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Qualcomm (QCOM) Q1 2022 Earnings Name Transcript

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Qualcomm (NASDAQ:QCOM)
Q1 2022 Earnings Name
Feb 02, 2022, 4:45 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Girls and gents, thanks for standing by. Welcome to the Qualcomm first quarter fiscal 2022 earnings convention name. Presently, all individuals are in a listen-only mode. Later, we are going to conduct a question-and-answer session.

[Operator instructions] Please restrict your questions to at least one query and one follow-up. As a reminder, this convention is being recorded, February 2, 2022. The playback quantity for at present’s name is 877-660-6853. Worldwide callers, please dial 201-612-7415.

The playback reservation quantity is 13726028. I’d now like to show the decision over to Mauricio Lopez-Hodoyan, vice chairman of investor relations. Mr. Lopez-Hodoyan, please go forward.

Mauricio Lopez-HodoyanVice President of Investor Relations

Thanks, and good afternoon, everybody. Right now’s name will embrace ready remarks by Cristiano Amon and Akash Palkhiwala. As well as, Alex Rogers will be part of the question-and-answer session. You may entry our earnings launch and a slide presentation that accompany this name on our Investor Relations web site.

As well as, this name is being webcast on qualcomm.com, and a replay can be obtainable on our web site later at present. Through the name at present, we are going to use non-GAAP monetary measures as outlined in Regulation G, and yow will discover the associated reconciliations to GAAP on our web site. We may also make forward-looking statements, together with projections and estimates of future occasions, enterprise or {industry} developments, or enterprise or monetary outcomes. Precise occasions or outcomes might differ materially from these projected in our forward-looking statements.

Please discuss with our SEC filings, together with our most up-to-date 10-Ok, which comprise vital components that would trigger precise outcomes to vary materially from the forward-looking statements. And now to feedback from Qualcomm’s president and chief govt officer, Cristiano Amon.

Cristiano AmonPresident and Chief Government Officer

Thanks, Mauricio, and good afternoon, everybody. Thanks for becoming a member of us at present. Based mostly on our efficiency over the previous a number of quarters and the sturdy fiscal second-quarter steerage, it’s clear that our technique is working. Demand for our merchandise and options continues to speed up as our one expertise street map is driving the expansion of premium Android smartphones, in addition to enabling the related clever edge, which is driving digital transformation for the cloud-connected economic system.

As you possibly can see from our outcomes at present, sturdy efficiency in our chipset and licensing enterprise led to report fiscal first-quarter revenues of $10.7 billion and report non-GAAP earnings per share of $3.23. Our chipset enterprise had its second consecutive quarter of report efficiency with revenues of $8.8 billion, EBIT of $3.1 billion, and EBIT margin of 35%. Notably, QCT revenues exceeded these of any fabless semiconductor firm. These outcomes reveal the continued success of our diversification technique.

In IoT, we proceed to see sturdy momentum with income progress of 41% yr over yr within the first quarter throughout shopper, edge networking, and industrial. In shopper IoT, our early investments, collaboration with Microsoft, and the current acquisition of NUVIA uniquely positions us to drive the PC {industry} transition to ARM-based computing for next-generation related laptops. We lately launched two new platforms, the 8cx Gen 3 and 7c+ Gen 3. And at CES, we highlighted broad help from ecosystem companions, together with Acer, ASUS, HP, Lenovo, and Microsoft, in addition to 200 enterprise prospects at present testing or deploying Home windows on Snapdragon laptops in two-in-one units.

We’re additionally seeing sturdy progress in premium and high-tier Android tablets, additional highlighting the convergence of cell and PC. Notably, we’ve got already doubled the whole variety of premium tier and/or pill design wins launch or within the pipeline versus all of fiscal ’21. Moreover, because the metaverse alternative materializes, we proceed to construct on our {industry} management place in VR and AR units with key ecosystem gamers, together with Meta and Microsoft. At CES, we introduced a collaboration with Microsoft to increase and speed up the adoption of augmented actuality in each the buyer and enterprise sectors.

This partnership consists of customized AR chips to allow a brand new wave of power-efficient, light-weight AR glasses to ship wealthy and immersive experiences, in addition to plans to combine our Snapdragon Areas XR developer platform into Microsoft mesh. We’re additionally very happy that Time Journal named our Snapdragon XR2 platform as top-of-the-line innovations of 2021. And we’re seeing sturdy help for our VR and AR platforms from just about all ecosystem suppliers, OEMs, and content material creators. In edge networking, we proceed to guide in present and next-generation high-performance Wi-Fi 6 and Wi-Fi 6E options, which now make up greater than 80% of our WiFi entry level revenues.

Not too long ago, we launched the world’s first quad-band Wi-Fi 6E mesh system with NETGEAR, which was rated the best-in-class match platform by PC Journal. Moreover, our Wi-Fi 6 immersive house platforms proceed to realize momentum throughout areas, with vital progress now increasing into China, one of many fastest-growing markets for Wi-Fi 6 for each retail and service deployments. 5G as wi-fi fiber continues to realize scale and increase globally. Along with our prolonged vary millimeter-wave platforms, we lately expanded our portfolio to incorporate 5G mounted wi-fi entry options with prolonged vary sub-six, and we’re seeing sturdy traction.

In industrial, we’re nonetheless within the early phases of digital transformation throughout many industries. And demand for our options continues to speed up. For instance, mixed good utility meter, monitoring robotics, and retail revenues greater than double during the last yr. In robotics, particularly, we anticipate complete fiscal ’22 product launches utilizing our platforms to extend by over 50% yr over yr, spanning functions from warehouse automation to public security, supply providers, and in-home help.

The range of vertical segments and functions displays our means to supply a typical platform that integrates superior laptop imaginative and prescient, on-device AI excessive efficiency in low-power computing, and industry-leading connectivity applied sciences. In RF entrance finish, we efficiently launched our newest 5G modules, which now embrace our ultraBAW expertise. Our modem-to-antenna technique is working, enhancing energy and efficiency with common technology of Snapdragon. Notably, just about all our Snapdragon 8 Gen 1 design wins now embrace Qualcomm ultraBAW filter expertise.

Constructing on our success in handsets, we’re seeing traction with our modem-to-antenna answer throughout automotive and IoT. As examples, we’re well-positioned to handle as much as $30 of 5G RF content material per car, and we’re additionally intersecting our RF front-end street map with Wi-Fi 7. In automotive, Qualcomm is changing into the expertise companion of selection for the {industry}, and we’re enabling the transition of the car to a digital cloud-connected platform. Our progressive Snapdragon digital chassis is an open and scalable cloud-enabled platform for telematics, connectivity, digital cockpit, and ADAS, and uniquely place us because the main system answer supplier for silicon, software program, techniques, and providers throughout a number of domains.

As a reminder, Normal Motors, BMW, and now Renault Group are cornerstone prospects for our platform, together with ADAS. At CES, we introduced an addition to our ADAS and autonomy platform, the Snapdragon Journey Imaginative and prescient System, a brand new modular laptop imaginative and prescient answer that mixes our Snapdragon Journey SoCs with the next-generation imaginative and prescient notion software program from Arriver. It helps the assorted compute capabilities wanted for enhanced notion across the car, and it scales throughout functions from entry tier in-cap entrance digicam to complete entrance and surround-view digicam for enhanced autonomy. We anticipate the Snapdragon Journey Imaginative and prescient System to be obtainable in manufacturing in 2024.

In handsets, we lately introduced our most superior 5G cell platform for flagship smartphones, the Snapdragon 8 Gen 1 at our annual Snapdragon Tech Summit. The announcement was considered by greater than 50 million folks worldwide. The information Snapdragon 800 Gen 1 leads the best way to a brand new period of premium cell expertise with category-defining enhancements throughout modem RF, digicam, AI, gaming, safety, and extra. Snapdragon 800 Gen 1 is the world’s first 5G modem RF answer to succeed in 10-gigabit obtain speeds.

It is the primary to incorporate business 18-bit cell picture sensor and the world’s first platform compliant with the Android-ready Safe Aspect Alliance. We additionally introduced new cell platforms in each Snapdragon sequence to handle world buyer demand throughout each smartphone tier. In our licensing enterprise, first-quarter outcomes mirror a positive combine within the power of smartphone shipments. With over 150 5G license agreements, QTL is well-positioned for the longer term, and we proceed to anticipate 5G to have an extended life cycle than prior generations on account of its broad software throughout a number of industries.

Lastly, demand stays sturdy throughout all of our applied sciences and continues to exceed provide. Regardless of ongoing challenges throughout the worldwide provide chain, our multi-sourcing and capability growth initiatives will present incremental enhancements to our provide all year long. I’d now like to show the decision over to Akash.

Akash PalkhiwalaChief Monetary Officer

Thanks, Cristiano, and good afternoon, everybody. We’re extraordinarily happy to report sturdy outcomes to begin our fiscal yr. We delivered our second consecutive quarter of report non-GAAP earnings, with revenues of $10.7 billion and non-GAAP EPS of $3.23. These outcomes mirror year-over-year will increase of 30% and 49%, respectively, pushed by power throughout each QCT and QTL.

For QCT, this was one other report quarter with revenues of $8.8 billion and EBIT of $3.1 billion, up 35% and 62%, respectively, versus the year-ago quarter. QCT EBIT margins of 35% surpassed the excessive finish of our steerage vary and elevated 6 factors versus the year-ago quarter pushed by income scale and working leverage. Handset revenues of $6 billion elevated 42% yr over yr on account of larger than 60% progress in revenues from Snapdragon chipsets for Android units. RF front-end revenues of $1.1 billion grew 7% versus the year-ago quarter, reflecting the beforehand talked about pull-in of demand into the fourth fiscal quarter.

Our RF front-end revenues for Android units grew by larger than 25% versus the year-ago quarter as we continued to see sturdy traction throughout all main OEMs. IoT revenues had been up 41% yr over yr to $1.5 billion on continued demand for our cloud-connected clever edge units. Every of the buyer, edge networking, and industrial classes grew by a minimum of 30% in comparison with the year-ago quarter. Automotive revenues of $256 million grew 21% yr over yr on the power of our design wins throughout our Snapdragon digital chassis.

We recorded QTL revenues of $1.8 billion, a rise of 10% yr over yr, and EBIT margins of 77%, which was above the midpoint of the steerage. These outcomes mirror a positive combine and barely increased handset shipments. Turning to world handsets and our steerage for the second fiscal quarter. For calendar 2021, in step with the earlier steerage, we estimate world 3G, 4G, 5G handsets grew 7% yr over yr, together with roughly 535 million 5G handsets.

For calendar 2022, there is no such thing as a change to the forecast supplied at our Investor Day with larger than 750 million 5G handsets. For the second fiscal quarter, we’re forecasting revenues of $10.2 billion to $11 billion and non-GAAP EPS of $2.80 to $3. In QCT, we anticipate revenues of $8.7 billion to $9.3 billion and EBIT margins of 32% to 34%. On the midpoint, this means year-over-year income progress of 43% and EBIT greenback progress of $1.4 billion.

For handsets and RF entrance finish, we anticipate revenues to be in line sequentially as seasonal decline in Apple revenues is offset by continued progress in revenues from Android units. Inside handsets, the rise in Android income is pushed by the launch of our new Snapdragon premium chipset and extra shipments throughout excessive and mid-tiers on account of our second sourcing efforts. Moreover, we anticipate sturdy year-over-year and sequential progress in our IoT and automotive income streams. We estimate QTL revenues of $1.45 billion to $1.65 billion and EBIT margins of 70% to 74%.

This displays the traditional pre-COVID developments following the sturdy vacation quarter. We anticipate non-GAAP working bills to be up 7% to 9% sequentially on regular seasonality, together with calendar yr resets for sure employee-related prices. The remaining enhance displays choose investments in long-term progress initiatives that we outlined at our Investor Day. Trying ahead to the third fiscal quarter, we’re forecasting year-over-year non-GAAP EPS progress of larger than 30%.

For QCT, these mirror the seasonality following Chinese language New Yr purchases and the launch of our new Snapdragon premium chipset within the second quarter. We anticipate the subsequent inflection level in QCT to be within the second half of the calendar yr, with launch of recent 5G handsets throughout a number of main OEMs. Lastly, we printed our annual company accountability and ESG report yesterday, which outlines progress towards our companywide targets, together with environmental sustainability, variety and inclusion, and energy effectivity of our Snapdragon merchandise. We’re happy to have been acknowledged by a number of organizations, together with making the Dow Jones Sustainability Index and Newsweek’s most accountable firm record for the third consecutive yr.

Thanks. Again to you, Mauricio.

Mauricio Lopez-HodoyanVice President of Investor Relations

Thanks, Akash. Operator, we at the moment are prepared for questions.

Questions & Solutions:

Operator

Thanks. [Operator instructions] Our first query is from the road of Samik Chatterjee with J.P. Morgan. Please proceed.

Samik ChatterjeeJ.P. Morgan — Analyst

Thanks for taking my questions, and congrats on the outcomes. I suppose if I can begin with — you talked in regards to the sturdy launch with Android prospects that you have had in each telephones and tablets. And I believe you talked about doubling the tempo of launches with Android. As we glance to the — past the primary half, that’s your fiscal first-half December and March, how ought to we take into consideration how a lot of the Android share beneficial properties for you or launches for you is already within the run price? And the way a lot of that’s like weighted for the rest of the yr past kind of this primary half of the yr? Should you can share some colour on how to consider share beneficial properties persevering with for the rest of the yr with Android.

After which I’ve a follow-up, please.

Cristiano AmonPresident and Chief Government Officer

Hello, Samik. That is Cristiano. Look, Android is successful story for us. This quarter continues to validate what we mentioned earlier than.

OEM shared in shifts in China is benefiting Qualcomm, and we noticed vital progress of Qualcomm share inside the market as we’ve got this new 10 alternative. And we have seen that mirrored within the progress — we have seen in premium and excessive tiers. So, it continues to be a narrative. It was the spotlight of what occurred within the handsets inside the quarter.

Akash outlined 60% year-over-year progress on Android. And I will shift over to Akash to speak about seasonality.

Akash PalkhiwalaChief Monetary Officer

Sure. Samik, I believe that is one thing that’ll maintain for us going ahead. We’re in a really sturdy place as you see within the numbers. Our product portfolio could be very sturdy as properly.

So, as we go ahead, we proceed to anticipate to see this profit in our financials.

Samik ChatterjeeJ.P. Morgan — Analyst

Sure. Acquired it. And only for my follow-up, I do know you talked in regards to the second supply serving to when it comes to, clearly, when it comes to realizing higher revenues. However in the event you can discuss what you are seeing when it comes to the cadence of the advance there.

Do you get to the place you need to be with provide through the yr, or does it take longer? Should you can simply give us an replace on the way you’re desirous about provide right here.

Akash PalkhiwalaChief Monetary Officer

Certain. So, general, the demand, as Cristiano talked about in his ready remarks, extraordinarily sturdy throughout the board. And so, we’re persevering with to see demand outpacing provide. As you rightly talked about, we had put plans in place very early within the course of, anticipating a few of these challenges.

And also you’re seeing the good thing about that, proper? We now have three second-sourcing elements, particularly within the mid-high tiers which might be delivery at scale now, and that exhibits up in our monetary efficiency. And we’ve got extra elements arising as properly. So, that is positively one thing that is serving to us. The second is we’re seeing capability builds from a few of our suppliers, and that is taking part in a job as properly.

As you look ahead, we anticipate provide to proceed to enhance progressively by means of the yr along with the place we’re at now. And this complete image, clearly, as you’d anticipate, is factored into our steerage.

Cristiano AmonPresident and Chief Government Officer

Look — it is Cristiano. Nothing extra so as to add aside from in easy phrases, we see provide enhancements. Our ahead information, it contemplates the visibility we’ve got in provide. And we nonetheless have extra demand than provide.

We’ll ship extra if we might.

Operator

Thanks. Our subsequent query is coming from Chris Caso with Raymond James. Please proceed along with your query.

Chris CasoRaymond James — Analyst

Sure. Thanks. Good night. I wished to ask in regards to the commentary in regards to the June quarter and the second half of the calendar yr, your commentary there.

Are you able to give a bit of extra colour on that? It isn’t typical so that you can present colour two quarters upfront. So, I think about it is purposeful of why you are doing that. And possibly discuss a bit of bit in regards to the second half of the calendar yr. Is that basically a perform of extra provide approaching, permitting you to maybe steadiness provide and demand as you get to the second half of the calendar yr?

Akash PalkhiwalaChief Monetary Officer

Certain, Chris. Thanks for the query. So, general, once you take a look at our fiscal yr, we’re monitoring properly forward of plan. We’re very, very proud of how the yr is taking part in out for us.

And that clearly places us in a really sturdy place to satisfy and exceed our long-term Investor Day targets. Should you take a look at the first-half outperformance, past that, as we go into the third fiscal quarter, we’re projecting EPS progress of a minimum of 30%, a chance past that. After which as you get into the September quarter, as properly, that is sort of the subsequent inflection level for us with launches — extra telephone launches in — throughout a number of main OEMs. So, we will — we’re anticipating very sturdy year-over-year progress within the September quarter as properly.

Additionally, once you look past handsets and we take a look at second half of fiscal ’22, RF entrance finish, IoT, and automotive all are poised to proceed to point out very sturdy year-over-year progress as we undergo the yr. So, usually, once you step again, we had a really sturdy second half fiscal ’21. Fiscal ’22 is shaping up identical to that, very sturdy year-over-year progress charges.

Chris CasoRaymond James — Analyst

That is very useful. Thanks. Along with the longer-term targets you offered on the Analyst Day, you additionally talked about fiscal ’22 steerage for a minimum of 20% EPS progress. Based mostly on what you are saying for June, once more, it looks as if you are properly forward of that as properly.

Any commentary replace on that fiscal ’22 steerage?

Akash PalkhiwalaChief Monetary Officer

Sure. Chris, that is the appropriate conclusion. We’re monitoring properly forward of it. We’re not updating that quantity but.

However I believe primarily based on the steerage that you’ve got for second fiscal quarter and third fiscal quarter and the feedback I gave on the fourth, what you are drawing is a really affordable conclusion.

Operator

Thanks. Our subsequent query is coming from Rod Corridor with Goldman Sachs. Please proceed along with your query.

Rod CorridorGoldman Sachs — Analyst

Sure. Thanks, guys. Admire the query. I used to be simply looking, and we have been this for some time, the quarter-on-quarter marginal contribution.

So, the QCT marginal contribution, if I take a look at the change in EBIT and the change in income, I am calculating 58% there on this quarter. And I do know a few of that’s scaling, however I ponder if there’s any approach you may possibly a minimum of give us some colour on how a lot of that’s the new marginal gross sales in QCT being increased margin and the way a lot of it’s simply scaling impact on the income. Thanks. After which I’ve a follow-up.

Akash PalkhiwalaChief Monetary Officer

Rod, simply to verify — and that is Akash. Simply to verify, your query was in regards to the actuals for the December quarter? 

Rod CorridorGoldman Sachs — Analyst

Sure. So, Akash, what all I’ve performed is taken the EBIT of the December quarter much less the EBIT of the September quarter and put it over the income distinction.

Akash PalkhiwalaChief Monetary Officer

Appropriate, appropriate. Nice. So, I believe it is an incredible story. You are seeing a mix of all three drivers, proper? You have got income scale benefiting us.

Gross margin power quarter over quarter additionally benefiting us. After which working leverage of the enterprise. So, it is a mixture of all three. And we’re fairly excited that not simply gross margin efficiency was nice.

Once you take a look at working margins as properly, 35% can be a nice benchmark for us. It is the best margin in a very long time for us. So, fairly enthusiastic about the place we’re at and the place we’re going with it.

Rod CorridorGoldman Sachs — Analyst

Nice. Thanks. After which on my follow-up, I wished to ask you, Cristiano, in the event you might possibly touch upon the — there’s been a number of noise within the high-end Android chip market about upcoming competitors and so forth. And I simply surprise possibly might you touch upon the aggressive setting a bit of bit there, what you are seeing — what you anticipate seeing within the subsequent six or 9 months? Thanks.

Cristiano AmonPresident and Chief Government Officer

Blissful to do it. Earlier than I reply that query, I simply need to add one factor to the prior query that Akash answered. Look, we have been speaking about our one expertise street map that basically scales. And that is precisely what you see as our diversification technique unfolds and extra or extra of the income coming towards QCT from nonhandset enterprise, it offers us scale to the enterprise, is all accretive to margins, and I believe that is mirrored within the numbers.

And I believe that can proceed to be the story as we’re capable of leverage the street map. Now, again to your query on competitors, we’re very joyful the place we’re. Look, I supplied a metric that we not often try this in my ready remarks. After we launched the brand new Snapdragon 8 sequence, we had 50 million views in — of the launch occasion.

And we’ve got performed that concurrently each in the USA as properly in two totally different areas in China. Snapdragon is changing into the popular model for premium-tier Android. Not a single considered one of our prospects take into consideration flagship with out considering of Snapdragon 8 sequence. It is a very sturdy place to be in.

As our prospects transfer to the premium tier, we’re seeing that flip into beneficial properties of share of the marketplace for Qualcomm. That is why Android is the story of our handset enterprise proper now. And the truth is as we take a look at the OEM share shifts that occurred in China, there’s loads of alternative for us to develop and our rivals to develop. And I anticipate that we’ll proceed to have good outcomes, and increasingly our prospects can be betting on the Snapdragon model.

Operator

Thanks. Our subsequent query is coming from the road of Mike Walkley with Canaccord Genuity. Please proceed along with your query.

Mike WalkleyCanaccord Genuity — Analyst

Thanks. Congratulations on the outcomes additionally. I suppose query for me on the $10 billion SAM alternative inside Android that you have beforehand highlighted. How do you assume a lot of that benefiting this primary half of the yr steerage? And the way a lot additional you assume it’s important to go in penetrating that SAM?

Akash PalkhiwalaChief Monetary Officer

Sure. Mike, that is Akash. What’s actually occurring with the $10 billion SAM alternative is with the OEM combine change in China, all of our prospects, Xiaomi, OPPO, Vivo, Honor, they’re all selecting up share. And as they decide up share and in addition go up tier, going into the excessive and the premium tier, as Cristiano simply outlined, it offers us an amazing alternative to faucet into it.

So, we have performed a number of it by means of, clearly, our merchandise being nice, but additionally engaged on the second sources that we talked about in our ready remarks. We nonetheless assume that there’s a chance to proceed to increase into that SAM going ahead.

Mike WalkleyCanaccord Genuity — Analyst

Proper. And simply my follow-up query, I believe you beforehand highlighted to begin the primary half of the yr, you’ve got sort of prioritized the sturdy Android premium tier handsets. And also you talked about demand outstripping provide. Is it get to possibly a softer handset quarter within the June quarter? Ought to we see possibly automotive and IoT begin to shut that provide demand steadiness and people companies possibly speed up when it comes to a sequential progress pattern?

Akash PalkhiwalaChief Monetary Officer

Sure, Mike. We’re positively — that is a call that we positively make the place if we are able to bias the provision in sure instructions primarily based available on the market calls for, we reap the benefits of that. And so, it is one thing that we’ll positively do as we get to the June quarter.

Cristiano AmonPresident and Chief Government Officer

That is Cristiano. Let me simply add one factor. I need to — hopefully, it will clarify. We’re seeing demand for all of our product traces.

We’re seeing extra demand than provide proper now. I believe demand continues to be up, however I believe we’re a really lucky place to be in. When you concentrate on the handset enterprise, and you probably did see this very excessive progress price on Android, 60% progress of Android inside the quarter, we prioritize provide, as we mentioned within the prior quarters, for the Chinese language New Yr launches. We are going to nonetheless have extra demand than provide in all the expansion enterprise.

As we undergo the subsequent quarter, you are going to see the expansion enterprise, and a number of the nonhandset enterprise might — rising, after which the subsequent inflection level for handsets is the vacation season, which is our September quarter. And as we anticipate provide enhancements all year long, I believe we’ll have the ability to proceed to drive progress in all enterprise. We’re very proud of how the yr is unfolding. And as I mentioned, our provide image is mirrored in our ahead information.

Having mentioned that, demand continued to go up, and it is a good factor.

Operator

Thanks. Our subsequent query is coming from Stacy Rasgon with Bernstein Analysis. Please proceed along with your query.

Stacy RasgonBernstein Analysis — Analyst

Hello, guys. Thanks for taking my questions. First, I wished to ask about chipset gross margins within the quarter. I do know you do not report them.

But when I kind of stare at it, I believe they in all probability had been up a few hundred foundation factors. And I discover that fascinating simply given the relative power of handsets versus the adjacencies, which I believe do have increased margins. Was that simply the Android power that you simply talked about that drove that margin within the quarter? After which how ought to we take into consideration that into March as kind of the combo reverses? However it is best to have among the increased margins of the adjacencies really rising sequentially into March. I imply, is there room for extra margin growth as we go into the subsequent quarter?

Akash PalkhiwalaChief Monetary Officer

Sure. Stacy, it is Akash. So, it is a mixture of, clearly, the adjoining outdoors nonhandsets companies serving to the gross margin. Inside handsets, you are seeing the profit come by means of, particularly as premium and high-tier units on the excessive finish of Android are being consumed, and we’re promoting into that market.

And as you may see within the steerage that we gave, we’re nonetheless persevering with to be optimistic with the gross margin image.

Stacy RasgonBernstein Analysis — Analyst

Acquired it. That is useful. For my follow-up, I wished to ask in regards to the buyback. To procure again fairly a little bit of inventory, I imagine, within the quarter.

And I believe on the Analyst Day, you talked about buybacks is just actually being anti-dilutive, nevertheless it seems to be like we’re seeing share counts come down. I suppose how ought to we be desirous about the buyback going ahead given the money technology? And I seen this quarter, you did not information the share depend on a extra structural stage. It does appear like it is down a bit of decrease. Ought to we be desirous about share depend proceed to go down by means of the yr given the capital return that we’re seeing?

Akash PalkhiwalaChief Monetary Officer

Stacy, no change on the framework that we have given on buybacks earlier than. We’re persevering with to deal with prioritized anti-dilutive buybacks and opportunistically search for, on prime of that, if we are able to do extra buybacks. And so, what you are seeing within the quarter is a portion of that displaying up. However basically, our framework does not change.

Operator

Thanks. Our subsequent query is coming from the road of Tal Liani with Financial institution of America. Please proceed along with your query.

Tal LianiFinancial institution of America Merrill Lynch — Analyst

Hello. I’ve two questions. The primary one is different suppliers of Apple famous that orders for March in — had been sturdy, however then a minimum of considered one of them mentioned that the steerage for June could be very weak as a result of there’s going to be a reversion to the imply. And the query I’ve is, is there any focus of QCT handsets this that provides you some issues over any huge buyer that is likely to be decreasing orders — that there’s any irregular conduct this quarter is likely to be decreasing orders in a while? That is my first query.

Akash PalkhiwalaChief Monetary Officer

Certain. Sure. Tal, nothing to look there. I imply, there is not a narrative.

We’re going — Apple goes to have their shopping for sample throughout the quarters. And so, that can move by means of. However actually, our focus is on the Android market, and there is not a particular story that we’re frightened about there. Our place is nice, and design traction going ahead seems to be nice.

Tal LianiFinancial institution of America Merrill Lynch — Analyst

OK. The second query, and I do not understand how to have a look at it, however after I take a look at handset revenues, we’re properly above the consensus estimates. However RF, auto and IoT, you reported beneath — barely beneath consensus estimates for the quarter. And I am simply questioning, is there any — to begin with, are you able to focus on the quarter for these nonhandset markets or possibly RF as a part of handsets? After which are you able to focus on seasonality? These are new markets, comparatively talking.

What ought to we take into consideration seasonality right here?

Akash PalkhiwalaChief Monetary Officer

Sure. Certain. So, Tal, as we had mentioned at earlier earnings name, December being a powerful quarter for the handset enterprise, we positively prioritize the handset enterprise over among the different new alternatives. Nonetheless nice demand in these areas.

And as we go ahead, you may see that progress charges ramp in every of these companies. It is mirrored in our steerage. As I mentioned in my ready remarks, we anticipate auto and IoT to see sturdy sequential progress within the second quarter and in addition a powerful year-over-year progress. As you take a look at the second half of the yr, you are going to see the identical pattern, sturdy year-over-year progress throughout the board.

Operator

Our subsequent query is coming from the road of Ross Seymore with Deutsche Financial institution. Please proceed along with your query.

Ross SeymoreDeutsche Financial institution — Analyst

Hello, guys. Thanks for letting me ask a couple of questions. Whether or not it is Cristiano or Akash, I am unsure who that is higher aligned to, however I wished to see what your technique is on the pricing aspect of the equation. Prices are rising.

All people is making an attempt to get extra provide. Are you passing alongside these prices? Is it margin accretive? And the way are you utilizing value on the income aspect of issues as a tailwind? Ought to we be assuming that among the goodness that we’re seeing yr over yr is coming from the value aspect of the equation or not?

Cristiano AmonPresident and Chief Government Officer

Thanks, Ross. That is Cristiano. Thanks for the query. Here is how it is best to give it some thought.

One factor that in all probability separate us, we have been very centered in premium and high-tier units, high-value units, a number of new expertise. And due to this fact, we’re sort of much less impacted by semiconductor value will increase. It is extra in regards to the worth of the platform we provide. The second a part of the reply is what we mentioned, I believe, earlier.

Our one expertise street map actually scales. And as we use the expertise in our R&D to serve extra markets, we gained scale with our software processor in premium Android, and Android turns into the important thing story of cell, not the modem. It is actually the appliance processor. And the Snapdragon 800 is the important thing story.

Plus, we’ve got the processing and connectivity into automotive and IoT. It’s accretive to margins. The enterprise beneficial properties scale, and people are extremely worthwhile, I believe, product choices. So, these two issues have an element, and it is mirrored within the QCT 35% working margin.

Ross SeymoreDeutsche Financial institution — Analyst

Thanks for the colour. I suppose as my follow-up, one in all probability for Akash, on the opex aspect of issues. It seems to be just like the March quarter is doing what it usually does in your steerage, up seasonally. Any kind of places and takes for the remainder of the yr that may be totally different than your conventional seasonality in that line?

Akash PalkhiwalaChief Monetary Officer

Not likely. It will be in step with our historic seasonality. The one factor to bear in mind is as we closed the Veoneer transaction, they’re going to develop into a consider our opex pattern going ahead. However general, there’s — it is best to anticipate the pattern to be in step with historic.

Operator

Thanks. Our subsequent query is coming from Matt Ramsay with Cowen. Please proceed along with your query.

Matt RamsayCowen and Firm — Analyst

Thanks very a lot. Good afternoon, everyone. Cristiano, I wished to — a number of the dialog right here has been centered on provide versus demand to your merchandise and the wafers, and and so on., that takes to make your merchandise. However a number of the calls all of us do in semis, we’re listening to about match set points and kitting points to your finish prospects making units.

And what I’ve heard extra about within the final six months and I anticipate to going ahead is possibly a push by Qualcomm to make use of your scale to assist your OEM prospects get the rest of the equipment to make telephones, pushing folks extra carefully to be strictly aligned across the reference design the place you possibly can management extra of the elements in these reference designs. I ponder in the event you’re discovering your scale to be a bonus, one. And quantity two, does which have implications on connect charges of RF and different forms of elements which may generate income for Qualcomm in these designs? Thanks.

Cristiano AmonPresident and Chief Government Officer

Thanks for the query. Right here is — it is a difficult factor right here. I will attempt to present a easy reply. Look, after we discuss, for instance — and I used to be simply going to select this product an instance.

We talked about Snapdragon 8 Sequence Era 1, and it is a main node SoC, nevertheless it has a number of connect. Sure, sure. The transceiver has complete front-end connect. It has energy administration IC.

And on the finish of the day, after we present a chipset answer to our prospects, we’d like capability throughout numerous totally different nodes. So, after we take into consideration multi-sourcing our merchandise and put capability growth plans in place, so we’ve got provide to help each our handsets within the progress enterprise, we’ve got been constructing capability throughout all these totally different applied sciences. And for example, once you consider issues like an influence administration IC and even transceiver, we work with 4 or 5 foundries. So, within the semiconductor provide chain scarcity, it’s throughout every thing.

Now, having mentioned that, the second a part of the reply is scale has been very useful. Two issues have been very useful for Qualcomm. One is the excessive predictability we’ve got on our demand. We are able to wager on ourselves, and due to this fact, we’ve got the power to make long-term capability planning and get long-term capability commitments from our distributors.

And likewise, the size that we’ve got to have the ability to make the most of multi-sourcing, that has put us in a superb place to navigate by means of this. Now, having mentioned that, so I will repeat what I mentioned earlier than, we nonetheless have extra demand than provide, despite the fact that we’re very proud of the expansion charges and the way good was the quarter, the information how we have been managing, I believe the seasonality between handsets and the expansion enterprise. And as we mentioned, provide goes to get higher as we get to the second half of 2022.

Matt RamsayCowen and Firm — Analyst

Very useful. Thanks for that. Simply as a follow-up. On the auto enterprise, you guys offered a really compelling story round ADAS on the Investor Day, however I used to be a bit stunned on the Extremely Cruise announcement so shortly.

Congrats on that. Perhaps in the event you might give a bit of bit extra particulars behind that relationship with GM and when you’ve got different irons within the fireplace of comparable profile. Thanks.

Cristiano AmonPresident and Chief Government Officer

Thanks for the query. Automotive is absolutely an unbelievable alternative for Qualcomm. We’re tremendous enthusiastic about every thing that is occurring in automotive has occurred in a really quick time period. And I believe we’ve got one thing that could be very distinctive.

It is separate us from everyone else. It isn’t about having a part. It is about making a digital chassis with capabilities in all domains, from connecting the automotive to the cloud telematics, the whole immersive digital cockpit expertise, and, in fact, ADAS and autonomy, plus a service platform. GM is, as we mentioned, a cornerstone buyer that isn’t solely wanting into the aptitude of ADAS, and we’re tremendous happy with the work with them, each of Tremendous Cruise and Extremely Cruise, but additionally the power to have a look at the whole chassis.

BMW was one other one, which we introduced towards our Analyst Day. At CES, we introduced Renault as along with the digital chassis. You must anticipate that we’ve got a number of different irons within the fireplace. And general, automotive is an efficient story for Qualcomm.

It is one thing that we are able to really take a platform method and take among the issues we’ve got performed in cell, it is take the expertise to scale up and down to each tier of car. And I believe we’re simply at first of getting extra ADAS design wins and having the chassis be acknowledged as a key platform going ahead.

Operator

Thanks. Your subsequent query is coming from Joe Moore with Morgan Stanley. Please proceed along with your query.

Joe MooreMorgan Stanley — Analyst

Nice. Thanks. I ponder in the event you might discuss RF for the yr, the RF enterprise’ means to maintain tempo with handsets general. And sort of what are the metrics we must always take a look at as millimeter-wave rollout sort of extra broadly an vital issue? Or is it content material progress within the kind of subsequent 200 million 5G handsets, simply how are you desirous about general RF for the yr?

Akash PalkhiwalaChief Monetary Officer

Certain. Joe, it is Akash. Should you return to what we mentioned at Analyst Day and the goal that we set for the RF enterprise, actually, no change there. ’22 is taking part in out as we anticipated.

It is on observe to place us to attain the goal that we laid out. You also needs to consider RF as not simply handsets. And at present, a lot of the enterprise is handsets, however we will have RF alternatives with 5G and automotive, with 5G and IoT after which WiFi RF as properly. So, large progress alternatives outdoors of handsets that is in entrance of us.

On millimeter wave, the steerage that we gave at Analyst Day didn’t have any heroic assumptions of progress of millimeter-wave globally. We consider that as an upside alternative.

Joe MooreMorgan Stanley — Analyst

Nice. Thanks.

Operator

Thanks. Our remaining query is coming from the road of Brett Simpson with Arete Analysis. Please proceed along with your query.

Brett SimpsonArete Analysis — Analyst

Sure. Thanks very a lot. I’ve a query for Cristiano. You talked lots about Android power this yr.

However I suppose on China smartphones, we have seen some volatility in kind of sell-in versus sell-through final quarter. Is that this kind of typical sort of buildup forward of Chinese language New Yr that we must always anticipate? And I suppose once you take a look at new product launches in China, final yr, we did not get any new premium Android launches within the June quarter. Nothing significant from Chinese language prospects. So, I am simply eager to get your perspective round demand from Chinese language prospects within the March and June quarters as issues look a bit of bit extra risky than we might anticipate.

Cristiano AmonPresident and Chief Government Officer

No, it is an incredible query. And I believe as we have been making an attempt to speak about on this name, when you concentrate on the handset Android income for us and the expansion for having in Android, you see a number of progress proper now. You noticed that 60% year-over-year progress of Android, and we even have sequential progress. That is due to the Chinese language New Yr.

And we’re extra skewed towards premium and excessive tier. After which we’ve got — the subsequent inflection level would be the vacation season. And I believe that is all contemplated in our information. And the market — we proceed to see demand excessive.

And since I believe we’re extra concentrated within the premium and excessive tiers, we’ve got been a bit of bit much less impacted by among the places and takes that you simply see towards within the mid and the low tier of handsets.

Brett SimpsonArete Analysis — Analyst

Nice. Thanks, Cristiano. And possibly only a follow-up on Home windows and ARM. I imply, that is one thing you guys have led during the last, I do not know, three or 4 years, however are you able to discuss a bit about your share ambitions? I imply, what do you assume that an ARM platform and Home windows ecosystem can command on a kind of two- or three-year view with — particularly with the NUVIA asset you’ve got obtained now and the MAKENA mission? Any kind of market share ambitions you possibly can share with us, simply to provide us some perspective on the way you see this chance taking part in out.

Thanks.

Cristiano AmonPresident and Chief Government Officer

Nice query. Look, let’s discuss quick time period, after which let’s discuss midterm. The best way we take a look at this — and we’ve got been very clear and really in step with our imaginative and prescient. On the finish of the day, for Qualcomm, it is inevitable that you will have a giant portion of the PC market shifting towards the related ARM platform.

I believe you noticed that taking place already with Apple when you concentrate on the Apple units. After which when you concentrate on the use instances of PC, PCs are altering a minimum of for the workhorse of a laptop computer. It is about cameras. It is about connectivities.

It is about multimedia. It is about streaming with 5G, together with streaming of gaming, and so on. So, our view could be very clear. There’s going to be a giant portion of the market goes to transition to an ARM structure.

And once you consider everyone else within the {industry}, we’re the best-positioned firm to try this for the Home windows ecosystem. I believe that is mirrored not solely within the developments and the partnership we’ve got with Microsoft for the years but additionally the acquisition of NUVIA. Quick time period, as we put together for Home windows 11, Home windows 11 is absolutely the time that you’ve got the ARM ecosystem capable of help 32-bit, 64-bit. You have got issues just like the Android apps coming to Home windows, our new companion we simply introduced, the 8cx Gen 3.

We discuss CES about having now the system being examined in 200 giant enterprises. And it is a step perform. We’ll proceed to work with our companions on that transition. However I believe each OEM that you will discuss to, particularly on the PC Home windows aspect, they imagine there’s going to be a room for ARM-based laptop computer, and that is what Qualcomm is doing.

Operator

Thanks. That concludes at present’s question-and-answer session. Mr. Amon, do you have got something additional so as to add earlier than adjourning the decision?

Cristiano AmonPresident and Chief Government Officer

Sure. To start with, I wish to thank everybody for becoming a member of on the decision at present. I am actually excited for what 2022 will convey. Demand for expertise is accelerating throughout just about each sector, and we stay firstly of one of many largest alternatives in our historical past.

Our one expertise street map with incomparable capabilities in wi-fi communications, low-power superior computing, and on-device AI extends from cell to automotive and IoT, increasing our addressable market by greater than seven instances to roughly $700 billion within the subsequent decade. In closing, we’ve got the imaginative and prescient and the execution capabilities that can guarantee we’re on the forefront of innovation. Because the world transforms, we are going to proceed to maneuver early and shortly to handle these new alternatives and ship applied sciences that allow industries and communities to advance. Most vital, I wish to thank our 45,000 workers worldwide.

I am extremely happy with the numerous achievements we made. Thanks.

Operator

[Operator signoff]

Period: 50 minutes

Name individuals:

Mauricio Lopez-HodoyanVice President of Investor Relations

Cristiano AmonPresident and Chief Government Officer

Akash PalkhiwalaChief Monetary Officer

Samik ChatterjeeJ.P. Morgan — Analyst

Chris CasoRaymond James — Analyst

Rod CorridorGoldman Sachs — Analyst

Mike WalkleyCanaccord Genuity — Analyst

Stacy RasgonBernstein Analysis — Analyst

Tal LianiFinancial institution of America Merrill Lynch — Analyst

Ross SeymoreDeutsche Financial institution — Analyst

Matt RamsayCowen and Firm — Analyst

Joe MooreMorgan Stanley — Analyst

Brett SimpsonArete Analysis — Analyst

Extra QCOM evaluation

All earnings name transcripts

This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even considered one of our personal — helps us all assume critically about investing and make selections that assist us develop into smarter, happier, and richer.

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