So, that's the disconnect between the two. Got it, that's helpful.
Speaker Change: Yes, so as a as you know well QTL business is really driven by the size of the market and there is a cap on the total asp's up to which the royalty rate the percent royalty rate applies so.
Speaker Change: As we have seen the benefit on the <unk> side is a lot driven by more units at the premium tier, especially above 400.
Speaker Change: And price.
Speaker Change: It does not it's not something that benefits the QTL business directly the way the royalty program is structured so that is the disconnect between the two.
Speaker Change: Got it Thats helpful.
Christopher Caso: As a follow-up, you know, with regard to the AI handsets, a lot of the questions that we receive on this are, you know, sort of why and, you know, what are the applications, and what are the reasons for a consumer to upgrade their handsets to AI. You know, Cristiano, you talked about the developer hub that you're running, you know, perhaps that gives you some insight into what the developers are doing, you know, what's going on in the pipeline that will drive these AI handsets out.
Speaker Change: As a follow up.
Speaker Change: With regard to the AI handsets, you know a lot of the questions that we receive on this is sort of why and.
Speaker Change: What are the applications what are the reasons for a consumer to upgrade their handsets too to AI Christian I know you talked about the developer hub that youre running perhaps that gives you some insight into what the developers are doing whats going on in the pipeline that will drive these AI handset sales.
Cristiano Renno Amon: Look, it's a great question. And I want to step back and say, in general, I think AI is going to benefit all devices. I think AI, when it extends to running on devices, besides the benefit of working alongside the cloud, it has completely new use cases: privacy, security, latency, cost, personalization, etc. Here's how you should look into this.
Speaker Change: Look it's a great question.
Speaker Change: I wanted to step back and say in general I think AI is going to benefit all the devices I think AI when extends to running one device. Besides the benefit of <unk>.
Speaker Change: Working alongside the cloud they have completely new use cases privacy security latency cost personalization et cetera.
Speaker Change: Here's how you should look into this.
Cristiano Renno Amon: In the same way that when smartphones started, you had a handful of apps that eventually grew to thousands and hundreds of thousands of apps, and that was really the user experience. I think we're in the very early stage, and you're starting to see some of those use cases, and you have exactly that moment. Some of the phones have 10 apps, and they're growing. One of the reasons we have the AI Hub is because this is a new, I think, moment for the industry. It works a little bit differently.
Speaker Change: In the same way in the same way that when the smartphone started you have a handful of apps that eventually grew two thousands and hundreds of thousands of apps and that was really the user experience I think we're in the very early stage and you're starting to see some of those use cases and you have exactly that moment some of the phones have 10.
Speaker Change: Apps.
Speaker Change: And they are growing and one of the reasons, we have the AI hub because this is a new I think moment for the industry. He works a little bit different it's different than how you think about the traditional app store you'll have many models. Many of the open source models. They can run on a device and they can be attached or built into any.
Cristiano Renno Amon: It's different than how you think about the traditional app store. You have many models, many in the open source models. They can run on the device, and they can be attached to or built into any application. I think what we're starting to see is a lot of developer interest. As we said in the prepared remarks, we have over 100 different models, from models from OpenAI to Yama, 3, and many more. They're quantized and optimized for the NPU.
Speaker Change: <unk>. So I think we're starting to see is a lot of developer interest as we said in the prepared remarks, we have over 100 different models.
Speaker Change: <unk> models from open AI to Jamar.
Speaker Change: Three in many theyre quantize and optimize to the <unk> when they are optimized using the tool they run four times faster than the model without optimization.
Cristiano Renno Amon: When they are optimized using the tool, they run four times faster than the model without optimization. Those models and those use cases have started to be implemented in apps, whether it's an image or associated with a camera. Or it's associated with language.
Speaker Change: And those models and those use cases started to be implemented in apps, whether is an image or associated with a camera. It is associated with language. So we're at the beginning of that transition, we really like what we see because it's really creating.
Operator: So we're at the beginning of that transition. We really like what we see, because it's really creating a reason for people to buy a new device. It's going to be the same on PCs. It's going to be the same as they come to cars as well, and industrial. So it's an exciting tailwind, I think, for our strategy of actually driving computing and connectivity at the edge.
Speaker Change: The reason for people to buy a new device is going to be the same on PC is going to be the same.
Speaker Change: As they come to cars as well and is in industrial so it's an exciting tailwind I think for our strategy of actually driving computing and connectivity at the edge.
Timothy Michael Arcuri: Our next question is from the line of Timothy Arcuri with UBS. Please proceed with your question.
Speaker Change: Our next question is from the line of Timothy Arcuri with UBS. Please proceed with your question.
Timothy Michael Arcuri: I wanted to ask about the mix of the business and, you know, as you said Akash, China's holding up quite well. It's up, you know, 40% year-over-year in the fiscal first half, but it's within shouting distance of kind of where it peaked on a quarterly basis back in fiscal 22 when they were obviously, you know, over building at that time. So can you talk a little bit about what's happening there? How much of the, you know, year-over-year growth is units versus pricing?
Timothy Michael Arcuri: Thanks, a lot I wanted to ask about the mix of the business and as you said of course, China's holding up quite well, it's up 40% year over year in the fiscal first half.
Timothy Michael Arcuri: It's within shouting distance of kind of where it peaked.
Timothy Michael Arcuri: Quarterly basis back in fiscal 'twenty two when they were obviously over building at that time. So can you talk a little bit about what's happening there how much of the year over year growth is units versus pricing.
Akash Palkhiwala: Yeah, thanks, team. It's, as we said earlier, really the biggest benefit we're seeing is the mix being stronger. And as you know, we are strong; competitive positioning is stronger at the higher tiers. And so that's helping us. The second is, when you look at generation over generation, the chips, especially at the premium tier, are getting more capable as more, not just Gen AI, but other additional capabilities are being integrated into the chips, and there's strong competition between the OEMs.
Speaker Change: Yes, thanks team.
Speaker Change: It's as we said earlier, it's really the biggest benefit we're seeing is the mix being stronger and as you know we are strong.
Speaker Change: Competitive positioning is stronger at the higher tiers, and so thats, helping us. The second is when you look at generation over generation of chips, especially at the premium tier of getting more capable as more.
Speaker Change: Not just Jennie O, but other additional capabilities are being integrated into the chips and the strong competition between the Oems. So there's demand for those capabilities. So we're seeing that come through as well and it's really a combination of those things that is driving strength.
Akash Palkhiwala: So there's demand for those capabilities, and we're seeing that come through as well. And it's really a combination of those things that is driving strength versus an unit upside. The unit size we are seeing is very much aligned with the market forecast, which says a flat market versus last year.
Speaker Change: <unk> is a unit upside the unit more unit size. We are seeing is very much aligned with the market forecast, which which says flat market versus last year.
Timothy Michael Arcuri: I got it, okay. And then just as a quick follow-up, how sustainable are these RF WINS that you've obviously gotten for this upcoming phone? Should we consider that as kind of part of the modem, so when the modem goes away, the RF WINS also go away?
Speaker Change: Got it Okay, and then just as a quick follow up.
Speaker Change: How sustainable are these RF.
Speaker Change: RF wins that you've obviously gotten for this upcoming phone.
Speaker Change: Should we consider that as kind of part of the modem. So when the modem goes away. The RF wins also go away.
Akash Palkhiwala: So, of course, we will not talk about any specific customer here, but I think I'd go back to the very first question that Cristiano answered. The key thing for us is the modem RF architecture and how, when we develop the end-to-end together, it creates an advantage for us in terms of performance, and in terms of time-to-market for our customers as well. And that's a sustainable advantage that will stay with us going
Speaker Change: So of course, we'll not talk about any specific customer here, but I think I'd go back to the very first question that cusano answered.
Speaker Change: The key thing for Us is.
Speaker Change: The modem RF architecture, and how when we develop the end to end together it creates an advantage for us in terms of performance in terms of time to market for our customers as well and that's a that's a sustainable advantage that will stay going forward for us.
Speaker Change: Yeah.
Operator: Our next question is from the line of Tal Liani with Bank of America. Please proceed with your question.
Speaker Change: Our next question is from the line of Tal Leone with Bank of America. Please proceed with your question.
Tal Liani: Hi, guys.
Tal Liani: When I look at your numbers, you bid the numbers mainly on handsets. It's both for QTL and QCT, of course, and I'm trying to understand how much of the art performance is just China versus the rest of the world? When you look at the rest of the world, what were the trends when it comes to your QCT shipments and QTL? And then within China... Where are we in the recovery cycle, right?
Tal Liani: And they look at your numbers.
Tal Liani: You beat the numbers mainly on the headset.
Tal Liani: Both for QTL, and <unk> of course, and I'm trying to understand.
Tal Liani: How much of the outperformance is just China versus the rest of the world. So.
Tal Liani: When you look at the rest of the world what were the trends.
Tal Liani: When it comes to your Qcd shipments in QTL and then within China.
Tal Liani: Where are we in the recovery cycle right. There is there is ongoing growth, but there is what we're seeing now in the first half of the year. It's mainly the recovery from last year. So are you in now at normal levels and from here it should trend.
Tal Liani: There is ongoing growth, but what we're seeing now in the first half of the year is mainly recovery from last year. So are you now at normal levels? And from here, should it trend normally based on demand, or are we still recovering from the lull of last year?
Tal Liani: Normally based on demand or are we still recovering from the low of last year.
Akash Palkhiwala: Yeah, so a couple of comments. First, on the overall picture across OEMs. So China saw a very significant benefit, but we had strength across other parts of the Android ecosystem as well. And so it's not something that was isolated to one or two OEMs. It was a broad trend that is just representative of the overall market and the makeshift that we discussed in the overall market. On your second question, as we think about our strength in handsets, we are very optimistic that as we go forward, this is a trend that holds forward. This is not about inventory. As I said earlier, the units are actually aligned with the size of the market, and the trends are really driven by mix and increased demand.
Speaker Change: Yes so.
Tal Liani: Couple of comments first is on on.
Tal Liani: On the overall picture across Oems, So China saw a very significant benefit, but we had strength across other parts of the Android ecosystem as well and so it's.
Tal Liani: It's not something that was isolated to one or two Oems. It was a broad trend that is just representative of the overall market and the mix shift that we discussed in the overall market.
Speaker Change: On your second question.
Tal Liani: As we think about our strength in handsets, we are very optimistic that as we go forward. This is a trend that holds forward. This is not about inventory.
Tal Liani: As I said earlier the units are actually aligned with the size of the market and.
Tal Liani: And the trends are really driven by mix and increased content.
Speaker Change: Got it okay.
Tal Liani: Got it. OK. Second question, just one.
Speaker Change: Second question just.
Speaker Change: On.
Tal Liani: The AI, I don't know if it's possible to quantify at all, but if you look at the non-AI QCT contribution versus an AI QCT contribution when AI is included in the mix, is there a number where it comes to the increase in content per phone? Does it mean that the semiconductor there is going to be more expensive, a higher price for you? So even if the market doesn't grow, can you grow just by the market shifting to AI? That's theoretical, but I'm trying to isolate the impact of AI.
Speaker Change: AI I don't know if its possible to quantify at all but if you look at the non AI UCT contribution versus an AI <unk>.
Speaker Change: The contribution when AI is included in the mix.
Speaker Change: Is there a number where it comes to the increase in content per phone.
Speaker Change:
Speaker Change: Does it does it mean that the semiconductor there is going to be more expensive higher price for you. So even if the market doesn't grow can you grow just by the market shifting to AI.
Speaker Change: Radical, but I'm trying to isolate the impact of AI.
Cristiano Renno Amon: A lot of people are tall, but let me try to give you maybe an answer to help explain this. In the first step, a lot of the increased content and ASP on QCT chipsets, including premium, have been driven by the compute part. And it's more performance on the compute, CPU, GPU, and the NPU. Second, the NPU has been the largest area of silicon growth in those chips. So, generation over generation, one of the largest improvements has been the NPU for AI.
Speaker Change: No.
Speaker Change: People are tough, but but but let me try to let me try to give you maybe an answer that to help explain this.
Speaker Change: In forest step a lot of the increased content and ESP on <unk> chipsets, including premium has been driven by the compute part.
Speaker Change: And as more performance on the compute.
Speaker Change: CPU GPU and DNP second <unk> has been the largest.
Speaker Change: Area of Silicon growth in those chips, so generation over generation in one of the largest improvements has been the <unk> for AI and AI is driving a lot of silicon content in those devices, because they expected computational capability to run those models.
Cristiano Renno Amon: And AI is driving a lot of silicon content in those devices because they expect computational capability to run those models. The benefit financially, I think it's going to come probably in the way that you're starting to see the beginning of it right now, which improves the mix.
Speaker Change: The benefit financially I think it's going to come probably in the in the way that is that you're starting to see the beginning of it right now which improves the mix users or want to buy a more capable phone that can run AI. So drives the market towards a richer mix of higher and premium tier.
Cristiano Renno Amon: Users want to buy a more capable phone that can run AI. So, it drives the market towards a richer mix of higher and premium tiers, share gains, and then an upgrade cycle as people want to buy a new phone. That's how we should think about it in phones. The PC is a little different.
Speaker Change: Share gains and then an upgrade cycle as people want to buy a new phone. That's how we should think about it in phones.
Speaker Change: PC is a little different as we entered the PC I think the AI and the ability to run on device AI better than any of our peers on on a laptop I think is going to be a tailwind to that capability.
Cristiano Renno Amon: As we enter the PC, I think AI and the ability to run on-device AI better than any of our peers on a laptop are gonna be a tailwind to that capability. Car, it builds more value on top of the platforms that are being commercialized and designed when, with the increase in the pipeline, especially for many of those platforms, we can do a softer upgrade to be able to run Gen AI on those vehicles.
Speaker Change: Car builds more value on top.
Speaker Change: The platforms that we are that are being been commercialized in design win with the increase of the pipeline, especially in many of those platforms, where we can we can do a software upgrade to be able to run.
Speaker Change: G&A I on those vehicles, so I think thats, how this is going to materialize for Qualcomm.
Cristiano Renno Amon: So I think that's how this is going to materialize for Qualcomm. The last part of my answer is industrial, which is a new area that we're trying to upgrade to higher performance from microcontrollers to higher performance computing connectivity. I think Edge AI is proving to be a key attribute of this market going forward.
Speaker Change: The last part of my answer is industrial which is a new area that we're trying to upgrade to higher performance from Microcontrollers to high performance computing connectivity I think Ajay is proving to be.
Speaker Change: A key attribute of this market going forward.
Speaker Change: Yeah.
Operator: Our final question is from the line of C.J. Mews with Canterford Sherald. Please proceed with your question.
Speaker Change: Our final question is from the line of C. J Muse with Cantor Fitzgerald. Please proceed with your question.
Christopher James Muse: Yeah, good afternoon. Thank you for taking the time to answer the question.
Speaker Change: Yes, good afternoon, and thank you for taking the question I guess I was hoping you could speak to your <unk> gross margins impressively held flat despite revenues down 5% and I guess the real question here is it's not just you know how you did it this quarter, but how should we be thinking about as you bring on non headset revenues to the model.
Christopher James Muse: I guess I was hoping you could speak to QCT's gross margins. They impressively held flat despite revenues being down 5%. And I guess the real question here is not just how you did it this quarter, but how should we be thinking about as you bring in non-handset revenues to the model, what incremental gross margins might look like for QCT, particularly as we think about AIPC and IoT as well as auto given that growing backlog.
Speaker Change: Incremental gross margins might look like for <unk>, particularly as we think about.
Speaker Change: IPC and Iot as well as auto given that growing backlog.
Akash Palkhiwala: Yeah, thanks, CJ. Yeah, I think the first couple quarters of this fiscal year we've definitely seen strength and margin, and it's driven by the richer mix that we've discussed on the call. What we're guiding for the third quarter is a sequential decline, again, reflecting a kind of lack of flagship launches in the quarter. No change to what we've said on gross margins before. We've given a range, and we've been operating at the high end of the range, but no kind of fundamental change to the framework of it going forward.
Speaker Change: Yeah. Thanks C J.
Speaker Change: Yes, I think the first couple of quarters of this fiscal year, we have seen definitely seen strength in margin and that's driven by the richer mix that we've discussed on the call.
Speaker Change: What we're guiding for the third quarter is a sequential decline again, reflecting kind of lack of frac ship launches in the quarter.
Speaker Change: No change to what we've said on gross margins before we've given a range and we've been operating at the high end of the range, but <unk>.
Speaker Change: No no kind of fundamentally change on the framework of it going forward.
Christopher James Muse: Great. As a quick follow-up, on the auto side, you talked about the higher backlog and reiterated the four billion plus. Should we be thinking about, you know, kind of amortizing that 26 plus percent growth equally into fiscal 25-26, or might that come in sooner with faster growth into 25?
Speaker Change: Great.
Speaker Change: Follow up on the auto side, you talked about the higher backlog reiterated the $4 billion plus.
Speaker Change: Should we be thinking about kind of amortizing that 26 plus percent growth equally into fiscal 'twenty, five 'twenty, six or or might that come in sooner with faster growth into 'twenty five.
Akash Palkhiwala: Yeah, so I mean, obviously, we're not kind of guiding quarters that far out at this point. But if you kind of take the current run rate and extend it forward towards the 4 billion target, kind of a generally a slope x sloping slope growth increase between the two data points is a reasonable way of talking.
Speaker Change: Yes, so I mean, obviously we are not.
Speaker Change: Guiding quarters that far out at this point, but.
Speaker Change: If you if you take the current run rate and extended forward towards the $4 billion target.
Speaker Change: Kind of generally.
Speaker Change: Slope.
Speaker Change: A sloping sloped growth increase between the two data points is a reasonable way of thinking about it.
Operator: Thank you. That concludes today's question and answer session. Mr. Amon, do you have anything further to add before adjourning the call?
Mr. Han: Thank you that concludes today's question and answer session. Mr. Han do you have anything further to add before turning the call.
Mr. Han: Yes.
Cristiano Renno Amon: Just a few comments. I think we're incredibly pleased with our technology and product roadmap evolution. And we're really looking forward to our next generation PCs with Snapdragon. As I said during the call, I encourage everyone to look at the announcement from Microsoft at Build and how that's gonna drive much more AI into the Qualcomm platform. And I was just gonna leave you all with one thought.
Han: Just a few comments I think we're incredibly pleased with our technology and product roadmap evolution.
Han: And we're really looking forward to our next generation Pcs with Snapdragon as I said during the call I encourage everyone to look at the announcements from Microsoft had built and how that's going to drive much more AI into the onto the Qualcomm platform and I was just going to leave you all with a foot.
Cristiano Renno Amon: One great thing about the execution of the company; every time we enter a new market or set ourselves to go into a new market, we end up building a very strong position. We went from mobile to our front end; we became number one. Same thing when we went to Wi-Fi.
Han: One great things about the execution of the company every time, we enter a new market or we set ourselves to go to a new market and we end up building a very strong position. We went from mobile to RF front end, we became number one same thing when we went to Wi Fi.
Cristiano Renno Amon: Automotive, it was something that we had ambitions to build as part of the diversification. I think we're quickly becoming the industry partner of choice. We believe that there's a long-term opportunity with virtual reality and augmented reality. And now we have the absolute majority of the designs.
Han: Automotive it was something that we had ambition to build as part of the diversification I think we are quickly becoming the industry partner of choice.
Han: We are believe there's a long term opportunity with virtual reality augmented reality and now we have the absolute majority of the designs and with PC, we clearly build the leading platform and we have the product momentum that we hopefully will translate into financial in the coming year. So I just wanted to state that we feel good about it.
Cristiano Renno Amon: And with PC, we clearly built the leading platform, and we have the product momentum that we hopefully will translate into financial results in the coming years. So I just wanted to state that we feel good about the company's technology capabilities and how we're driving growth and diversification for shareholders. Thank you very much for the support. Thank you to all our employees. And I'm looking forward to talking to you on the next call.
Han: Company technology capabilities, and how we're driving growth and diversification for shareholders. Thank you very much for your support. Thank you to all our employees and I'm looking forward to talk to you in our next call.
Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Mr. Han: Yeah.
Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect.