Akash Palkhiwala

Chief Financial Officer & Chief Operating Officer, Qualcomm Inc

QCOM Stock | QUALCOMM Inc Q2 2022 Earnings Call

🎥 Apr 27, 2022 📺 AlphaStreet ⏱ 49m 👁 336 views

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About Akash Palkhiwala

On Qualcomm’s second-quarter fiscal 2026 earnings call on April 29, 2026, Palkhiwala reported revenues of $10.6 billion and non-GAAP EPS of $2.65, with EPS at the high end of guidance. He noted that QCT handset revenues from Chinese customers were expected to bottom in the third quarter before returning to sequential growth, attributing recent caution among OEMs to industry-wide memory supply and pricing pressures driven by AI demand in data centers. Palkhiwala also stated that the company now expects initial shipments for a custom silicon engagement at a leading hyperscaler later in calendar 2026, and described Qualcomm’s data center strategy as a “bespoke business” that would combine merchant and custom solutions using different IP blocks. In a May 18, 2026 interview, Palkhiwala discussed Qualcomm’s expansion in India, announcing two new smartphone products designed for the Indian market and launched globally from India. He described the smartphone market as experiencing “premiumization,” with a mix shift toward higher-value devices even as unit sales remained flat. Palkhiwala also addressed AI-related security risks, stating that the company runs frontier models on its own products to find and fix vulnerabilities, and characterized AI as an opportunity for innovation. He said Qualcomm is building a CPU chip for data centers, and that the company expects to become one of the largest customers for India’s semiconductor manufacturing ecosystem.

Source: AI-verified profile updated from Akash Palkhiwala's recent appearances. Browse all interviews →

Transcript (77 segments)

✨ AI-enhanced transcript with speaker attribution

Operator0:01

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm second quarter fiscal 2022 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 April 27, 2022. The playback number for today's call is 877-660-6853. International callers please dial 201-612-7415. The playback reservation number is 137-2828.

I would now like to turn the call over to Mauricio Lopez Aduen, Vice President of Investor Relations. Mr. Lopez Aduen, please go ahead.

Mauricio Lopez Aduen1:04

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 the slide presentation that accompanied this call on our investor relations website. In addition, this call has been webcast on qualcomm.com and a replay will be available on our website later today. During the call today we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings including our most recent 10-K which contain important factors that could cause actual results to differ materially from the forward-looking statements.

And now the comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon.

Cristiano Amon2:10

Thank you Mauricio and good afternoon everyone. Thanks for joining us today. As we shared at our investor day last November, Qualcomm is at the intersection of transformative trends that are generating demand for our broad technology portfolio across virtually every industry. This is creating strong growth and diversification opportunities beyond handsets. These trends, which include the enterprise transformation, the home, convergence of mobile and PC, merging of physical and digital spaces, the digital transformation of industries, connectivity and processing at the edge, the automotive digital chassis and 5G, have only continued to accelerate. They are driving our financial outperformance and a greater than seven times addressable market expansion to approximately $700 billion in the next decade. As you can see from our results, we delivered record revenues of $11.2 billion and non-GAAP earnings of $3.21 per share, representing year-over-year growth of 41% and 69% respectively, both exceeding the high end of our guidance.

In QCT, our chipset business and the growth engine of the company, we saw strength across the entire portfolio. Revenues of $9.5 billion were also a record and reflect our continued diversification. Our automotive design win pipeline is now over $16 billion, up more than $3 billion since fiscal Q1. IoT revenues grew 61% year-over-year with strong growth across all three categories of consumer, edge networking and industrial. RF front-end revenues grew 28% year-over-year, and handset revenues grew 56% year-over-year. This results demonstrate that our growth drivers remain unchanged and our strategy is working. Our one technology roadmap across wireless connectivity, advanced edge processing and power-efficient AI is incomparable across our peer group. In fact, advanced processing and artificial intelligence are the fastest growing silicon content areas for Qualcomm. As such, we can no longer be defined just as a communications company serving one industry. Rather, Qualcomm is a leading connected processor company for the intelligent edge, serving multiple new end markets and enabling the growth of the cloud-connected economy. As we continue to expand, we remain on track to meet our investor day financial projections, and I will now provide an update on our progress.

Today in automotive, our horizontal platform, the Snapdragon Digital Chassis, is a significant driver of our growing design win pipeline and is increasingly becoming a key asset for automakers. Our Digital Chassis comprises a full suite of open, flexible and scalable platforms for telematics, connectivity, digital cockpit, ADAS and autonomy, and cloud services. With leading system solutions expertise and capabilities across multiple domains, Qualcomm is fast becoming the preferred industry partner for the auto industry and is well positioned for continued growth. Since our last earnings call we significantly expanded our Snapdragon Digital Chassis capabilities. First, the Arriver acquisition enhanced our ability to deliver open, fully integrated and competitive ADAS solutions to automakers and Tier 1 suppliers at scale. As a result of the acquisition we are incorporating Arriver's computer vision, drive policy and driver assistance assets into Snapdragon Ride. Second, we recently announced a long-term cooperation with BMW to jointly develop and extend BMW automated drive software to the Snapdragon Ride platform. The co-developed solution is scalable and customizable and can be offered by Qualcomm to other automotive OEMs across all tiers. We are also pleased with our multi-year technology collaboration with Stellantis, which will be utilizing our Snapdragon automotive cockpit platforms across the automaker's 14 brands. Upcoming Stellantis vehicles will also be featuring 5G capabilities for telematics systems based on our Snapdragon Auto 5G modem-RF platforms.

In consumer IoT, Android tablets are becoming collaboration tools and increasingly demand is shifting from entry-level commodity tablets to premium connected computing devices, a clear validation of the convergence of mobile and PC. We are pleased that Snapdragon 8 Gen 1 is powering the newest flagship tablets such as the Galaxy Tab S8 series globally. Additionally, we are growing in premium and high-tier devices with OEMs such as Lenovo, HP and OPPO. We are also pleased to see the announcement of the first-ever premium Windows on Arm enterprise laptop, the Lenovo ThinkPad X13s, powered by the new Snapdragon 8cx Gen 3 compute platform. This new ThinkPad features 5G millimeter wave, AI-accelerated experiences, advanced camera and audio technology, an ultra-slim fanless design and up to 28 hours of battery life on a single charge.

We are encouraged by the broad interest in our upcoming products utilizing our industry-leading CPUs designed by our Nuvia team. We continue to drive the inevitable transition to Arm-based computing while redefining the future of mobile productivity. In edge networking, we continue to benefit from the demand for global connectivity required for remote work, school and play, and we provide industry-leading solutions enabling the migration to Wi-Fi 6 and Wi-Fi 6E mesh technologies. We also recently announced the world's first and fastest Wi-Fi 7 commercial solution, which we believe will further extend our leadership position. With multi-gigabit Wi-Fi performance, ultra-low latency and unmatched spectrum versatility, we believe our Wi-Fi 7 solutions will unlock a new era of advanced consumer and industrial applications. Our 5G fixed wireless access solutions also continue to gain traction as a last-mile broadband solution. We now have more than 125 fixed wireless access designs announced or in development by more than 40 OEMs. We also introduced next-generation features such as standalone 5G millimeter wave support in our RF sensing suites to enable operators to extend their 5G service offerings to the home and enterprise.

Industrial IoT experienced the fastest year-over-year revenue growth within IoT this quarter, driven by continued demand for both connectivity and advanced processing at the edge. Notably this quarter we saw accelerated demand for ruggedized handheld devices for warehousing, logistics and healthcare industries as well as for robotics platforms. Going forward we are actively building an ecosystem of system integrators and channel partners to support the scale of our industrial IoT platforms as they become critical for the digital transformation of multiple verticals.

In handsets we had record revenues of $6.3 billion driven by continued traction with leading smartphone OEMs such as Samsung, Xiaomi, OPPO, vivo and Honor, where Snapdragon continues to be the mobile technology platform of choice for premium and high-tier Android. We now have approximately 75% of the premium-tier processor volume for Samsung's Galaxy S22 smartphones, up from approximately 40% in the Galaxy S21. Samsung's strategy to adopt Qualcomm for the majority of volume is significant and validates our platform leadership as well as consumer preference for the Snapdragon brand. Our Snapdragon mobile solutions continue to define premium smartphone experiences. Let me highlight a few examples from our Snapdragon 8 Gen 1. In imaging, devices enabled by this platform achieved the highest DxOMark ever, making it the best smartphone camera in the world. In connectivity, our solution features the world's first 5G AI processor in a modem-RF system, enabling AI-based performance enhancements, antenna tuning, network selection and more. In AI, our seventh-generation AI engine doubles the computational performance versus the previous generation.

Our handset strategy, as outlined at investor day, is enabling share gains and enhancing our ability to capture the most significant portion of the revenue opportunity. In our front end, we continue to drive 5G modem-RF leadership. Our fifth-generation modem-RF system now implements advanced features such as AI integration, millimeter wave and sub-6 dual connectivity, and 5G sub-6 carrier aggregation with FDD and TDD spectrum. Looking forward, in addition to growing handsets, we are expanding our front end into automotive and IoT.

In our licensing business, revenues of $1.6 billion were above the midpoint of our guidance, driven by the most valuable patent portfolio in the industry, and we continue to develop and patent new essential innovations for future releases of 5G and beyond. Lastly, demand remains strong across all our technologies and continues to exceed supply. We believe our multi-sourcing and capacity expansion initiatives will continue to provide incremental improvements to our supply throughout the year. With our one technology roadmap and demand for our products and solutions across virtually all industries, we are in an incredible position to continue providing high-performance, low-power computing, on-device intelligence and everything wireless. Our plan remains on track and I am very excited for the future of Qualcomm. I would now like to turn the call over to Akash.

Akash Palkhiwala14:23

Thank you Cristiano and good afternoon everyone. We are extremely pleased to report strong second quarter results. We delivered non-GAAP revenues of $11.2 billion, our third consecutive quarter of record revenues, and non-GAAP EPS of $3.21. These results reflect year-over-year increases of 41% and 69% respectively, driven by strength across all QCT revenue streams. QTL revenues of $1.6 billion and EBT margin of 73% were above the midpoint of guidance, reflecting a slight decrease in lower-tier units offset by a favorable mix.

This was another record quarter for QCT with revenues of $9.5 billion and EBT of $3.3 billion, an increase of 52% and 111% respectively versus the year-ago quarter. We have now doubled QCT EBT dollars on a year-over-year basis in six of the last seven quarters. Additionally, QCT EBT margin of 35% surpassed the high end of our guidance and increased 10 points year-over-year driven by revenue growth and diversification.

Handset revenues of $6.3 billion increased 56% versus a year-ago quarter. The upside relative to guidance was driven by increased volume in the premium tier and improved supply. We gained share in Samsung's flagship device, the Galaxy S22, demonstrating leadership of our Snapdragon processor technology and our ability to compete with internal chipset initiatives.

RF front-end revenues of $1.2 billion grew 28% versus the year-ago quarter on increased adoption of our products across major OEMs. We saw accelerated growth across IoT and automotive as we aligned supply to better meet the demand for our products. IoT revenues were up 61% year-over-year to $1.7 billion, primarily on increased demand for our chipsets for connected intelligent edge devices. We saw strong performance across consumer, edge networking and industrial, with each of these categories growing by more than 50% compared to the year-ago quarter. We achieved record automotive revenues of $339 million, a growth of 41% versus the year-ago period, driven by launches with our digital cockpit platforms. With the strong adoption of our Snapdragon Digital Chassis, we have now increased our overall design win pipeline to greater than $16 billion.

Lastly, during the quarter we announced a 10% increase in our dividends and returned $1.7 billion in dividends and stock repurchases. Our strong free cash flow has positioned us to deliver attractive capital returns that are among the highest in the semiconductor industry while maintaining flexibility for strategic investments.

Before turning to guidance, I will provide an update on the Arriver acquisition. On April 1st, SSW Partners acquired Veoneer for $4.6 billion, with substantially all of it funded by Qualcomm. SSW Partners then transferred Arriver to Qualcomm and now plans to sell the remaining non-Arriver businesses over the next several quarters. We expect that Qualcomm will receive most of the cash proceeds from the sale. We estimate Arriver non-GAAP operating expenses of approximately $50 million per quarter. However, our guidance for the third fiscal quarter does not include this impact since we plan to report Arriver one quarter in arrears until the fourth quarter. Further details of the transaction are included in our 10-Q and earnings presentation posted on our investor relations website.

Turning to financial guidance for the third fiscal quarter, we are forecasting revenues of $10.5 to $11.3 billion and non-GAAP EPS of $2.75 to $2.95. We estimate QTL revenues of $1.4 to $1.6 billion and EBT margins of 69% to 73%. Our guidance contemplates global handset units consistent with the exit rate from the second fiscal quarter and assumes the end of COVID-related impact in China by the end of the quarter. In QCT, we estimate revenues of $9.1 to $9.6 billion and EBT margins of 31% to 33%.

At the midpoints, this implies year-over-year revenue growth of 44% and EBT dollar growth of $1.2 billion. On a sequential basis, we expect mid-single-digit revenue growth in IoT and automotive and a seasonal reduction in handsets and our front end. Our strong forecast for QCT is driven by the same factors which benefited our second quarter, including gains in handset premium-tier volume, strong demand in IoT and automotive, and supply improvements.

We anticipate non-GAAP operating expenses to be up 5% to 7% sequentially, reflecting select investments in product roadmap. In closing, we are pleased with our financial results and strong execution as we manage through supply constraints in the current macroeconomic environment. Our QCT handset revenues are on track to grow by greater than 50% in fiscal 22, and we are well positioned for fiscal 23 as we continue to benefit from increased processor content and share gains.

While we strengthen our mobile leadership, diversification is the top priority for the company, as evidenced by increasing design win pipeline in automotive and accelerating revenue growth in IoT. Thank you, back to you Mauricio.

Mauricio Lopez Aduen20:09

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

Operator20:13

Thank you. To queue a question, press star and the number one. To withdraw your question, press star two. If you're using a speakerphone, please pick up the handset before pressing the numbers. One moment please for the first question.

Our first question comes from Matt Ramsey with Cowen. Please proceed.

Matt Ramsey20:33

Thank you very much. Good afternoon everybody. Congrats guys on the strong results. Cristiano, my first question comes on the automotive business. Obviously there is a lot going on with the Arriver acquisition, the Stellantis deal, and you guys talking about a $16 billion pipeline now. I wonder if we could go back and revisit some assumptions from the analyst day. I think you guys had talked about getting to $3.5 billion in revenue on sort of a five-year basis. You are running maybe a third of that now, but the pipeline has expanded dramatically. So maybe you could talk a little bit about the visibility on revenue and how you are thinking about the numbers that you laid out at analyst day for that strong automotive growth.

Cristiano Amon21:19

Thanks for the question, Matt. No, look, I think the simple answer to your question is looking really good. The way you should think about that is as the cars are really becoming connected computers on wheels, the digital chassis assets of Qualcomm are really resonating with carmakers and we are probably winning ahead even of our original projections. So we feel pretty good about our ability to meet what we outlined at analyst day.

Matt Ramsey21:55

Thank you for that. As a follow-up, just on the handset business, I think it is notable that the significant share expansion that you guys are highlighting at Samsung. If you go back to the analyst day, I think you talked about growing QCT handset revenue sort of in that 12% range, even while Apple took share in the 2023 phone in a pretty significant way. So there were some questions at that time about the ability to grow through the next two or three years Android revenue in such a significant way. So Cristiano, are you thinking about the content and share expansion at Samsung as being sustainable, and how is the RF attach on that expansion and share at Samsung trending?

Cristiano Amon22:46

Great question Matt. Look, I wanted to point it out, it is a pretty good trade actually. Instead of providing a modem, we provide an entire Snapdragon platform with AI, GPU, CPUs and a lot of silicon content, plus our front end. It is a pretty positive trade if I can say it that way. This has been consistent with what we said before. You probably saw that in the making as a lot of the new form factor from Samsung, both the Fold and the Flip, was Qualcomm globally. And I think the GS22 kind of outlined the strategy to offer a deeper partnership with Qualcomm, and going forward we expect our relationship with Samsung only to increase. So we are very pleased, and I think it reflects that the strategy is working. We have been focused on premium and high-tier, and that is the share of the Android market. Our technology investments, our differentiation, and even the Snapdragon brand matters, and I think that is reflected in what happened with the GS22.

Operator23:57

Thank you. Our next question is coming from Mike Walker with Canaccord Genuity. Please proceed with your question.

Mike Walker24:04

Great, thanks. Cristiano, building on Matt's questions, just on the smartphone market. There is some investor concern or industry concern about slowing 5G or Android demand, but it sounds like you are still trying to meet demand with your ability to supply. Can you talk about your design wins into the back half of the year and how you feel about the supply-demand environment for premium-tier Android?

Cristiano Amon24:32

Thanks for the question Mike. There is a lot in there, I think both Cristiano will think about the design as well as supply. So in handsets, it is a good story. As Akash outlined, we are growing year-over-year for fiscal 22 in the order of 50%. We grew 56% in the quarter, and it is a story of share gains with Samsung as well as, if you look at fiscal 22 compared to fiscal 2021, share gains in China as well. We continue to see Snapdragon as probably the synonymous with premium and high-tier Android flagship. The design pipeline is very strong. We have been reporting that as we talk about the number of designs, and I will let Akash talk about the market. Even though the market is a little bit more soft, we are not that exposed to lower-tier units because of our strategy to be really focused on premium and high-tier and in the value share of the market.

Akash Palkhiwala25:37

Yeah Mike, from a market perspective, we saw some softness relative to our previous expectations in the March quarter in the lower-tier units, but as Cristiano said, a lot of the driver for our revenue growth and our value proposition is very strong at the premium and high tier, and you are seeing the benefit of that show up. So the second question Mike, on supply, the supply situation is going as we planned. Contemplating our guidance, we contemplated into our projections that we made back in analyst day. Having said that, you are going to hear the same thing that you are probably hearing from us consistently: we still have more demand than supply across all businesses.

Operator26:27

Thank you. Our next question is coming from the line of Samik Chatterjee with JP Morgan. Please proceed with your question.

Samik Chatterjee26:34

Hi, thanks for taking my question. Congratulations on a great quarter here. I guess I want to start with Cristiano and Akash. You both mentioned the 50% QCT handset growth for the year. If you can put that in context, we all know the overall market is either flat or down for handsets this year. Just wondering if you can quantify how much of that 50% growth is share versus content growth on an apples-to-apples basis. I am just trying to think about how you would capture how much of that growth is sustainable into next year.

Akash Palkhiwala27:12

So Samik, maybe I will address the question at a higher level in terms of the key drivers there. First is we talked about Samsung share increase, and so that has helped us at the premium tier. Second is as supply has improved, we have been able to meet more of the demand in China as well, so that is the second key driver. As we have said in the past, as the OEM mix has changed, it has opened up a larger portion of the market for us, and so being able to access that portion of the market is also beneficial. And then finally, only 20% of the global handset units come from China, so the rest of the market, you are still seeing strong demand at premium and high tier, and so we have been able to participate in that. And then finally from a content perspective, as you know well, when you look at generation to the next generation of phones, the amount of computing that consumers are demanding keeps going up, and that provides an opportunity for us not just from a competitive differentiation perspective but also additional content per phone. So even if you look at one generation 5G phone to the next generation 5G phone, because of the increase in content on the processor side, you are seeing the benefit show up in our numbers.

Samik Chatterjee28:37

And for my follow-up, Akash, maybe how are you thinking about or breaking in the impact of the China lockdowns here, both in relation to demand and any impact on supply that you should think of?

Akash Palkhiwala28:51

Yeah, so we have looked at it both from a demand and supply perspective. On the demand side, as I mentioned earlier, relative to our expectations we saw some slight decrease in lower-tier units in China. So we are projecting that forward into the June quarter, and our numbers assume a recovery in COVID-related impact in China by the end of the quarter. But obviously that is an evolving situation and we are going to continue to closely monitor it. But as I said earlier, China is 20% of the global market. You still have the remaining 80% where we are seeing a lot of positive trends from a consumption perspective with strong demand for premium and high-tier devices.

Operator29:36

Thank you. Our next question is coming from Stacy Rasgon with Bernstein Research. Please proceed with your question.

Stacy Rasgon29:42

Hi guys, thanks for taking my questions. I guess first, in this environment with China and COVID and everything else, we have been hearing some players in the market talk about conservatism in their outlook. This does not feel conservative, but maybe that is wrong. The prior quarters, the original outlook looked really strong and then you have been crushing it. So I guess can you just give us some feeling for the degree of conviction you have in this outlook. I know you have given us a little bit, not just in June but even gave us a little bit on some of the end markets into September as well. It sounds like the drivers are there, but can you just maybe give us a little more color on where your conviction levels are as we are sitting here today?

Akash Palkhiwala30:24

Sure Stacy, it is Akash. We obviously take a consistent approach when we guide the quarters going forward, so we have taken the same approach as we have done in the past. There is more, more things that we do not know given the situation in China and the macroeconomic situation as well. But the demand signals are strong and supply is improving, and a lot of the upside that you are seeing is those two factors coming together.

Stacy Rasgon30:54

For my follow-up, you gave us some color on handsets. If handsets threw up just 50% blanket in the second half, that would put them as you said down a little bit in June and you would probably be up 20% in September sequentially if you just applied 50% year-over-year. So we have a little color on that in September. Is there any outlook you can give us, either qualitative or quantitative, for the rest of the business into September?

Akash Palkhiwala31:21

Yeah, from a September quarter perspective, as you know well, it is kind of the quarter where we start seeing the inflection, second inflection point of the year for us, where we have launches, flagship launches, late in the August-September timeframe going into the holiday season. So we still expect that to happen and that is going to help our performance as we go into those two quarters. Also if you look at the September quarter, we are still seeing strong demand across our diversification plan. So that is playing out as or better than we had expected, and so IoT, automotive and our front end, we also expect strong year-over-year growth in those areas into the September quarter.

Operator32:05

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

Tal Liani32:11

Hi guys. I have two questions. One is on margins. Last quarter was record margin, this quarter again much better than expected. Can you discuss the puts and takes of margins and what we should expect going forward? That is number one. And number two, just to follow up on China. Entering the quarter we thought China is going to be weak. We are also hearing and I want you to correct me if I am wrong, that the Huawei share loss in China is not materializing. Huawei is still selling in the high-end. I am many miles away from China, so I would like to know what are the share dynamics in China and what is the overall demand, and if you can just elaborate a bit on the Chinese market.

Akash Palkhiwala33:04

Sure Tal, it is Akash. So on the operating margin side, we are obviously very pleased with our margin performance. We guided 32% to 34% and came in at 35%, pretty strong performance. We are guiding 31% to 33% going forward as well, and it is really a combination of the three drivers we have discussed before: revenue forecast with diversification that is really helping us, gross margins as I am sure you will see through the numbers we are doing well there, and then being able to leverage the handset technology into these new markets also makes it accretive to diversify. So it is the combination of those things and consistent with what we have said before, the story is playing out as we would have expected.

From a China perspective, you should think of us as participating in the revenue opportunity across all OEMs in China. So if there is a particular OEM that is winning, Qualcomm would be participating in that as well.

Cristiano Amon34:08

So Tal, on this question I just want to add a couple of things. First of all, the strategy for handsets for us is different. We are really focused on premium and high tier. We have been very disciplined how we think about pricing, and we are really building on our technology differentiation, preference for Snapdragon brand, and I think that has had a contribution on the gross margin of the handset business. But also we pointed out that in China, which represents 20% of the market, the premium-tier devices, whether it is vivo, OPPO, Xiaomi, Honor, Huawei for 4G as well, as devices such as Samsung, they are all powered by Qualcomm, and that is why we have been benefiting of growth in a richer mix of premium and high tier. We are not that much impacted by the lower-tier units, and we have been less interested in commodity units in the handset business. Having said that, regardless of what is happening to the China market, I think the story on IoT is strong, the story on automotive is strong, and all of the new businesses are all accretive to margins as Akash outlined.

Operator35:32

Thank you. Our next question is coming from Rod Hall with Goldman Sachs. Please proceed with your question.

Rod Hall35:37

Yeah, hi guys, thanks for the question. I wanted to come back to the 50% growth in handsets. When we calculate what that implies for Q4, it is about a billion more than we had anticipated for QCT revenues. I think we were above Street, so a very strong number there. I guess I want to try to ask the visibility question again maybe in a different way, which is: how much of that revenue is committed? I am assuming this would be mainly high-end Android buyers that would be interested in shipping new units at the end of the year given your prior commentary about Apple exposure and so on. But I wonder if you could just confirm that it is Android and then talk a little bit about how much of that revenue is in the bag now and how much still needs to be kind of developed in the order book.

Akash Palkhiwala36:28

Yeah Rod, the driver of the September quarter is typically consistent with what you would have seen in the past, right? So flagship launches that happen not just in Android but Apple as well, we see the benefit of that show up in our numbers in that quarter and then going into the December quarter. So that is a factor. Android demand continues to be strong. We have obviously significant demand and visibility in terms of the information we are getting from all of our customers, even with reconciling their demand signal for the market changes. So we are pretty confident as we look forward.

Rod Hall37:09

Okay great. And then for my follow-up, you have not touched on Europe at all. You talked about a little bit of weakness in China. We have picked up some developing weakness in Europe, but I am just curious what you are seeing there from a demand point of view. It does not sound like anything, but maybe give a little bit of color on what you see going on in the European market from a demand perspective.

Akash Palkhiwala37:32

Yeah, I think maybe the only thing to highlight that is inconsistent with the way we had seen the market before and the way we had outlined it at investor day is the weakness at the lower tier. When you kind of step back from that and look at the rest of the market on a global basis, it is playing out consistent with our expectations.

Operator37:53

Thank you. Our next question is coming from Ross Seymour with Deutsche Bank. Please proceed with your question.

Ross Seymour37:59

Hi guys, thanks for taking a couple of questions and congrats on the strong results. I wanted to get back to the handset growth and the sustainability of it. The 50% number in this fiscal year is great, significantly above my estimates just like what Rod just said. But as you think about the moving parts that drove that, how much of the $10 billion SAM opportunity you talked about in China will already have been addressed? And if you have gone from 40% to 75% penetration and then the Samsung GS22, how much more is there? So really what I am getting at is how long can you outgrow the handset market by content and market share gains if you are doing so well now?

Akash Palkhiwala38:41

So when we look forward on the handset side, we still think that there is opportunity to gain share, especially as supply improves. So that would be one driver. Second is 4G to 5G transition, we have some ways to go on that for the rest of the market, so we should see that play out and that should benefit us as well. The third driver is what we discussed earlier, where the amount of processing that is needed, and this is whether it is CPU or GPU, AI, camera, audio, video, security, each of these vectors are being pushed hard in terms of performance and the competitive landscape between the OEMs is demanding that all these capabilities get added to the handset. So that is also helping us from a content increase perspective, and those are the drivers as we look forward.

Ross Seymour39:35

Thanks for the color on that Akash. I guess the follow-up would be on the margin side of things. You guys have done a great job expanding both the gross and the operating margins, especially on the QCT side. I am a little curious, in the near term with your guidance, the overall guidance on EBT is down a couple points both on QCT and QTL. But more precisely it looks like you are guiding the gross margin down a little bit in QCT given the moving parts. Is there something unique going on? Because I would have thought the diversifying engines would have actually brought the margins up, but it seems like the gross margin is going down a point and a half, two points.

Akash Palkhiwala40:12

Yeah, so I think in the quarter that we just reported, we guided gross margin at a certain level and we came in even stronger than that. So as we look forward, we are guiding kind of in line with our recent history, more in line with the way we guided the March quarter as well. So you could have a potential opportunity based on a mix of products, but the insight that we have right now based on the mix, we think that is a good number.

Operator40:43

Thank you. Our next question is coming from Joe Moore with Morgan Stanley. Please proceed with your question.

Joe Moore40:49

Great, thank you. Obviously you have seen this really healthy environment in the premium-tier handset market, but you have also had a shortage and I wonder has the shortage contributed to the pricing and margin strength that you have seen in any way? As that shortage eases do you see a more competitive market? And you talked about as your supply gets better you can take share, does that imply they are more price aggressive, or are these prices going to be sticky?

Cristiano Amon41:21

Yeah, thanks for the question Joe. This is Cristiano. I think what you have to watch is the amount of processing content that is increasing. It is now beyond just a 5G story just on the premium tier. For the next generations of Snapdragon coming up, it is a significant increase in GPU and artificial intelligence and CPU. So content on the processor side has been the biggest driver of higher ASPs and gross margin enhancements. The other thing I want to continue to point out, which is as we leverage our one technology roadmap to grow into other businesses, and in the quarter 61% growth on IoT, automotive we added $3 billion to the design win pipeline, that is all accretive to margins and highly leveraged from the R&D that we do in mobile.

Joe Moore42:21

Great, thank you. And if I could follow up on the royalty side. Nice to see that those numbers are solid in the first half of the year. Can you help us put that in the context of the overall supply chain issues that your customers are dealing with, and does that imply if they have pent-up demand could that end up being better than seasonal royalty strength? Or just how should we correlate that with what we are seeing on the supply side?

Akash Palkhiwala42:44

Yeah, so the easiest way to think about the royalty business is really aligning it to the total handset market and then mix within that. So as you will recall, at investor day we had forecasted 2022 calendar units as flat to calendar 2021, and what we are seeing play out is slightly lower units at the low tier but offset by a stronger mix. And that is the combination of factors that is impacting both the actuals for QTL and our guidance for the next quarter.

Operator43:15

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

Chris Caso43:21

Hi, thank, good evening. I just want to go back to the Samsung commentary and the share gains that you have had there. Of course at Samsung, your competition is an internal competition there. Can you speak to your level of conviction that now that you have achieved this new level of share within the Samsung Galaxy series, that it is sustainable? What allows you to keep this business as you go forward with Samsung?

Cristiano Amon43:51

Conviction is very high, and I will point you to something that I would encourage all of you to observe: what is happening in the market. In many of those markets there are now marketing from Qualcomm. Samsung is actively advertising Snapdragon as an ingredient brand with the Galaxy S22, and I think that is a very significant data point. And as I said earlier, I think we are very confident that the Samsung relationship is going to continue to be an expanding relationship for us.

Chris Caso44:28

Great, thank you. And as a follow-up, I wanted to revisit the notebook market and your intentions on penetrating that with Qualcomm silicon. It is something you spoke about quite a bit at the analyst day. Could you give us an update on that, and perhaps when would we be able to hear more on that and start to see some impact on the results?

Cristiano Amon44:54

No, absolutely, thanks for the question. We are on track. We have been working with Microsoft for many years. I think Windows 11, as I mentioned before, for the first time has full support including 64-bit emulation on Arm. It is the first time that you actually have a platform which is ready for commercial and enterprise deployment. We did it within the quarter, launched with Lenovo, the first enterprise ThinkPad, and we have a number of designs with our 8cx Gen 3. As we think about the next generation, we have been developing our own CPU that has been designed by the Nuvia team, and we are going after the performance tier focused about high-scale in the enterprise, and development is on track. We expect to have that in late 2023.

Operator46:08

Our next question will come from the line of Blaine Curtis with Barclays. Please proceed with your question.

Blaine Curtis46:13

Hey, thanks for taking my question. I want to ask you if you look at the first half of the year, I think the 50% growth in handsets is pretty much all higher revenue per chipset for your filings. So I am just kind of curious, if you look at the second half, obviously the compares on the content get harder. Just how are you thinking about that mix between unit growth, which I think the Android units probably went positive this quarter, but you are struggling with supply? But how do you think about the second half in terms of the kind of pulls there to grow revenue, units, share, or more content?

Akash Palkhiwala46:52

Blaine, it is Akash. So as I mentioned earlier, we are seeing growth in content which is a driver for us. We are also seeing the share that we picked up at Samsung that we have discussed, the strength in China, and the improving supply. All of these are combinations that help us in the second half of the year. Also to keep in mind that typically the new Apple phone launch happens in the fall timeframe, and that would be a driver as well.

Blaine Curtis47:22

Okay, and then maybe just to follow up on IoT. Just curious the mix tailwind you are seeing there. I mean assuming stuff like Wi-Fi 6E is helping, but any color on the tailwinds within the IoT segment?

Akash Palkhiwala47:36

Yeah, so as we reported, IoT total revenue grew by 61% year-over-year, so of course very happy about that. When you kind of unpack it a bit and you look at enterprise, consumer and edge networking, each of those portions of IoT grew by greater than 50% individually. So it is not something that is concentrated in an area, it is very broad growth. As Cristiano mentioned in his prepared remarks as well, the strongest growth came from the enterprise channel, which was really good for us. I think that is an area where the SAM is effectively unlimited, there is a lot of digital transformation that needs to happen, and our ability to expand our presence there and participate in it is a tremendous driver for us long term.

Operator48:28

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

Cristiano Amon48:34

Yes, thank you. Thanks everyone for joining us on the call today. I also would like to take this opportunity to thank the hard-working, dedicated, brilliant Qualcomm employees. Thank you to all of our partners. And I just wanted to say, while we love all the questions about handsets and handsets is always going to be a very big part of our business, I wanted to point to you all that Qualcomm is changing from a communications company for the mobile industry into a connected processor company for the intelligent edge. Even how we think about handsets is no longer about modems. And in the quarter we are super pleased that IoT alone was $1.7 billion. If you look at IoT plus automotive combined plus our RF business, in excess of $3 billion. And we are just busy executing on one of the biggest opportunities in our history. Thank you very much.

Operator49:38

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