Qualcomm CEO Shares the Company's Disruption Strategy | At Barron's

Nice to see you too.

Simple. It's actually not complicated. I knew you were going to say that. Qualcomm has a licensing business model and I think that's the old business of Qualcomm. It's a great business. It will continue to be a great business, but that's relatively simple. I think when Qualcomm came up with the technologies that were the foundation for 3G, 4G, 5G, soon 6G, we decided to openly license so everybody can build it versus we be the one building the technology and then people pay royalty which is licensed on a fair, reasonable, non-discriminatory way to the wholesale price of the phone. Now that was the main business of Qualcomm several years ago, but now it's the legacy business of Qualcomm. It's a great business, but most of the growth of the company and the large scale business of the company is not the licensing, it's the chip business. We make great chips and those chips go into great devices, and that has been the largest business of Qualcomm and the chip business will continue to be the growth engine of Qualcomm.

I love answering this question. I love it because part of the transformation of Qualcomm, our customers are changing every year. We get a whole new suite of customers that we go to different industries. But let me start answering the licensing business. I think our customers are the smartphone OEMs. All of the smartphone OEMs. We license all the standard essential patents for phones. On chips, in this semiconductor business, it's an ever-expanding customer list. We started in the mobile industry and then we provided technology, processors, the Snapdragon processors that go into the Android smartphones to all of the Android smartphone makers. We also provide today a modem that goes into the iPhones. We provide the chip that makes the cell connections on the iPhone. We provide chips to the infrastructure vendors, companies like Nokia and Ericsson. That's the mobile business. Then we have in the wearable business, we provide chips that go into smart watches to all the smart watch companies, the watch brands. We provide chips that go for audio products and all the consumer electronics, the audio brands, all the wearables. Now with smart glasses, we provide chips into the glass companies and now a lot of the eyeglass companies are getting into the business as well. Automotive: every single car company in the world, no exception. It's a Qualcomm customer, one form or the other. We work with all the Americans, all the Europeans, all the Japanese, all the Koreans, all the Indians, all the Chinese, whether it's connecting the car to the cloud, the processors that drive the car, as well as autonomy. And now as we enter industrial, we're creating a new suite of customers from energy companies to retail companies to manufacturing companies. So it's an ever-expanding list. We're very proud and it's a good proxy of the diversification of the company, all those new industries that we're providing chips.

Four years ago in June 2021.

Yes. So it was very clear to us that the assets of the company — and the elevator pitch on Qualcomm, if anybody asked me what Qualcomm does, I'll say everything wireless communication, high performance low power computing, and very disruptive processors to run artificial intelligence on devices. Those are the three assets. So I realize that what we have could be disruptive to many industries and we could generate growth by entering new industries beyond mobile. So that's the strategy we have been executing on. On that strategy, I think we established ourselves as probably the leading provider of silicon for the future of the automotive industry. We are entering the PC space. We are now positioned as the company that's going to drive the new wearable AI devices like smart glasses. We're entering next generation industrial and we recently, we've been talking about it, also entering the data center. That's the strategy. We're going to take our technology, we're going to augment it, and we're going to take it to all the different industries. And so far everything is working well. So we're actually very happy with the execution of the strategy. If anything, my own impatience — I've been impatient about wanting to make sure all is happening at the same time. But I think we're taking our successes. We had to focus on automotive first and now that it's going well, we built the PC business. Now we focus on industrial and now it feels we're at this stage that we can start building the data center. We're following a sequence. There's some reasoning behind the madness, but it's all part of this one single strategy that we're going to take our technology everywhere.

Yes. As frustrating as it is, I think the best way for me to describe this is it's a process and we will do what we do best. We're just going to continue executing on it. But the process is a lot of investors think about the Qualcomm of the past. That company is no longer here. It's a new Qualcomm. It's the same great spirit of innovation, the same technology, but it's a company that is now present in more markets than just mobile. Most investors look at Qualcomm as a mobile company because that's our largest business. I recognize that. It's the largest component of Qualcomm's revenue and earnings. It's interesting, even you starting this conversation asking about the licensing business, which a lot of investors have a memory thinking about Qualcomm licensing business, licensing disputes, mobile's concentrated as growth. But if you get past that and you actually look at what the real Qualcomm is today, and you look at how essential we have become to the auto industry and how much excitement and technology there is in auto, how well positioned we are for the AI happening at the edge because AI is going to get scale and it's going to happen in all the devices in all the industries we're present, and how we actually have an IP portfolio that every industry we said we're going to go, we end up building the leading platform, then you think about the incredible potential. When I look at our multiples, I think we're trading at mobile multiples and I think that means we're trading at a discount because investors are not yet looking at those markets. I recognize they're growing. Eventually, they're going to be a much larger percentage of the total revenue. But just think about it, the last two quarters, the first quarter fiscal was record in the history of the company quarterly revenue. We're growing automotive and IoT not only double digit, we're growing automotive in excess of 50%, we're growing the other in excess of 30%. So eventually I think investors are going to get there.

Look, a great adventure. I think it's a great experience. It was such a privilege and a proud moment to be able to witness all of this. But I'm a big believer in US technology for the world. I think we have a great innovation engine in this country and I think the great innovative companies — I look at Qualcomm as probably one in America — and the ability to provide the technology to all the world. I think to foster cooperation and trade, especially for a region that wants to create a new economy beyond energy, I feel there's similarities in how they're thinking about their future and I'm thinking about the future of Qualcomm. It's about growth and diversifying into new areas. I think it's a perfect match and we're incredibly excited about what we're doing in Saudi Arabia as well as the UAE.

Absolutely. Look, I think we're actually — I will say we're very, very happy with the China exposure we have. And I think there's a counterintuitive answer. I'll explain why. China is one of the most competitive markets in the world. And we're a company that has been very successful in China, very successful, and successful across many different industries. If you look at what we're doing, we're doing chips for consumer electronics, we're doing chips for phones, we're doing chips for cars, we're doing chips for PCs. And it's actually contributing a lot to the export of semiconductors to trade. We're in the right direction of trade. When you look at Qualcomm's position in China, first of all, the reason we have a good business is because our technology matters and our technology is very unique and companies all over the world that are looking for innovation are interested in using our technology. Second, it's a great model of what a stable relationship is. We get paid for intellectual property. We provide finished goods. It's in the right direction of trade. We're generating growth for America and growth for our partners in China. It has been a stable relationship if you think about it during the geopolitics that started today, the US China trying to redefine the relationship, actually our business expanded, didn't contract in China. And as we navigate this, of course, like every CEO, I'm focused on what we can control. But what we have seen is there's a desire of the US to continue to export and sell more products into China. There's a desire of China to buy those products. Hopefully, as those discussions progress, we're going to maintain the stability we have today. Having said that, like everybody else, we're just navigating this and focus on what we can control. And the tariff exposure right now, we have no direct tariff exposure. I'll explain that. First, we manufacture our chips all over the place. One thing that most people don't know, 20% of the chips we manufacture are now made in the United States. We manufacture with Samsung and TSMC and GlobalFoundries in the United States. As a matter of fact, I think since 2018 we spent $12 billion in manufacturing of chips within the US fabs cumulative since 2018. So we have a very diverse supply chain. We can navigate this scenario. And on top of it, I think chips have had an exception from the tariffs even when the tariffs were very high between the US and China. China excluded chips from the tariff as well as some of the consumer goods being excluded. The impact that everybody's asking the question and I don't know yet how to answer is the indirect impact. The indirect effect is directly related to consumer confidence. How many phones people are going to buy, how many cars they're going to buy. So far, we have not seen that in our numbers. But we're going to continue to monitor. I think phones is a good proxy of consumer confidence and economic activity. So we'll see how that develops.

Look, as a general statement, without getting into any discussions about what the administration is doing or not doing, I think it's a general statement. R&D for a company like Qualcomm is very important. I think we're part of the innovation economy of the United States and that requires R&D. I think we always believe in the R&D that we do in the United States, the R&D that we do across the world. There is R&D that we do in partnership with our partners, in partnership with universities. R&D is very important. The other thing that's important is we want to attract the best and the brightest to our companies and we continue to be looking for some of the best talent and attract skilled immigration if we have to. I think we pride ourselves on innovation. Most people don't know this, last year we were the number one company in the US in patent applications granted and pending. We're one of the largest patent holders in the United States. And by showing the activity last year, it continues to show our focus. We want to make sure that the best people in the world that are thinking about semiconductor innovation are working at our company.

Look, Nvidia is a great company. I think it's an inspiration for everybody in the semiconductor space of what the potential is and for all the companies what we can be. I think we always believe the semiconductor is very important. I think we in general feel that a lot of the things Nvidia is doing, creating with their training infrastructure, creating a lot of those AI models, those AI models are going to be deployed everywhere and it's going to create great opportunities for us. Specifically on the Qualcomm-Nvidia relationship, as you know we're entering the data center space so I think we have two assets which are going to be very interesting. I think we've proven to have one of the best CPU teams in the world. And as you think about the architecture of the data center, especially the AI data center, Nvidia is basically creating an ecosystem around the NVLink and they announced at their keynote, Jensen announced two CPU partners that are providing CPUs with the NVLink interface, us and Fujitsu. So I think that creates opportunity for our CPU. If we build one of the best CPUs in the world, it creates opportunities for us in the data center. We're excited about that relationship.

Look, I love San Diego. I've been there since I joined Qualcomm in 1995. I think we're very proud to be a San Diego company. Even though we're a global company right now with multiple locations in the United States and across the world, San Diego is our home. That's our headquarters in San Diego. We love the community. We do everything we can for the community in San Diego. A couple examples: the new stadium, which is now Aztec football and the new San Diego FC, is Snapdragon Stadium. We have recently, as part of our anniversary, announced that we're helping a lot of the great institutions in San Diego that are helping the city with the less privileged and the homeless. I think companies have a responsibility for their community and I think we hope to do our part as one of the largest employers in San Diego to make sure we have a great community.

Yes. We're front of shirt for Manchester United. You see this beautiful Snapdragon logo. It goes red and red. I think it's a great partnership. Most people don't know, they have probably about 1 billion fans. Snapdragon has a lot of fans. So it's a great combination and it's part of getting a lot more people to know about Snapdragon because now you don't see Snapdragon only in your phones. You see it in your phone, in your PC, in your car, in your glasses, and in your watch, and hopefully in many more devices.

I was born and raised in Brazil. So soccer is important. I like soccer and I am now a proud fan of San Diego FC.

Well, I didn't expect that to happen, but yes. Born and raised in Brazil, grew up in Brazil, went to engineering school in Brazil. Left Brazil for the first time back in 1994. That was the first time I left the country. I moved to Japan. I was hired by a Japanese company called NEC. Those were the early days of cellular. That was the beginning of cellular. And then in 1994, the same year, I got to meet this great company called Qualcomm because we were evaluating CDMA technology. There was this small company in San Diego that was developing it. That was the first time I actually left Japan on a business trip. I went to San Diego, had a great meeting with this small company called Qualcomm. Went back to Japan and then several months later Qualcomm asked if I wanted to join the company and I joined Qualcomm in 1995 and it's been a 30-year journey. So that's my story.

Look, first of all, you need to look at the capability of Qualcomm's technology and IP. I think there are very few companies with such a diverse IP in so many areas of technology and it's all leading IP. It's not only about 5G, it's Wi-Fi, it's position location, it's Bluetooth, it's CPU, it's GPU, it's NPU for AI, it's image signal processors for camera, it's software. So we have a very diverse IP. We put that to the test. In record time, if you compare to other companies' journey, in record time we said we're going to go to this industry, we're going to go to auto. Our IP is very relevant. All of a sudden we build the leading platform. We're going to go to PC, we build the leading platform. So investors should look at what's really important: can this company have assets that are required for the future of the semiconductor industry including AI? I think we're proving we do. Can this company execute and do what they said they're going to do? I think we're proving that's the case. And can this company get new core competences and learn how to go into new industries? We're doing multiple at the same time. And then I finish with this thought: as long as innovation matters, there's going to be room for Qualcomm. And we look at the trends right now of what's happening with AI changing computers, changing how computers are going to be done, it's going to change how OS, how applications, it's going to change the interface between humans and computers. You look at Qualcomm's presence in all of those industries to be transformed by AI. I am incredibly excited about the company. I hope the investors will be excited about the company as well.

Thank you. Great talking to you.