Qualcomm's QCOM CEO Steve Mollenkopf on Q3 2020 Results

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm third quarter fiscal 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during this time, press star then the number one on your telephone keypad. To withdraw your question, press star then the number two. If 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 July 29th, 2020. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13706353. I would now like to turn the call over to Mauricio Lopez-Odriozola, Vice President of Investor Relations. Mr. Lopez-Odriozola, please go ahead.

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and Akash Palkhiwala. In addition, Christiana Amon, Alex Rogers, and Don Rosenberg will join the question and answer session. You can access our earnings release and any slide presentation that accompany this call on our investor relations website. In addition, this call is being webcast on qualcomm.com, and the replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business-oriented trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from forward-looking statements. And now to comments from Qualcomm's Chief Executive Officer, Steve Mollenkopf.

Thank you, Steve, and good afternoon, everyone. We're extremely pleased to report strong third fiscal quarter results, demonstrating the resilience of our business in a challenging economic environment. We delivered total revenues of $4.9 billion and non-GAAP earnings per share of 86 cents, which was above the high end of our guidance range, primarily driven by stronger results in QTL. In the third quarter, we saw an approximately 20 percent year-over-year reduction in 3G, 4G, 5G handset shipments due to the impact of COVID-19 relative to our prior planning assumption of a 30 percent reduction. In addition, we saw a stronger mix, with higher shipments in China and developed regions, offset by weakness in emerging regions. In QTL, we delivered revenues of $1 billion and an EBT margin of 62 percent, both above the high end of our guidance range due to higher units and stronger regional mix. Please note our third quarter QTL results do not include any revenues from the Huawei settlement or global patent license agreement. In QCT, we delivered MSM shipments of 130 million units, revenues of $3.8 billion, and an EBT margin of 16 percent, which was at the high end of our guidance range. The impact of COVID-19 on emerging regions resulted in fewer low-tier MSM units, offset by improved gross margin as a result of favorable mix. QCT revenues and EBT increased 7 percent and 20 percent respectively on a year-over-year basis. This performance reflects 5G design traction, RF front-end growth, and strength in certain adjacent platforms that benefited from the work-from-home environment. Our non-GAAP combined R&D and SG&A expenses of $1.68 billion were slightly below our guidance. During the third quarter, we paid $733 million in dividends, refinanced $2 billion in debt, and temporarily suspended stock buybacks. I will now provide a financial overview of the resolution with Huawei. We expect to record approximately $1.8 billion of revenue in our fourth fiscal quarter for amounts due under the settlement agreement relating to the prior license period and the new license agreement for the first half of calendar 2020. This amount will be excluded from our non-GAAP results. Please note that this amount is consistent with the framework of our licensing program and incremental to the partial payments received from Huawei under the interim agreement in prior years. In addition, our fourth quarter non-GAAP financial guidance includes estimated QTL revenue from Huawei sales in the September quarter. With the completion of this agreement, we have now licensed all significant handset OEMs worldwide. Turning to the global 3G, 4G, 5G device forecast, given the ongoing uncertainty around the timing of economic recovery, our fourth fiscal quarter forecast is based on a planning assumption of approximately 15 percent year-over-year reduction in handset shipments. This planning assumption reflects a gradual recovery in the September quarter based on the regional trends we saw in the June quarter. Consistent with our prior expectations, our forecast for the first three quarters of 2020 implies a year-over-year reduction of approximately 10 percent to the calendar year total device forecast. However, total units in the fourth quarter will depend on the speed of the economic recovery. Lastly, we're maintaining our forecast of 175 to 225 million units for calendar 2020 5G devices. In the June quarter, we estimate that the sell-in of 5G devices increased to greater than 50 million units. This data point is a strong leading indicator of our confidence in the 5G handset forecast for the year and our bias towards the high end of this range. Turning to our fourth fiscal quarter financial guidance, we estimate fourth quarter GAAP revenues to be in the range of $7.3 to $8.1 billion and GAAP EPS of $2.12 to $2.32, which includes the revenue related to the settlement with Huawei. We expect fourth quarter non-GAAP revenues of $5.5 to $6.3 billion and EPS of $1.05 to $1.25. This guidance includes an impact of greater than 25 cents due to the reduction in handset shipments due to COVID-19, including a partial impact from the delay of a 5G flagship phone launch. In QTL, we estimate fourth quarter revenues of $1.2 to $1.4 billion and EBT margins of 67 to 71 percent. At the midpoint, this guidance implies year-over-year revenue growth of 12 percent, driven by the addition of royalty revenues from Huawei, partially offset by our planning assumption of a 15 percent reduction in handset shipments. In QCT, we expect MSM shipments of 145 to 165 million units, revenues of $4.3 to $4.9 billion, and EBT margins of 17 to 19 percent. These guidance midpoints imply year-over-year growth of 27 percent in revenue and 66 percent in EBT, reflecting the strong execution of our strategy in a challenging economic environment. As we have previously outlined, our front-end is one of the key drivers of our revenue growth. Our fourth quarter forecast includes revenues of approximately $750 million for 4G, 5G sub-6, and 5G millimeter wave content. We anticipate fourth quarter non-GAAP combined R&D and SG&A expenses to be up approximately 5 percent sequentially, reflecting normal seasonality and 5G investments. In closing, I want to thank our employees, customers, and suppliers for their commitment and partnership during these extraordinary circumstances. Looking forward, we are excited to have a strong foundation of growth across our product and licensing businesses. Thank you, and I'll now turn the call back to Mauricio.

Thank you, Akash. Operator, we are ready for questions.

Thank you. To ask a question, press star then the number one. To withdraw your question, press star two. If you're using a speakerphone, please pick up your handset before pressing the numbers. One moment, please. Our first question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

Great, thanks for taking my question, and congrats on the strong results in a tough environment and the Huawei settlement. My question is just helping us understand your revenue per MSM trends going forward. You highlighted in '21 you expect to be the revenue leader in RF. Obviously, that could take up the revenue per MSM, and then you should have a much greater mix of 5G phones over time. So as we look out in the future quarters, how should we think about the pluses and minuses on a revenue per MSM calculation? Thank you very much.

Yeah, hi, Mike. This is Akash. If you look at our trend over the last couple of quarters on our revenue per MSM perspective, we were just over $31 in the second fiscal quarter, and then we reported a little over $28 in the June quarter. And we're guiding a similar number, over $29, in the upcoming September quarter. The premise behind the growth in the revenue per MSM is still consistent with what we had said before, which is as we transition from 4G to 5G, we expect our revenue opportunity to grow by 1.5x. And so as we look forward, we still think that's a kind of a reasonable way of thinking about the trend on revenue per MSM long term. And I think these quarters where we have delivered the results with higher numbers kind of bear out the math behind it.

Right. And maybe just a follow-up, is there any seasonality to those type numbers based on, you know, mix of premium smartphones that we should think about in modeling kind of those trend lines?

Yeah, sure. There'll be a little bit of seasonality based on when our premium tier chipset launches, and which is typically we go heavy on volume on the premium tier in the March quarter. So there'll always be some seasonality, but I think overall that the trend that the last few quarters suggest is a reasonable way of thinking about it.

Hey, Mike, this is Christiana. I just want to add one thing maybe to help you understand it. We may have seen over the, you know, the short period of time, you know, as we look at where the market is given the pandemic, we feel good about 5G units. But when you think about trends, thinking about the 1.5x metric, the more the 5G penetrates into the handset base, I think more that helps our trend of increasing the revenue per MSM. And I think we still have a lot of 4G units out there. We like that accelerated transition to 5G.

Thank you. Our next question comes from Samik Chatterjee with J.P. Morgan. Please proceed with your question.

Oh, hi. Thanks for taking my question. I was just maybe first off, if I can try and understand the MSM unit guidance here and the improvement. It would help if you can kind of unpack it for me a bit in terms of what's the normal kind of market recovery in terms of the sequential improvement that you're thinking of, and then what's, I know you mentioned the delay in the product launch, but what you're assuming in terms of the product launch in that sequential improvement that you have of roughly kind of 15 million at the low end and 35 at the high end. So how much of that is the market recovery and how much of that is the product launch?

All right, sure, Samik. This is Akash. So the midpoint that we're guiding is 155 million units relative to June quarter actuals of 130 million. So I'll try to address it around the midpoint. There are really two drivers for the increase. The first one is we saw some weakness in the low-tier units in the June quarter because of the impact of COVID on emerging markets. So we're seeing that come back in as we look at the forward demand that we're seeing from our customers, so that drives growth on a quarter-over-quarter basis. And then second, we talked about a partial impact from a delay of a 5G flagship phone launch. If you think about a large flagship phone launch, typically for a QCT perspective, our customers end up buying chipsets that facilitate the launch in the couple months before the launch. So what we're really seeing here is because of the delay, a portion of those purchases are happening in the September quarter and they're factored into our guidance, and another portion would get pushed out to the December quarter. So it's a combination of those things. And so going back to answering your direct question, the increase from 130 to 155 is really two drivers: increase in units, especially at the low tier, and then benefit from the new launch.

Okay. And then if I can just follow up on the restrictions in place to Huawei right now, is there an impact on the MSM unit guidance from that? And then with the licensing agreement that you now have, does this potentially open up an opportunity to even kind of ramp up your chip shipments to them in the future if, in the absence of HiSilicon being able to kind of provide them the chipsets that are required for their 5G handsets?

So, Samik, I'll address the first part of the question. At this point, we really don't have any material business with Huawei. So when you think about our MSM unit guidance, there really isn't Huawei volume around it. It's really the other OEMs that we'd be shipping to.

Thank you. Our next question comes from Chris Caso with Raymond James. Please proceed with your question.

Yes, thank you. First question is on QTL, and there's a lot of moving parts as we go into September with, you know, Huawei coming in, the global handset decline, excuse me, and the timing of the flagship. In the past, you've given us some metrics about what the normalized QTL revenue run rate would be. Is that something you could provide us now? You know, if I normalize for all of those exceptional events that are happening now, once I put Huawei in, and maybe you can give us some indication because of those changes this quarter, you know, how much Huawei contributes to QTL in the September quarter?

Yeah, hi, Chris. This is Akash. Let me try to give you a few data points that I think will help with your triangulation. Historically, as we've guided our revenue range for QTL, we've said for the first three calendar quarters, a number of $1.1 billion is a reasonable range, and then for the December quarter, somewhere in the $1.4 billion range. That's kind of our run rate before two key factors. First factor is really the impact of COVID on our guidance. So in the June quarter, we came in a little over $1 billion in revenue in QTL with a market that was 20 percent lower on the handset side from a year-over-year perspective. So 20 percent reduction year-over-year, and we came in a little over $1 billion against a normalized run rate of $1.1 billion. When you look forward, what we're guiding is a midpoint of $1.3 billion, and really there are two factors: Huawei coming in and increasing that number, and a little bit of a decline because based on a 15 percent market weakness that we're assuming. So I think between those numbers, you should be able to triangulate what a normalized run rate is. The key thing for us is just not having insight into COVID going forward and how the recovery happens. So for now, we're guiding the September quarter, but as we proceed, we'll look to give guidance into the normalized run rate.

Well, that's very helpful. Thank you. As a follow-up to that, with regard to QTL margins, you've given guidance for this quarter also. What should we expect going forward on that? I'm assuming that the new Huawei revenue is all incremental, there's no cost associated with that. So is this a reasonable margin run rate, at least for the first three quarters of the year? I suppose it would go higher as you went to the seasonally stronger December quarter.

Yeah, Chris, you're correct on the revenue really falling down to the bottom line from a Huawei perspective. So that's an accurate assumption. I think at the Analyst Day last year, we provided our view on kind of longer-term sustainable margins for QTL, where we said at a midpoint of 70 percent, and with Huawei, it would be slightly higher than that. So I don't believe there's any change to that point of view. I think we still think those are good, reasonable numbers to use to model our business going forward.

Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Please proceed with your question.

Hi, guys. Thank you so much for letting me ask a question. Congrats on the Huawei settlement. Akash, you mentioned earlier in the call about the gross margin within QCT performing well. Can you go in a little bit deeper into that? And really what I want to get into is it doesn't seem like there's a great correlation between the revenue per MSM and the gross margin on the QCT side of things. And given that that revenue per MSM line could be moving all over the place in the next couple quarters given some of these...

I want to understand the relationship between those two dynamics better.

Sure, Ross. So let me maybe quickly talk through what happened in the June quarter. What we saw was versus our guidance of midpoint of 135 million units for the MSM, we saw some weakness at the low tier. And what I referred to in my script was because of the fewer low-tier units that was driven by COVID impact on emerging markets. We saw higher revenue for MSM and a higher gross margin as a result of it. So they both moved in concert at the same time in the same direction. As we look forward to the September quarter, what we're implying in terms of guidance for our gross margin is more in line with what we had guided for the June quarter because we expect the lower-end units to come back into our mix. And really, from a margin perspective, it's very consistent with what we've outlined. Pretty strong margin profile going forward.

Thank you. Our next question comes from Matt Ramsey with Cowen. Please proceed with your questions.

Thank you very much, guys, and congrats on the Huawei deal from myself as well. A couple of questions, Akash. The first one is on OpEx. You talked about it being up with 5G investments and other things. Maybe you could give us a little bit of context as to whether the September quarter number is a realistic run rate going forward, as I know OpEx cost controls have been top of mind given COVID and given some of the QTL things that have happened in the last few years. So that's one. And then the second one is on the settlement, the back payments from the settlement. There's a big sort of cash payment coming into you guys from Huawei. Any thoughts on use of that cash? Thank you.

Yeah, hi, Matt. So on your first question, really what we're guiding is a 5% increase in OpEx quarter-over-quarter. If you look at our historical trend, what we've seen between these two quarters as an example last year, we saw an increase of 4% when you adjust the June quarter for the variable compensation related to the Apple deal. So what we're guiding is really consistent with our historical trend. There's a little bit of an increase, an extra 1% increase, just because of timing of 5G investments. When you pull back and can look at the whole year, we will end up with total OpEx of $6.8 billion, very consistent with what we told you at the analyst day and our forecast for the year. So we really think of OpEx as consistent with our previous commitments, and it's super important for us to continue to manage OpEx well and deliver operating leverage as we grow revenues. And then on the second question on the $1.8 billion, what we have is Huawei is going to pay us $1.8 billion for historical periods, and it's a combination of two things really: the settlement agreement which goes through the end of 2019, and add to it the first six months of 2020 through June. The combined total of that is $1.8 billion. And so that's an amount that they're going to pay over a one-year period with the first payment due in the September quarter.

Got it, thank you. Just a quick follow-up for Cristiano or I guess for Steve as well. You guys talked about the view of 2020 5G units now being maybe at the upper end of the range. And if you put that against a major global launch that might be pushed slightly, was all of that maybe incremental confidence and upside in 5G units in China, or are there other markets that we should be thinking about that are now ramping 5G units with some visibility? Thank you.

Hi, Matt. This is Cristiano. Look, there is an overall, I think, confidence in 5G. If you look at the comment made by Akash in the quarter, I think we saw a better mix than we originally expected, which is offsetting weakness in the emerging markets and mostly 4G low-tier units. What we saw is better units on developed markets, which is just a result of 5G traction. 5G continues to be high. We now have over 80 commercial networks in 35 countries. We have a large number of operators now, 120 of which are working on millimeter wave. And our design traction jumped to 660 designs now on 5G. So 5G momentum has not slowed down and is giving us confidence on the estimate we made for the year.

Thank you. Our next question comes from Tal Liani with Bank of America. Please proceed with your question.

Great, thank you. It's actually a follow-up on a previous answer. When you look at the US and Europe and other places, can you give us a sense of how much of the launches are planned to be with millimeter wave? And then when it comes, do you have an estimate of your market share within millimeter wave? Kind of if you look at the globe, how much do you think you're capturing off of this market initially? Thanks.

All right, so this is Cristiano. Thanks for the question. So let me just start talking about millimeter wave. I know that's a big component of the question. So traction of millimeter wave technology is moving kind of as we expected. I think the current scorecard I can give it to you: United States continue to ramp, Japan recently launched, it was still forecast, Korea to launch within the year, Europe and Russia targeting commercial launches before the end of the year with millimeter wave. And then spectrum auctions had occurred in Hong Kong, Taiwan, Thailand, Singapore, and Finland for commercialization 2021. I think worth noting is there's still expectation that China will have also millimeter wave by 2021. There's a total of 120 operators, so it's really continue to gain traction. We don't disclose specific share, but we do have significant technology leadership in millimeter wave and has been showing into some expansion of our designs. And I think specifically within the United States, which is the largest millimeter wave market, we have now, for example, Verizon with 35 cities now live with Ultra Wideband. AT&T continue to expand as well as T-Mobile, and remains a requirement for all of the flagship devices across the three operators. That means all devices in the US will have millimeter wave. All devices that are being launched in the US will have millimeter wave to support it. Now, you have a combination of millimeter wave and sub-6, and I think as you get some of the refarmed spectrum of DSS, you're going to have that combination of both. Millimeter wave today is a requirement for all flagship devices, and we expect that technology to penetrate down the lower tiers as well over time.

Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.

Hi, guys. Thanks for taking my questions. For the first one, I wanted to see if you could give us some feeling for how that $1.8 billion splits up. I know you gave a little bit of color on kind of 2019 and before and then the first half of 2020, but do we think about that $1.8 broadly applying to like every phone over that period that Huawei didn't pay you for? I mean, since Q3 '17 on top of the $450 million that they paid you already. And I guess for my follow-up, you've talked about revenue per MSM obviously up 50%. If I look where that revenue per MSM number ran, especially when you had Apple in the mix back in the day before, it was about $20. So $1.5 on that would be $30. Is that kind of like the new sort of normal once everything kind of gets into play? That's where we should be thinking about revenue per MSM?

Hi, Stacy, it's Akash. Yeah, so on the $1.8 billion, there again there are two components to that amount. One is the settlement of our previous agreement, and it really captures the period since the entire dispute period that we had with them. And the second component is the first six months of calendar 2020. So that total adds up to the $1.8 billion. It is additive to the two previous shorter-term agreements that we had with them. The total amount of those agreements was approximately $1.2 billion. So it's really $1.2 and $1.8 as a total additive number for the historical. And then going forward, you see it in our forecast for the September quarter. And really, as I said in my prepared remarks, these terms are very consistent with the overall framework of our licensing program. So it's what you would expect given other OEMs and overall licensing program terms. And then revenue per MSM, I think your math is a reasonable way of thinking about it. It's really the 1.5x, which is what you're using, is the framework we use to think about it as well. The one thing I'll maybe caveat is your calculation assumes 100% 5G. So obviously it's going to take some time to get there, and so there'll be a curve into it.

Thank you. The next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.

Hi, thanks for taking my question. This is Ashman on for Rod. I've asked, maybe this is for you. You mentioned about 5G flagship phone delay and its impact on your QCT, but I was wondering if you could help us understand how you thought about its impact on QTL. And in the past, like when Samsung got delayed, it had an impact not just on Samsung but overall handset market. So just wondering if you could give us some color there. And sort of related to, well not exactly related, but my second question is on the June quarter. Units for QCT and QTL units were better, and you self-tied that to the improvement in China. But I was wondering if you could talk about trends outside China and where you potentially saw some strength in the overall market.

Yeah, so I'll maybe start with your second question. In the June quarter, what we saw is strength across China and developed markets. It was kind of broad-based across the developed market landscape in addition to China. China obviously, as I'm sure you're aware, extremely strong numbers. And what it was offset by was weakness in certain emerging markets. So that's kind of the trade-off that we saw between the various markets. On your first question on 5G flagship phone launch delay and how that impacts QTL, the specific scenario that we're talking about, the launch is typically pretty late in the quarter, so it's a much smaller factor for QTL within the September quarter guidance. And we think of it as captured in our total market weakness guidance as a part of COVID. But again, I think it's a much bigger factor for QCT than it is for QTL because the chipset purchases typically happen in large quantities in advance of a launch.

Thank you. Our next question comes from the line of Timothy R. Curran with UBS. Please proceed with your questions.

Hi, this is Pradeep Brahmani standing in for Tim. I guess my first question was around your QCT adjacencies, autos, IoT, and so on. Did they do better than last quarter, and are they sort of approaching now roughly a billion dollars in the quarterly run rate? Can you provide some color on that? And then I have a follow-up.

Yeah, so overall, the way our adjacencies have been performing, we've been pretty happy with it actually. There are certain markets that we're in that definitely benefit from COVID and the work-from-home environment. We have the mobile broadband market, the 5G and 4G CPE and dongles market. All of those have done extremely well. Wi-Fi, we're a very large player in Wi-Fi, and clearly with demand for improved connectivity within the home as people work from home, that has been a pretty strong spot for us as well. And then overall, IoT is also continuing to see strong traction. So when you look at all those markets, which make up kind of broader IoT category for us, a lot of strength across the board. Auto obviously got impacted as a part of just what the industry is going through, but really within auto, a lot of our products are forward-leaning, which is focusing on new launches. And the demand for connectivity and infotainment really hasn't changed fundamentally. So while we're seeing an impact, it's probably a smaller impact than a lot of other peers are seeing in the industry as well. So that's kind of the landscape of our adjacencies.

Okay, and as my follow-up, when we think about your 5G opportunity, especially on the RF front-end, are you sort of gaining share? Is your share gain largely driven by millimeter wave, or are you sort of gaining share across the board? And can maybe sort of speak to just your broad 5G share versus 4G share, I mean, beyond just the 50% increase in ASP.

Hi, this is Cristiano. Yes, on the RF front-end, especially as this is a growth market for us as a new entrant, we are seeing share gains. And we have been very clear: our strategy to really scale in our front-end will be using 5G as the entry point. And as we continue to gain traction for 5G, we're getting designs across sub-6, across millimeter wave, and started to get some traction within 4G as well. Our effort and content as well, and we expect that to continue to be a positive trend attached to our business because of our modem-to-antenna differentiation at the system level.

And this is Akash, just to add a couple quick points. As I said in my prepared remarks, for the September quarter we are expecting RF front-end revenue of approximately $750 million. So very happy about getting to that milestone. And really, as we outlined previously, our target is to grow to approximately 20% share of the RF front-end market. And so between that data point and really the forward traction that Cristiano talked about, we feel very comfortable in being able to hit that target.

Thank you. Our next question comes from Brett Simpson with Arete Research. Please proceed with your question.

Yeah, thanks very much. I have two questions. Maybe just first on Huawei, the settlement. Can you talk about how much of the $1.8 billion is going to be cash in the September quarter? And then if I look at the licensing with Huawei before the dispute, I think it was a SEP licensee. Maybe you can confirm that. And I'm just wondering, with the settlement, are they still a SEP licensee or are they taking a full platform license? And what sort of licensing period is the agreement going to cover? And then second question, maybe for Cristiano, on automotive. I think it was a year ago when you last spoke about your backlog at about $5.5 billion. Can you give us an update on the backlog for QCT and how we should think about the ramp-up here with 5G? And what sort of content per car is QCT now able to address? And maybe also for QTL, how do we think about automotive? Clearly there's going to be a big push with V2X and 5G is going to be a big licensing opportunity for Qualcomm. We haven't seen any license deals from automakers on 5G specifically, so how should we think about that going forward? Thank you.

All right, so Brett, this is Cristiano. Let me answer your question on our automotive business. So while we're not providing an update right now on the backlog of design wins, I will talk about some of those trends. I think we continue to see that increasing for us, especially as the automotive industry is impacted by the current pandemic. I think more and more we're trying to see even higher interest in moving the programs of bringing more electronics in the digital cockpit transformation within the car. So we continue to gain traction, continue to get incremental design awards, and we're very happy about how that automotive business is growing for us. So within regards to the content, we've been now really focused on the telematics unit for the connected car, the digital cockpit transformation that includes content for the infotainment, the rear-seat entertainment, dashboard and smart mirrors, and the connectivity across Wi-Fi and Bluetooth. We're just in the beginning of ECU for ADAS, but most of the silicon content is really within the digital cockpit transformation. And Brett, on your question on the design win pipeline, we're not providing an update at this point, but the last number we've disclosed is a greater than $7 billion design win pipeline.

Thank you. Our next question comes from the line of Suji De Silva with SMBC Nikko Securities. Please proceed with your question.

Thank you. I have a couple of questions. First on the ASP, obviously a nice improvement last few quarters. I'm just curious as we go into the next couple of quarters, obviously your modem mix will increase. I'm just trying to understand how that might impact your ASPs as well as margins. And then I have a follow-up.

Yeah, so I mean, at this point we're not really kind of guiding specific ASPs and margins through specific products. So I think it's probably best to go back to the broader framework and broader discussion we had on the ASP trend. I think that still holds true even with your question. And I think margin trends also the same applies. So I think rather than talk about a specific socket, the broader trend is still accurate, and that's probably the best way of thinking about it.

Okay, fair enough. And then maybe for Cristiano, just trying to get a better handle on the competitive landscape. So obviously with the situation with HiSilicon, I'm guessing you have one less competitor going forward. Just curious if you could kind of talk about the modem competition between you and MediaTek and others. Kind of compare that in contrast with at this stage in the 4G cycle, what are some of the similarities and differences you're seeing, and what do you expect going forward? And that also relates to my margin question longer-term. This is a business here running at like close to $5 billion run rate, and I'm not aware of any other semi company at this scale running at below 20% margins. I'm just trying to understand what the potential longer-term margin potential for these businesses is and how the competitive landscape is shaping up in 5G. Thank you.

Hi, this is Cristiano. Thank you for your question. All right, let me just start with the competitive landscape. We always had, you know, in the smartphone mobile space, a lot of competition. It's been probably one of the most competitive segments within semi, and we feel very good right now, especially given the complexity on 5G, given the opportunity for us to move faster to different releases of this technology as we go beyond smartphones into other industrial use cases, and the ability to have our front-end differentiation. And I think it's showing now when we think about our design traction. We started being first to market with 5G. Of our 660 designs right now, 570 of those designs are based on our second generation. And then our third generation, I think, premature product, we kind of indicated over 165 designs. So we're seeing our leadership propagate from one design to the other, including with the attach of our front-end. So we're very happy about that. We expect that more as many of our customers, especially in China, companies like vivo, OPPO, Xiaomi, continue to grow outside China. I think more demand for a global solution like Qualcomm will increase our differentiation abilities, and that's also true as 5G goes to other industries. So we feel much better about the differentiation of our 5G solution compared to 4G. And as far as margins, I think we have been consistent: 5G provides significant growth for us in an expansion of earnings, and we are approaching our long-term operating margin target for QCT, and we're on track to get that.

Thank you. That concludes today's question and answer session. Mr. Mollenkopf, do you have anything further to add before returning the call?

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.