Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Qualcomm Inc (QCOM, Financial) reported non-GAAP revenues of $9.4 billion and non-GAAP earnings per share of $2.33, both above the midpoint of their guidance range.
- The company's automotive segment secured more than 10 new design wins with global automakers, reflecting strong traction in the Snapdragon Digital Chassis.
- Qualcomm Inc (QCOM) saw a 50% year-over-year growth in revenues from Chinese OEMs in the handset segment, driven by the expansion of AI features in premium smartphones.
- The launch of Copilot+ PCs, powered by Snapdragon X Series platforms, has exceeded initial expectations, with several models sold out at retailers and online.
- The company returned $2.3 billion to stockholders during the quarter, including $1.3 billion in stock repurchases and $949 million in dividends.
Negative Points
- The license to export products to Huawei was revoked, impacting revenues in both the current quarter and the first quarter of fiscal '25.
- QCT IoT revenues decreased 8% sequentially, indicating a gradual recovery in the industry environment.
- Despite strong performance in automotive, the overall handset market is expected to remain flat to slightly up, reflecting limited growth opportunities.
- The extra week in the fourth fiscal quarter is expected to offset the revenue impact from the Huawei export license revocation, indicating no net benefit.
- The company faces ongoing negotiations and litigation with some major Chinese OEMs for 5G licensing agreements, creating uncertainty in future licensing revenues.
Q & A Highlights
Q: Can you talk about the momentum in the automotive business and the potential for continued revenue growth from OEM programs?
A: (Cristiano Amon, CEO) We're very pleased with our automotive performance. Our revenue growth is driven by new car launches with our technology, independent of whether the industry is focused on internal combustion or EV. The Snapdragon Digital Chassis has become a key asset for the automotive industry. We secured 10 new design wins this quarter, adding to our pipeline. We expect continued revenue growth as new cars with our technology are launched. Additionally, GenAI use cases in automotive, especially using large language models for audio, present an upside to our model.
Q: What are your expectations for the PC market and AI PCs as you approach the holiday ramp period?
A: (Cristiano Amon, CEO) We're very pleased with the initial response to our Copilot+ PCs, which are exceeding our expectations. Some models have sold out, and we expect a steady ramp as the market transitions. We will have new product announcements at EFA, and more Copilot+ features from Microsoft. We see PCs as the next biggest driver of diversification for the company, similar to automotive.
Q: Are you seeing any noticeable difference in demand for smartphones with AI features? How do you see AI features proliferating into mid-tier smartphones?
A: (Cristiano Amon, CEO) AI has expanded the size of the premium tier, and we are happy with the trajectory of AI features. We expect smartphones with AI features to eventually become AI smartphones. We plan to bring AI capabilities to the mass tier without compromising performance, similar to our approach with PCs. The upcoming launch of our next Snapdragon with a custom CPU will further enhance AI capabilities in smartphones.
Q: How are you offsetting the revenue impact from the revoked license to export products to Huawei?
A: (Akash Palkhiwala, CFO) Despite the revoked license, we are guiding for revenue growth in the handset business, low double-digit growth in IoT, and flat automotive revenue. The strength in IoT and automotive is incremental to our previous expectations, helping offset the impact from Huawei.
Q: What is the impact of the extra week in the quarter on revenue and costs, and how does it affect the following quarter?
A: (Akash Palkhiwala, CFO) The extra week and the Huawei revenue reduction largely offset each other, resulting in a limited net impact on our guidance. The extra week adds incremental revenue and OpEx, but flagship phone launches remain consistent. For the December quarter, we expect revenue growth to be consistent with last year's year-over-year growth.
Q: Can you provide more details on the QTL guidance and its sustainability going forward?
A: (Akash Palkhiwala, CFO) The QTL guidance reflects small growth from June to September, plus the extra week. This results in the guidance range provided. We expect the first quarter to be seasonally strong, consistent with historical trends.
Q: How do you feel about Qualcomm's leadership position in modems and application processors in the handset business?
A: (Cristiano Amon, CEO) We feel confident in our modem technology and our leadership in high-performance application processors. Our custom CPU, to be announced at the Snapdragon Summit, will further enhance our position. Our relationship with Samsung remains strong, and we see AI as a significant opportunity in premium smartphones.
Q: What is Qualcomm's addressable market in the compute segment, and what applications will drive AI deployment in handsets?
A: (Cristiano Amon, CEO) Our addressable market includes Windows 11 laptops, both commercial and consumer, with a focus on AI PCs. We forecast that 50% of PCs sold in 2027 will be AI PCs. For handsets, AI will enhance the human-computer interface, driving new use cases and expanding the premium tier. The number of AI use cases is increasing, which will drive demand for AI NPU performance in silicon.
Q: What is more exciting for Qualcomm's revenue growth in the next 12 months, automotive or IoT?
A: (Cristiano Amon, CEO) Both automotive and PCs are significant drivers of diversification. We are on track with our automotive pipeline and expect continued growth. PCs are also exceeding expectations, and we will provide more metrics at our Investor Day. Additionally, we are redesigning our industrial roadmap, which will be unveiled in the coming months.
Q: Why is OpEx expected to step down in Q4 despite the extra week?
A: (Akash Palkhiwala, CFO) The third-quarter OpEx was higher due to non-labor material-related spend and tape-out related spend. In Q4, despite the extra week, OpEx will step down due to the timing of non-labor spend. We remain committed to operating discipline and focused hiring for diversification.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
