The operator welcomes participants to Qualcomm's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call and provides information on how to access the call and its recording. Mauricio Lopez-Hodoyan, Vice President of Investor Relations, introduces the speakers and reminds listeners of the use of non-GAAP financial measures and forward-looking statements. Cristiano Amon, Qualcomm's President and CEO, thanks everyone for joining the call.

In fiscal Q4, the company had strong revenues and earnings, with a stable Android handset environment. They have made progress on technology and product roadmaps and are focused on future growth and diversification. The company is a leader in on-device AI for smartphones, laptops, XR, and automotive, and expects high performance AI to become a requirement. The Snapdragon platform is highly differentiated with increased AI processing performance and collaborations with partners. The platform can handle multibillion parameter AI models for multiple use cases.

Qualcomm has developed the Snapdragon X Elite platform, which includes a custom Oryon CPU, Adreno GPU, and Hexagon NPU, making it the industry leader in performance and power efficiency. This platform will play a significant role in the transformation of user experience as on-device Gen AI becomes more prevalent. It will also be used in PCs and smart glasses, further expanding Qualcomm's reach in the merging of physical and digital spaces.

The AR1 Gen 1 was developed in collaboration with Meta and powers the new Ray-Ban Meta smart glasses. It features a dual camera system and on-device AI for various functions. Snapdragon remains the platform of choice for VR, MR, and AR designs. Qualcomm is also a leader in Wi-Fi, with strong partnerships and new collaborations for next generation Wi-Fi 7 connectivity. Their Fiber Gateway Platform adds 10 gigabit passive optical network capabilities to their portfolio, positioning them as leaders in broadband solutions. Their service defined Wi-Fi technology allows for real-time optimization of home networks. In the automotive industry, there is a digital transformation bringing new levels of computing, intelligence, and cloud connectivity to vehicles, resulting in new user experiences and advancements in driver assistance, autonomy, and safety.

Qualcomm's Digital Chassis solutions are at the forefront of the transformation of vehicles into software-defined entities, offering new revenue opportunities and advanced capabilities. The upcoming Cadillac ESCALADE IQ will be equipped with Qualcomm's Snapdragon Cockpit, Auto Connectivity, and Ride platforms. Qualcomm also has partnerships with BMW and Mercedes Benz for their vehicles. They have expanded their Digital Chassis offering to include platforms for two-wheelers and other vehicle classes. Qualcomm has also announced a long-term relationship with Amazon Web Services to integrate cloud technologies into vehicle development. In the handset market, Qualcomm has announced their latest premium mobile platform, the Snapdragon 8 Gen 3, which promises top performance and experiences for the upcoming Gen AI era.

Qualcomm's flagship device, the Snapdragon 8 Gen 3, offers advanced features such as intelligent capture, console level gaming, studio quality audio, and fast AI processing. The company has partnerships with global OEMs and smartphone brands, including Xiaomi, Honor, OPPO, Vivo, OnePlus, Sony, and more. They have also entered into an agreement with Apple to provide 5G technology for their upcoming smartphone launches. Despite challenges, Qualcomm's growth drivers remain strong and they are focused on delivering returns to shareholders while pursuing diversification opportunities. In the fourth fiscal quarter, the company reported revenues of $8.7 billion and EPS of $2.02, which exceeded expectations. The QTL division's revenues and margins were in-line with expectations, while QCT's revenues and margins were near the high-end of expectations, driven by strong demand in the handset and automotive sectors.

In the automotive sector, revenue grew 23% sequentially to $535 million, marking the 12th consecutive quarter of double-digit percentage growth. Non-GAAP operating expenses decreased 1% sequentially to $2.2 billion. Despite a challenging macro environment, the company delivered strong fiscal ‘23 results with non-GAAP revenues of $36 billion and EPS of $8.43. The company remains focused on extending technology leadership and driving revenue diversification while improving operating efficiency. The automotive sector saw record revenues of $1.9 billion with 24% year-over-year growth. The company exceeded its fiscal ‘23 cost action target and generated strong free cash flow of $9.8 billion. The balance sheet remains strong with $11.3 billion in cash and marketable securities. For the first fiscal quarter of ‘24, the company forecasts revenues of $9.1 billion to $9.9 billion and non-GAAP EPS of $2.25 to $2.45. In QTL, revenues are estimated to be $1.3 billion to $1.5 billion with EBT margins of 70% to 74%, while in QCT, revenues are expected to be $7.7 billion to $8.3 billion with EBT margins of 26% to 28%.

Samik Chatterjee congratulates the company on their results and asks about Cristiano's comments on on-device AI becoming more prevalent. He mentions that investors are looking for evidence of this trend becoming a key focus for device OEMs.

The speaker discusses the potential impact of on-device Gen AI and its evolution in parallel to the cloud. They mention the recent Snapdragon Tech Summit where they announced investments in Gen AI and demonstrated various use cases. The speaker also highlights Qualcomm's unique position in having many of these models running natively on their platform and mentions partnerships with companies like Microsoft and Meta. They predict that flagship devices launching in 2024 will showcase the use of Gen AI in changing photography, messaging, scheduling, and assistance. The speaker believes that this could create a new cycle for phones and increase silicon content, leading to potential financial gains for the company.

The company has significantly increased the processing performance of their AI and this will have an impact on their mix and unit sales. They are optimistic about the recovery of the Android market and expect a 35% growth in revenue from Chinese OEMs. They are also happy with their partnership with Samsung and expect to have the majority share in the upcoming launch of the GS24.

The speaker discusses the company's strong product roadmap, particularly in the area of Gen AI processing capabilities. They mention the success of their new Oryon CPU and its future potential in mobile devices. The speaker also mentions their positive relationship with Samsung. The next question from an analyst is about the impact of Huawei's supply of seven nanometer chips from SMIC on the company's revenue and the overall market in China. The speaker clarifies that they do not expect to sell any significant amount of their 4G SOCs to Huawei in the future.

Cristiano Amon, in response to a question, discusses the growth of Android customers in China and the possibility of Huawei upgrading their existing customer base. He also mentions the impressive products showcased at the latest Snapdragon Summit and the support for ARM PCs from other ISVs. He is proud of the team's accomplishments and the performance of the new CPU.

The speaker emphasizes the importance of AI processing capability, specifically in relation to Microsoft's transition to a Windows AI future and their collaboration with Qualcomm. They mention the success of bringing applications to the platform and the progress made in emulation performance. The speaker sees the Snapdragon X Elite as a result of the Microsoft-Qualcomm collaboration and believes it will lead to growth opportunities for Qualcomm in the ARM-based PC market. A question is posed by Mike Walkley from Canaccord Genuity for Akash.

The speaker discusses the company's strong cost execution and reduction target for fiscal year 2023. They mention implementing additional cost-cutting actions while still investing in technology and diversification. The speaker also talks about the increased dollar content per device for Qualcomm's high-end Snapdragon and how it will drive towards a richer mix of higher premium devices and an increase in ASP.

The speaker discusses the company's opportunities to drive units in the upcoming year, including a potential new upgrade cycle and share gains. They also mention the importance of their AI leadership in the PC and IoT markets, as well as the expansion of their addressable market and revenue per device in these areas. The next question asks for more details on the expected seasonality in the March quarter, to which the speaker responds that they expect the first and fourth quarters to be the strongest, with the third quarter being the lowest due to the lack of a flagship phone launch. However, they are pleased with the signs of stabilization in the global handset market as they enter the next fiscal year.

The company is optimistic about the stabilization and normalization of Android channel inventory. They have a strong trajectory for the year. The new Apple agreement covers three launches and they are planning for a 20% share, but any more would be upside for their plan. The fiscal fourth quarter guide for automotive and IoT will be similar to last year. There has been inventory burn in those markets, particularly in IoT, but it is unclear if it is affecting the automotive market.

Akash Palkhiwala, Qualcomm's CFO, discussed the company's financial guidance for the automotive and IoT sectors. For automotive, they expect a 1-2% decline or flat compared to last year's results. However, they are optimistic about the business traction and product roadmap. For IoT, they expect the same trend as last year, with demand weakness and channel inventory affecting the first quarter but a strong second half of the fiscal year. When it comes to gross margin, the company's focus on AI at the edge will open up new TAMs and increase dollar content on handsets, but it is unclear if this will have an impact on gross margin.

The company had a successful September quarter and is expecting to meet its guidance for the December quarter. In the long term, there is potential for margin expansion as the company scales in new areas such as automotive and IoT. The CEO also mentions that as the company scales in these markets, it can also improve operating margin efficiency. The company has a diverse range of IoT products, some of which are subject to cyclical dynamics, but there are also new growth opportunities in areas such as PC, XR, networking, and edge processing. These new opportunities are less affected by current cyclical dynamics.

Christopher Rolland asks a question about global handset units and Qualcomm ASPs for the next fiscal year. Akash Palkhiwala responds by stating that they expect mid to high single digit growth in 2023 and high single digit to low double digit growth in 2024 for 5G units. He also mentions that they are on track to continue expanding their ASPs, as seen in the past three years. Christopher also asks about potential risks in the European Commission's proposal to regulate standard essential patents, to which Alex Rogers responds that they are monitoring the situation.

The European Union is currently in a trialogue process to discuss a proposed regulation on SEPs and essentiality. This process involves various stakeholders and is expected to take several years to resolve. Other jurisdictions, including the US and China, are also following this development. Regarding handset demand, there has been an increase in China, but it is unclear how much of this is due to inventory normalization versus actual market growth. This could also impact QTL, which has been affected by the lower handset market.

The company is projecting a stable market for handsets and is expecting revenue growth in the upcoming quarter. They believe inventory is a major factor in this growth, along with their market share and new chip launches. The QTL revenue forecast is dependent on the overall handset market. The company is not providing guidance for the full year, but has given guidance for the first quarter and an outline for the rest of the year.

In response to a question about Qualcomm's outlook for fiscal 2024, Akash Palkhiwala discusses the company's plans for operating expenses and maintaining operating discipline while investing in diversification initiatives. He also mentions that they have taken cost reduction actions in the past and will continue to do so. The final question is about the company's market share in China, and Alex Rogers responds by stating that they had a share increase in fiscal 2023.

The speaker discusses the company's direction and plans to retain majority share at Samsung. They mention the success of their products in the premium and high tier markets, despite competition from Chinese OEMs. They also mention their confidence in their competitive differentiation and content increase. The speaker thanks employees, suppliers, and partners and expresses a focus on building innovative products and expanding into new markets. The call is concluded.

This summary was generated with AI and may contain some inaccuracies.