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\u9ad8\u901a\u5468\u4e09\u4e0b\u8c03\u4e862015\u5168\u8d22\u5e74\u4e1a\u7ee9\u9884\u671f\uff0c\u8fd9\u4e5f\u662f\u8be5\u516c\u53f8\u4eca\u5e74\u7b2c\u4e8c\u6b21\u4e0b\u8c03\u8fd9\u6837\u7684\u4e1a\u7ee9\u9884\u671f\uff0c\u4e0a\u6b21\u4e0b\u8c03\u4e1a\u7ee9\u9884\u671f\u53d1\u751f\u5728\u4eca\u5e741\u6708\u3002\u9ad8\u901a\u5728\u4e0b\u8c03\u4e1a\u7ee9\u9884\u671f\u65b9\u9762\uff0c\u518d\u5ea6\u5c06\u8d23\u4efb\u5f52\u548e\u4e8e\u4e24\u5927\u56e0\u7d20\u2014\u2014\u82f9\u679c\u7684\u529b\u91cf\u548c\u4e09\u661f\u5728Galaxy S6\u4f7f\u7528\u81ea\u5df1\u7684\u5904\u7406\u5668<\/p>\n \u524a\u51cf\u6210\u672c\u8ba1\u5212\uff1a<\/p>\n 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\n\u9664\u6b64\u4e4b\u5916\uff0cJana Partners\u516c\u53f8\u8fd8\u57284\u670813\u65e5\u62ab\u9732\uff0c\u79f0\u6536\u8d2d\u4e8620\u591a\u4ebf\u80a1\u9ad8\u901a\u80a1\u7968\uff0c\u8be5\u6295\u8d44\u516c\u53f8\u5df2\u7ecf\u5546\u8c08\u4e86\u4e00\u4e9b\u63d0\u5347\u9ad8\u901a\u80a1\u4ef7\u7684\u65b9\u6848\uff0c\u5176\u4e2d\u5305\u62ec\u5c06\u9ad8\u901a\u7684\u82af\u7247\u90e8\u95e8\u4e0e\u4e13\u5229\u6388\u6743\u90e8\u95e8\u5206\u79bb\u7b49\u3002\u8981\u77e5\u9053\uff0c\u82af\u7247\u90e8\u95e8\u8d21\u732e\u4e86\u9ad8\u901a\u516c\u53f8\u4e09\u5206\u4e4b\u4e8c\u5de6\u53f3\u7684\u5229\u6da6\u3002<\/p>\n
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\nQualcomm Incorporated (NASDAQ:QCOM)
\nQ2 2015 Earnings Conference Call
\nApril 22, 2015 04:45 PM ET
\nExecutives
\nWarren Kneeshaw – Vice President, Investor Relations
\nSteve Mollenkopf – Chief Executive Officer
\nDerek Aberle – President
\nGeorge Davis – Executive Vice President and Chief Financial Officer
\nAnalysts
\nTim Long – BMO Capital Markets
\nMike Walkley – Canaccord Genuity
\nEhud Gelblum – Citigroup
\nBlaine Curtis – Barclays
\nKulbinder Garcha – Credit Suisse
\nStacy Rasgon – Bernstein
\nJames Faucette – Morgan Stanley
\nTal Liani – Bank of America Merrill Lynch
\nTimothy Arcuri – Cowen & Company
\nC.J. Muse – Evercore ISI
\nSrini Pajjuri – CLSA
\nTavis McCourt – Raymond James
\nMark Sue – RBC Capital Markets
\nPresentation
\nOperator
\nLadies and gentlemen, thank you for standing by. Welcome to the Qualcomm\u2019s
\nSecond Quarter Fiscal 2015 Conference Call. At this time, all participants
\nare in a listen-only mode. Later, we will conduct a question-and-answer
\nsession. [Operator Instructions] As a reminder, this conference is being
\nrecorded, April 22, 2015. The playback number for today\u2019s call is 855-859-
\n2056. International callers please dial 404-537-3406. The playback
\nQualcomm Incorporated (NASDAQ:QCOM)
\nQ2 2015 Earnings Conference Call
\nApril 22, 2015 04:45 PM ET
\nExecutives
\nWarren Kneeshaw – Vice President, Investor Relations
\nSteve Mollenkopf – Chief Executive Officer
\nDerek Aberle – President
\nGeorge Davis – Executive Vice President and Chief Financial Officer
\nAnalysts
\nTim Long – BMO Capital Markets
\nMike Walkley – Canaccord Genuity
\nEhud Gelblum – Citigroup
\nBlaine Curtis – Barclays
\nKulbinder Garcha – Credit Suisse
\nStacy Rasgon – Bernstein
\nJames Faucette – Morgan Stanley
\nTal Liani – Bank of America Merrill Lynch
\nTimothy Arcuri – Cowen & Company
\nC.J. Muse – Evercore ISI
\nSrini Pajjuri – CLSA
\nTavis McCourt – Raymond James
\nMark Sue – RBC Capital Markets
\nPresentation
\nOperator
\nLadies and gentlemen, thank you for standing by. Welcome to the Qualcomm\u2019s
\nSecond Quarter Fiscal 2015 Conference Call. At this time, all participants
\nare in a listen-only mode. Later, we will conduct a question-and-answer
\nsession. [Operator Instructions] As a reminder, this conference is being
\nrecorded, April 22, 2015. The playback number for today\u2019s call is 855-859-
\n2056. International callers please dial 404-537-3406. The playback
\nreservation number is 18876512.
\nI would now like to turn the call over to Warren Kneeshaw, Vice President of
\nInvestor Relations. Mr. Kneeshaw, please go ahead.
\nWarren Kneeshaw
\nThank you, Brent, and good afternoon, everyone. Today\u2019s call will include
\nprepared remarks by Steve Mollenkopf, Derek Aberle, and George Davis. In
\naddition, Cristiano Amon, Murthy Renduchintala, and Don Rosenberg will join
\nthe question-and-answer session. An Internet presentation and audio
\nbroadcast accompanying this call and you can access them by visiting our Web
\nsite at www.qualcomm.com.
\nDuring this conference call, we will use non-GAAP financial measures as
\ndefined in Regulation G, and you can find the related reconciliations to
\nGAAP on our website. I’d also like to direct you to our 10-Q and
\nearnings release, which were filed and furnished respectively with the SEC
\ntoday and are available on our website. During this conference call, we will make forward-looking statements
\nregarding future events or the future business or results of the company.
\nActual events or results could differ materially from those projected in the
\nforward-looking statements. Please refer to our SEC filings, including our
\nmost recent 10-Q, which contain important factors that could cause actual
\nresults to differ materially from the forward-looking statements.
\nAnd now to comments from Qualcomm\u2019s Chief Executive Officer, Steve
\nMollenkopf.
\nSteve Mollenkopf
\nThank you, Warren, and good afternoon, everyone. We just completed a solid
\nquarter with record performance in QTL, as the global adoption of our broad
\nset of technologies drove all-time high 3G\/4G device shipments by our
\nlicensees. In addition, we had several major accomplishments, including the
\nresolution of the NDRC investigation, our announcement of a $15 billion
\nstock buyback authorization, and a 14% increase in the dividend.
\nWe are pleased that the NDRC investigation has been concluded and believe
\nthat our licensing business is now better positioned to participate in China
\n\u2019s broad adoption of 3G\/4G technology. The impact of the resolution and the
\nrecent agreement with a large licensee in China announced on the January
\ncall are starting to positively impact the QTL business. Derek will discuss
\nthis in more detail in a few moments.
\nWhile we are ahead of our expectations in the first half of the fiscal year,
\nwe are guiding the second half lower due to a number of factors in QCT.
\nFirst, the extent of the impact of OEM concentration at the premium tier and
\nthe impact of share loss in the Galaxy S6 and Note.
\nSecond, the altered launch plans of the OEMs in the premium tier with some
\nOEMs delaying launches and then OEM rationalizing their portfolio by
\ndeemphasizing designs using our legacy parts. We are not seeing a change
\ndesign share or the competitive environment, but rather a change in timing
\nof some 810 designs.
\nAnd finally, QCT continues to face competitive pressures in China. The China
\ncontribution to earnings is roughly flat to the previous outlook with more
\nstrength at the premium tier offsetting some expected share loss in the low
\ntier in the fourth quarter. As I will explain later, we expect this near-
\nterm trend to improve as we launch new parts and China enters modem
\ntransition later in this calendar year.
\nBased on our current customer engagements and our future product roadmap, we
\ndo not believe these product cycle issues reflect the long-term change in
\nQCT\u2019s competitive positioning. However, we do believe the impact of the
\ncurrent product cycle will extend into next fiscal year.
\nClearly, we are not pleased with our reduced outlook. Accordingly, we have
\ninitiated a comprehensive review of our cost structure in QCT and throughout
\nthe company. The goals of this review are to align our cost structure with
\nthe changing marketplace and improve efficiency. We have begun a
\ncomprehensive assessment of costs and opportunities for greater efficiency
\ncompany-wide with the help of an outside expert and will be reporting on
\nthose initiatives on the Q3 earnings call.
\nWith respect to the roadmap, we remain confident that our differentiated
\nSnapdragon processor and modem leadership positions us well across multiple
\nprice tiers and customer segments entering the next product cycle. In the
\npremium tier, we are very pleased with the design traction on the Snapdragon
\n810 with over 60 designs having won the key premium design slots with the
\nexception of Samsung.
\nSince our last earnings call, LG has begun shipping the innovative G Flex2,
\nSony has announced the incredibly thin Xperia Z4 phone and tablet, and
\nXiaomi has announced the Mi Note 4 with category 9 carrier aggregation.
\nRecently teardowns and press reports correctly highlight the advantages
\ndelivered by our integrated approach.
\nWe are also encouraged by the customer interest in our new Snapdragon 820,
\nwhich is on track to ship in the second half of this calendar year and is
\nbuilt on the latest FinFET node. The Snapdragon 820 represents a new design
\npoint for our SoC architecture and will be the first to include our new
\ncustom 64-bit CPU microarchitecture.
\nSince our last call and in response to the competitive environment in China,
\nwe have also enhanced the Snapdragon 615, which will be commercial this
\nyear. In addition, we expect a modem transition in China later this year and
\nwe are seeing signals to the OEMs from the operators consistent with this
\nview. Our Snapdragon 425 with industry leading uplink carrier aggregation
\nand a new low-cost RF front-end is well positioned for this opportunity and
\nis on track to be in devices later this calendar year, well ahead of our
\ncompetition.
\nTurning to the longer-term outlook, the smartphone opportunity remains a
\nstrong positive for Qualcomm and we forecast continued healthy global demand
\nin the near-term and over the next several years. IDC estimates that over 8
\n.5 billion smartphones will be sold from 2015 through 2019. We also continue
\nto gain traction in adjacent areas where our mobile technologies and
\ncapabilities can deliver next generation solutions. Areas such as automotive
\n, the Internet of Things, mobile computing, and networking, these areas are
\nexpected to represent large new opportunities for Qualcomm with over 5
\nbillion new non-phone connected device shipments expected in calendar year
\n2018.
\nFurther, shipments in these areas are contributing over 10% of QCT\u2019s fiscal
\nyear 2015 estimated revenue. In automotive, for instance, we have over 40
\nconnected car programs with 15 plus OEMs and we recently announced two new
\nmodems, the Snapdragon X12 and X12 that augment our portfolio to support
\nconnectivity across all tiers of the automotive industry.
\nOur scale and position in mobile makes us well positioned to capitalize on
\nthese opportunities. In summary, we are well positioned to address the
\nsignificant opportunities ahead given the strength in our core businesses
\nand traction in new growth opportunities. We are focused on completing our
\nimplementation of the rectification plan in China, concluding new license
\nagreements in China and improving compliance. We\u2019re also investing in the
\nfuture generations of the modem and connectivity, including 4G enhancements
\nsuch as LTE-U and 5G, as well as future evolutions of Wi-Fi and the
\nconvergence of Wi-Fi and Cellular. We are confident in our QCT roadmap for
\nthe reasons I just explained, but intend to take a comprehensive look at our
\ncost structure in-light of the changing industry dynamics and structure.
\nI would now like to turn the call over to Qualcomm\u2019s President Derek Aberle.
\nDerek Aberle
\nThank you Steve and good afternoon everyone. As Steve noted, we delivered a
\nsolid quarter achieving record non-GAAP operating income. QCT operating
\nperformance was in-line with expectations as favourable operating expense
\noffset slightly weaker mix. QTL performance was ahead of expectations with
\nrevenues, earnings before tax, and total reported device sales all setting
\nrecords driven by strong 3G, 4G device shipments, improved compliance in
\nChina and a catch up amount for prior period sales from the licensee with
\nwhich we recently resolved the dispute.
\nFiscal Q2 revenue for QTL was up approximately 17% year-over-year even
\nwithout this catch up amount and in the face of foreign exchange headwinds,
\nQTL would have delivered a record quarter across these same metrics. As you
\nare aware, we recently announced a resolution with China’s National
\nDevelopment and Reform Commission regarding the investigation of us under
\nthe China antimonopoly law. As part of this resolution, we agreed to
\nimplement a rectification plan that modifies certain of our business
\npractices with respect to the licensing of our 3G and 4G essential Chinese
\npatterns for branded devices sold for use in China.
\nSince that time we have been implementing the plan and offered the revised
\nlicense terms for our current 3G and 4G essential Chinese patterns to both
\nour current licensees and to a number of unlicensed OEMs and manufacturers.
\nFollowing the offers we have met with a large number of licensees both in
\nand outside of China to discuss the revised terms. Although we are still
\nrelatively early in the process, we are making good progress to date as over
\n35 licensees have accepted the revised terms so far, including with respect
\nto 3-mode devices sold in China.
\nThe rate at which licensees are accepting the new terms and signing new
\nlicense agreements has been accelerating throughout the process. We now have
\n125 licensees in total with licences covering 3-mode devices with more than
\n85 in China, including Huawei and ZTE. We are making progress on the
\nunderreporting issues in China as well. We estimate that approximately 200
\nmillion units were sold during calendar 2014, but not reported to us by our
\nlicensees in line with our prior guidance.
\nTo put this in greater context, we have also increased our estimates for the
\ncalendar 2014 global 3G 4G market by approximately 20 million units versus
\nour prior guidance and now believe that a larger percentage of the units
\nshipped in 2014 where 3-mode devices where we had a low collection rate
\nduring the year. In other words, the percentage of calendar 2014 units that
\nwere reported to us came in higher than previously expected. As we continue
\nto implement our compliance and audit plans, as well as conclude new 3-mode license agreements we believe that this collection percentage will continue
\nto increase and we are seeing early evidence of that in the March quarter
\nsales. While we are making good progress we do expect this process to extend beyond
\nthis fiscal year. It is also possible that in some cases it may require
\nlitigation and\/or actions to compel certain licensees to honour the
\ncontracts and for unlicensed companies to execute new licences. We are
\nprepared to pursue that path if it becomes necessary. We are raising our
\nfiscal year outlook for QTL based on favourable total reported device sales
\nin the second fiscal quarter, in addition to higher forecasted total
\nreported device sales for the second half of the fiscal year. Total reported
\ndevice sales for the second fiscal quarter came in above the high-end of
\nour guidance range, a portion of which was driven by higher than expected
\ncatch up amounts.
\nOur outlook for the second half of the fiscal year reflects updated
\nfavourable reported device sales trend, improved compliance in China, and
\nexpected continued progress on concluding license agreements in China,
\noffset by foreign exchange headwinds. We now expect QTL revenues to grow
\napproximately 8% at the midpoint year-over-year. This includes the
\nfavourable effect of some catch up payments for prior sales offset by the
\nnegative effect of foreign exchange, without including these two effects we
\nestimate that QTL revenues would grow by more than 8% in fiscal 2015, as we
\nbelieve the negative foreign exchange impact is larger than the catch up
\nbenefit.
\nTurning to our view of global 3G, 4G device demand we continue to see very
\nhealthy growth and have increased our calendar 2014 global 3G, 4G device
\nshipment estimate to approximately 1.37 billion units, up approximately 27%
\nyear-over-year. As a reminder, this includes those devices we expect to be
\nreported to us, as well as our estimates of unreported and unlicensed device
\nsales, but excludes TD-SCDMA devices that do not implement LTE.
\nWe saw strength in both developed and emerging regions during 2014 and
\nfinished the year with favourable replacement rate trends in developed
\nregions, as well as LTE volume strength, particularly in China. We expect
\nthese growth trends to continue throughout calendar 2015. We now expect
\nglobal 3G, 4G device shipments to be 1.25 billion units to 1.6 billion units
\nin calendar 2015, up approximately 11% to 17% with our buyers continuing to
\nbe towards the high end of that range.
\nIt\u2019s worth noting that we are still in the very early days of LTE adoption.
\nAccording to GSMA intelligence only 8% of global connections are LTE. In
\nFebruary, China granted nationwide FTD-LTE licenses to both China Telecom
\nand China Unicom, each of the Chinese operators has announced significant
\ninvestments in LTE network build-outs and has set aggressive targets for
\nsubscriber additions this year. For calendar year 2014, we are increasing
\nour estimate of reported 3G, 4G devices to between 1.17 4 billion units and
\n1.19 billion units.
\nTurning to estimated 3G, 4G device ASPs, the ASP of devices reported to QTL
\nduring the second quarter of fiscal 2015 was approximately $196 at the mid-
\npoint. Absent the effect of prior period catch up units the reported ASP
\nwould have been approximately $211 at the mid-point up $14 sequentially,
\ndriven by stronger ASPs in both emerging and developed regions, reflecting a
\nfavourable mix of higher tier handsets.
\nWe are now forecasting global 3G, 4G device DSPs to the decline
\napproximately 11% to 12% year-over-year in fiscal 2015, an improvement to
\nour previous estimate of 12% to 13%, despite an increase in negative foreign
\nexchange effects. The improvement is primarily due to a favourable mix of
\nhigher tier handsets and stronger pricing in the low to mid-tiers of LTE
\ndevices in China. We now expect global 3G, 4G total device sales in fiscal
\n2015 to be up approximately 8% to 11% over fiscal 2014, despite foreign
\nexchange headwinds, driven by both stronger units and ASP, particularly in
\nemerging regions.
\nTurning to the regulatory issues, we have been notified that the Korean fair
\ntrade commission is conducting a new investigation of the company. We
\nbelieve this new investigation relates primarily to our licensing business
\nand we are cooperating with the agency. To conclude, QTL is making good
\nprogress on our efforts in China, while experiencing strength in underlying
\ndemand where we continue to see strong global 3G, 4G device sales and
\nstronger global ASP trends.
\nThat concludes my comments. I will now turn the call over to George Davis.
\nGeorge Davis
\nThank you Derek and good afternoon everyone. Fiscal second-quarter revenues
\nwere $6.9 billion, up 8% year-over-year and non-GAAP earnings per share were
\n$1.40, up 7% year-over-year at the high end of for prior guidance range. In
\nQCT, MSM shipments were $233 million in-line with expectation with revenue
\nof $4.4 billion. Implied revenue for MSM was approximately $19, down
\nslightly quarter-over-quarter, reflecting a lower mix of premium tier
\nshipments than previously expected.
\nQCT operating margin was 17% in-line with our prior expectations. In QTL,
\ntotal reported device sales for our licensees were a record $75.8 billion,
\nup 14% year-over-year and at the high end of our guidance range, including
\nthe impact of our higher than expected catch up report. Non-GAAP combined R&
\nD and SG&A expenses increased 2% sequentially, driven primarily by seasonal
\nincreases in payroll taxes.
\nWe continue our aggressive capital return program, returning approximately $
\n2.6 billion to stockholders in the quarter, including $689 million of
\ndividends paid and $1.9 billion in stock repurchases.
\nAnd as you will recall, in March we announced a major increase in our
\ncapital return program, including an increase in our stock repurchase
\nauthorization to $15 billion and our plans for a $10 billion buyback in the
\nnext 12 months, which is incremental to our ongoing return of a minimum of
\n75% of free cash flow.
\nFiscal second quarter cash flow from operations was negative at
\napproximately $650 million this quarter reflecting a long-term capacity
\nprepayment of approximately $950 million made by QCT as part of our supply
\nchain cost reduction initiatives and the payment of the approximately $975
\nmillion NDRC fine.
\nWe ended the quarter with cash and marketable securities of $29.6 billion.
\nOur non-GAAP tax rate during the quarter was 20% above expectations due to
\nbusiness mix. We now expect our non-GAAP tax rate to be approximately 19%
\nfor fiscal 2015.
\nLooking ahead, as we already indicated, we are reducing our financial
\nforecast for fiscal 2015 primarily due to lower excepted and profitability
\nin the premium tier for the QCT business. We now estimate fiscal 2015
\nrevenues overall to be in the range of approximately $25 billion to $27
\nbillion, down approximately 2% year-over-year at the midpoint. The increased
\nimpact of the product cycle issues in QCT is affecting our revenue and
\nmargin outlook for the chip business. We now expect QCT revenue for the
\nfiscal year to be down approximately 6% year-over-year with operating margin
\nfor fiscal 2015 between 14% and 17%.
\nWe expect combined non-GAAP R&D and SG&A expense to be up 1% to 3% year-over
\n-year. This represents a reduction of 2% overall relative to our prior
\nguidance, however, this outlook does not factor in potential reductions to
\nbe identified as part of the cost assessment that Steve discussed.
\nOn the QTL, as Derek indicated, we are raising our fiscal 2015 revenue
\noutlook to approximately 8% growth year-over-year reflecting higher total
\nreported device sales as well as the larger than forecasted catch up
\nroyalties reported this past quarter. We continue to expect QTL operating
\nmargins will be within our prior 85% to 86% guidance range.
\nWe expect fiscal 2015 non-GAAP earnings per share to be in the range of $4.
\n60 to $5, down approximately 9% year-over-year at the midpoint relative to
\nfiscal 2015 and down $0.15 at the midpoint from our prior guidance.
\nTurning to our fiscal third quarter, we estimate revenues to be in the range
\nof approximately $5.4 billion to $6.2 billion, down approximately 15% year-
\nover-year and 16% sequentially at the midpoint. The sequential changes
\nreflect both the chip revenue challenges and the normal seasonal effects of
\nQTL coming of its seasonal peak quarter.
\nWe estimate non-GAAP earnings per share in our fiscal third quarter to be in
\nthe range of $0.85 to $1 dollar per share, down approximately 36% year-over
\n-year at the midpoint. We expect fiscal third quarter non-GAAP combined R&D
\nand SG&A expenses will be up 6% to 8% sequentially, primarily driven by QCT
\nproduct roadmap spend that back half loaded, certain supply chain
\ninitiatives, as well as cost related to marketing and legal.
\nIn QTL, we estimate total reported device sales of $61 billion to $67
\nbillion will be reported by our licensees in the June quarter for shipments
\nthey made in the March quarter, up approximately 10% year-over-year at the
\nmidpoint, but lower sequentially as compared to the seasonally higher
\nholiday quarter shipments in Q2.
\nWe estimate that the QTL reported device ASP will be modestly up versus the
\nsecond fiscal quarter, which included higher-than-expected lower price catch
\nup units. We expect QTL\u2019s operating margin percentage to be between 83%
\nand 85%, lower sequentially due to seasonal factors, OEM mix, as well as
\nincreases in marketing and legal expenses. We expect that the implied
\nroyalty rate as we calculate it will be lower quarter-over-quarter,
\nreflecting licensee mix, as well as the impact of the new licensing terms in
\nChina.
\nIn QCT, we anticipate MSM shipments of approximately 210 million to 230
\nmillion units during the June quarter, down approximately 6% sequentially
\nand down approximately 2% year-over-year at the midpoint. We expect revenue
\nper MSM to be down 8% to 9% sequentially due to unfavorable mix in the
\npremium tier and price competition in the mid tier.
\nWe expect QCT operating margin for this product cycle to bottom in the
\nfiscal third quarter at approximately 7% to 10% of revenue, reflecting lower
\nvolumes, weaker mix, and timing of roadmap spending pushed into the quarter.
\nThat concludes my comments and will now turn the call back to Warren.
\nWarren Kneeshaw
\nThank you, George. Operator, we are ready for questions.
\nQuestion-and-Answer Session
\nOperator
\nThank you. [Operator Instructions] Your first question comes from the line
\nof Tim Long with BMO Capital Markets. Please go ahead with your question.
\nTim Long
\nThank you. Just a question on the chip side, I guess you mentioned before
\nthe GS6, you also mentioned the Note, so just curious is that this upcoming
\none later this year? And maybe talk a little bit about how we should think
\nabout the rest of Samsung\u2019s portfolio? And clearly, it\u2019s hit the revenue
\nnumbers, I\u2019m curious if that\u2019s also been something that looks like the
\ngross margin is down again for the division. So if you could just maybe
\ntouch on Samsung impact across the model? Thanks.
\nSteve Mollenkopf
\nHi, Tim, it\u2019s Steve. So you should think of the current generation of
\nflagship products at Samsung. We anticipate a similar share picture than
\nwhat you see today on the GS6. I think that\u2019s what we\u2019re seeing. Now, next
\ndesign cycle, as I mentioned in my remarks, I think we feel that we have a
\nvery competitive roadmap. We are also seeing OEMs and I think the supplies
\nto that OEM, looking at their portfolio and rationalizing, what that really
\nmeans is putting more concentration on the newer products and less on the
\nlegacy products as you would typically see in a particular year and that
\nobviously given our design and share impacts the outlook as well. So, those
\nproduct cycle issues I think we\u2019re seeing being compounded by the fact that
\nthe premium tier is very concentrated really in two players right now.
\nOperator
\nYour next question comes from the line of Brian Modoff with Deutsche Bank.
\nPlease go ahead with your question.
\nBrian Modoff
\nHi, guys. Can you perhaps talk about some of the cost synergies or cost
\nsaving that you might see as you go through this kind of evaluation of your
\ncost structure? Are you targeting things like wafer design cycle times? Or
\ncan you maybe talk about it and how do you see that potentially helping your
\noperating margins particularly in QCT as move forward? Thanks.
\nGeorge Davis
\nHi, Brian, it\u2019s George. I would call it an acceleration of many of the
\nthings that we started in 2014, which were fairly comprehensive. We brought
\ndown the rate of spending substantially in 2014 exiting the year lower than
\nthe run rate we had coming into 2014. We then forecasted to bring it down
\nfurther in 2015 and we\u2019ve actually are a couple of points below our
\noriginal guidance on OpEx as well. But we will be looking pretty
\ncomprehensively across the board and certainly that touches everything from
\nhow can we be \u2013 become more efficient testing projects once again for ROI
\nand things like that. So, as you would expect, it will be comprehensive and
\nwe look forward to reporting on it next quarter.
\nOperator
\nYour next question comes from the line of Mike Walkley with Canaccord
\nGenuity. Please go ahead with your question.
\nMike Walkley
\nGreat, thanks. Just down on the last two questions, on the QCT with
\noperating margins potentially bottoming out below 10% in the third quarter,
\nSeptember quarter, and you talked about it extending into the first half of
\nfiscal 2016. Other than looking at operating cost, how does the gross margin
\nimprove given the competitive cost environment? Or to ask it another way
\nwhat\u2019s the timeframe in the thought process to maybe get back to high-teens
\nto 20% operating margins in QCT? Thank you.
\nGeorge Davis
\nI think we view it as a bottom because, first, Q3 really is an incredibly
\nconcentrated quarter when you look at the premium tier and it has within
\nthat meaningful Samsung GS6 impact. We expect to see some improvement with
\nthe premium tier launches of other leading OEMs that use our Snapdragon. We
\nalso expect cost and efficiency activities to start to moderate some of the
\nmarket structure impacts over time, but ultimately we are going to continue
\nto invest strongly in the roadmap and we think that’s the basis for
\nhaving a competitive position in the next product cycle that is different
\nthan what we are experiencing now.
\nSteve Mollenkopf
\nMike this is Steve, I think also if you look up and down the product line,
\nthe current product cycle that we are in at the top tier, we think it turns
\nover with the 820, at the bottom tier you tend to see a modem transition,
\nparticularly in China, which is advantageous we think to us. We are also
\nmoving rapidly toward advanced notes which we think will actually help us in
\nterms of delivering products to market at better costs. There is a little
\nbit of a trough right now in the cost equation because we are at 20
\nnanometre. As we move on to further notes we think we get into a better cost
\nperspective and I think we are differentiated also in our ability to do it.
\nWe are also – just to follow up on the cost side, cost structure of the
\ncompany, we want to make sure that we put ourselves in the position, we are
\na little bit less sensitive to the these market dynamics and then we can
\nwrite them out easier as well. One other thing element on that also is that
\nthe adjacent markets as they start to contribute more, again I said they
\nwere about 10% of QCT this year that tends to help us as well. They tend to
\nbe fairly highly leveraged from the same investment on the selling space.
\nOperator
\nYour next question comes from the line of Ehud Gelblum with Citigroup.
\nPlease go ahead with your question.
\nEhud Gelblum
\nHey guys appreciate it. I know Derek you are not going to totally tell us,
\nbut trying to try and give a couple of data points you gave us with respect
\nto the catch up and how large that was, any other information you can give
\nus in terms of the access TRDS this quarter that the catch up helped would
\nhelp kind of bridge the gap between the TRDS this quarter and next quarter.
\nSo, whatever you can do to give us a sense as to the size of the catch up
\nperiod in this quarter would be helpful.
\nThen Steve question on GS 6 and note going forward, I understand of the
\nrevolution of using your custom core and moving them to 14 nanometre et
\ncetera with everything you said about concentration at the premium tier, if
\nin a situation you don’t get back into Samsung, where does that leave
\nyou? If your share in the GS 6 and note going forward is roughly the same as
\nwhere it is now when it is back-and-forth, is there enough other market to
\nmake the margins work back into the 20% plus range at QCT?
\nDerek Aberle
\nHey this is Derek. Yes we are not, as you suspect we weren’t planning on
\nbreaking out exactly the amount of the catch up. One of the points I wanted
\nto highlight was we had 17% year-over-year growth in QTL this quarter and
\nthat was in the face of some meaningful foreign exchange headwinds. And so
\nwhen you sort of looked at that impact netted against the catch up amount,
\nyou know the foreign exchange impact was actually for the year will be
\ngreater and would be for the quarter as well. So still even if you strip out
\nthe ketchup would be a record quarter for QTL and really strong growth.
\nSteve Mollenkopf
\nAnd Ehud on the question about the premium tier and the concentration. First
\nof all when we look at customer interest we don\u2019t think that that is the
\nscenario to plan for. We do think that our roadmap is very compelling, we
\nlike the impact that we are getting, the interest that we are getting from
\nthe OEMs, I think broadly we also think our business, which is also
\nsupported by our modem leadership also we think is in a good position when
\nyou look at the competitive dynamics as well. That being said, it would help
\nus a lot if the industry structure was to be different. We don’t have a
\nlot of control over that, but I would say the history of that is that it
\ndoes move around quite a bit. We want to be in a position to participate in
\nthat and I think one of the reasons that we are looking at our cost
\nstructure is to make that easier to handle, should we have to ride out a
\nproduct cycle or not.
\nOperator
\nYour next question comes from the line of Blaine Curtis with Barclays.
\nPlease go ahead with your question.
\nBlaine Curtis
\nYes a [indiscernible], just maybe from a very high level you obviously
\nalready reduced full-year guidance based upon kind of same factors and
\nApples place generally hasn\u2019t changed that much since December they had a
\nknock out quarter and it\u2019s been kind of holding in. Samsung has been very
\npublic about their AP plans for a longer time here for a change. So, I am
\njust trying to figure out what has changed really since the end of the last
\nyear and definitely spend your first negative revision of maybe a billion
\ndollars, now that you are doing again. And then when you look at gross
\nmargin, clearly the GS6 that shouldn\u2019t have an impact on gross margin, I\u2019m
\njust curious it looks like it is down again in June. What\u2019s really the
\ndriver for another step down over a couple hundred basis points? Thanks.
\nDerek Aberle
\nSo, the change in the guidance is really more a change in our view of the
\nsizing and concentration in the third quarter compared to our original
\nestimates. And you know Steve talked about some things about some of the
\nOEMS pushing out their timing based on what they were seeing in the
\nmarketplace and other factors. There is some gross margin impact actually
\nthat we see going into Q3 and then I think the balance of the impact is
\nreally the timing roadmap spending is heavier in the second half. I don\u2019t
\nknow, if Steve, you want to say something.
\nSteve Mollenkopf
\nI was just going to say, just a little bit of color from a perspective of an
\nOEM, OEMs typically have a pretty broad portfolio and they may put emphasis
\nin one place or another depending on the reaction of a flagship launch and
\nthe timing of a flagship launch. I think this year is probably characterised
\na bit by the first calendar quarter of 2015 was probably a little stronger
\nin quarter for U.S. based flagship company. And then people move around I
\nthink based off of big launch. So, I think when the Galaxy S6 came out
\npeople moved around their plans a little bit, including Samsung. So, that
\ntends to ripple through to us beyond our control. Those things can also
\nchange a lot during the year, but I think this is our best estimate of where
\nwe are today.
\nOperator
\nYour next question comes from the line of Kulbinder Garcha with Credit
\nSuisse. Please go ahead with your question.
\nKulbinder Garcha
\nThanks. My question is for Derek on the licensing side, what I’m trying
\nto understand is I think you said you had signed 35 licensees on these new terms since you\u2019ve started discussing with them recently, can you give us
\nsome kind of broad indications to, does that actually cover a significant
\npart of the forms that you weren’t licensing the 200 million or so run
\nrate. That\u2019s just one question, because I\u2019m trying to think about the
\nvisibility you might have as we head into fiscal year 2016 of recapturing
\nsome of those licensing revenues. That’s my kind of first question. The
\nsecond one is as I think about what you weren\u2019t collecting on last year
\nthat 200 million number this year would have grown I assume given the market
\nshares the Chinese vendors have gained and they would have grown revenues
\nquite meaningfully as well. So, should we think about at some point over the
\nnext whether it is one two or three years? That 200 million unit number
\nwhich has a revenue number attached to it in TDRS, so you then license
\nagainst and it should be significantly higher when it starts coming in or is
\nthat the wrong way of thinking about it. Thanks.
\nDerek Aberle
\nKulbinder this is Derek. So just to be clear the 200 million number that we
\nput out for 2014 is sort of a combination of units that we think are
\nactually being sold by licensees who didn’t report them, as well as
\nbasically unlicensed activity, you know the most prominent one we talked
\nabout is 3-mode. So, it is a little bit hard to translate that over into the
\n\u2013 kind of the new terms. If you think about the new terms that we are
\ngoing out to offer, if the licensees accept them after we offer them and
\ndiscuss them with them they will impact both the 3G volumes which would be
\nsort of how we\u2019ve thought about the under reported amounts, as well as then
\nimpact the 3-mode, which we had kind of bucketed at unlicensed.
\nSo it is a little bit hard to split that out in terms of what percentage get
\npicked up that we weren’t collecting anything on at all, but we are,
\nwell I think we are making good progress, we’ve got relatively
\nsignificant number that kind of run the spectrum of very large to small
\ncompanies that have already accepted the terms and generally when they\u2019ve
\naccepted them they\u2019ve applied to the 3-mode devices sold for use in China.
\nSo, I think that has been a positive trend for us. There have been a couple
\nof other positive things. One is as I try to explain the market we think
\nactually came in larger in 2014 than we thought when we originally gave out
\nthat 200 million unit number, which means by that holding steady effectively
\nour collection percentage went up. It also went up in the face of kind of a
\nworse or a more difficult market shift because more of the market also we
\nbelieve was three-mode where there is a larger portion of unlicensed
\nactivity.
\nSo kind of in a worsening marketing environment and a growing market, we
\nwere able to kind of hold the number flat, which means we are making
\nprogress. We believe that that\u2019s going to better even going into the March
\nquarter based on the early evidence we\u2019re seeing. And we do have kind of a
\nplan as we\u2019ve talked about that \u2013 that the past sales will be things that
\nwe are working on to drive collection, but it\u2019s going to take some time and
\nI think we\u2019ve indicated just where we sit in the fiscal year with kind of
\nthe June cut off for shipments flowing into our fiscal year. It\u2019s likely
\nthat more of that will come-in in fiscal 2016 and fiscal 2015.
\nOperator
\nYour next question comes from the line of Stacy Rasgon with Bernstein.
\nPlease go ahead with your question.
\nStacy Rasgon
\nHi, guys. Thanks for taking my question. First of all, if I sort of back
\ninto the royalty rate trajectory, you seem to be guiding royalty rates or
\nimplied rates next quarter to maybe 3%, probably down 20 basis points and
\nmaybe even a little more in fiscal Q4. So I\u2019m assuming that is mix as the
\nChina volume starts to come back in which it actually is coming at the lower
\nrate, how should I think about the trajectory of royalty rates as I go into
\n2016 and beyond is presumably the Chinese volume should be the piece that\u2019
\ns growing the biggest and it will be under the new royalty rate terms?
\nDerek Aberle
\nHey, Stacy, this is Derek. Yeah, I mean we\u2019ve indicated that. If you look
\nat sort of quarter-over-quarter Q1 to Q2 relatively speaking sort of in line
\nin terms of the implied rate that you guys calculate, we do see that taking
\na step down in the back half of the year and I think you pretty much hit it
\non the head that really the primary drivers, there\u2019s some OEM mix in there
\nand a number of the other factors that always move it around. But we do
\nexpect a couple of things impacting the back half, two of which are the
\nlicensees, kind of the impact of the licensees accepting the China terms in
\nChina, but also with us concluding agreements on three-mode where we were
\ncollecting before.
\nAs we bring that revenue into the program that will come in at a lower rate
\nas we talked about when we announced the resolution. So kind of the
\ncombination of those factors will push it down. Really hard to say longer-
\nterm beyond kind of this year where that goes just for all the reasons I\u2019ve
\npreviously explained in terms of market share of OEMs and ASPs and caps and
\nall the other drivers that moving around.
\nOperator
\nYour next question comes from the line of James Faucette with Morgan Stanley
\n. Please go ahead with your question.
\nJames Faucette
\nGreat. Thank you very much. I wanted to ask two follow-up questions on a lot
\nof those that have already been asked. First, can you talk a little bit
\nabout from a visibility standpoint, I think one of the things that may be
\nconcerning to some investors is, I guess, the poor or lack of visibility
\nrelative to new product launches. They seem to taking a little bit by
\nsurprise. Can you talk about it if that indeed has been the case et cetera
\non the chip side? And then on the royalty side, Derek, I just wanted to ask
\nabout, as you are addressing the new licensing structure how are you
\nhandling the non-essential IP licensing and how we should think about the
\nimpact of that and can you give us any sense of \u2013 I know that you weren\u2019t
\nvery specific in terms of like what the \u2013 the rate at which things are \u2013
\nor you are signing up new licensees, but that it\u2019s improving. But in the
\nlong run how should we think about your \u2013 what a reasonable alternate
\ncapture rate should be and that kind of thing? Thank you.
\nSteve Mollenkopf
\nJames on the chip side, the way I think about it \u2013 one of the big OEMs what
\nthey tend to do, in fact the one that you are probably concerned with, they
\ntend to hold two designs until very late in the process and make a decision
\nvery late in the process. And in some cases, actually might go to market
\nwith multiple designs, one with our chip, one not with our chip, and then
\nmake a decision regionally even during the ramp of the design. So it can be
\nquite difficult to project share and units as a result of doing that much
\nlater in the process than I think people typically think. The other element
\nwhich is mix of OEMs and who wins in the marketplace and whether an OEM
\ndecides to rationalize their portfolio by no longer focusing on SKUs in the
\nn-1 product cycle for example. That tends to be something that we don\u2019t
\nhave great visibility into and it tends to be something that the market
\ncontrols. So I think we are all trying to figure out how to get a better
\nhandle on that.
\nDerek Aberle
\nAnd then \u2013 it\u2019s Derek. So, on the first question, which really was around
\nhow we are going to deal with the patents that are sort of outside the scope
\nof the commitment we made to the NDRC. As you know, we\u2019ve typically
\nlicensed generally our whole portfolio together, but one of the things that
\nwe agreed to as part of the rectification plan in China is that we would
\nseparately offer to license just the 3G\/4G essential Chinese patents and
\nthen we would negotiate agreements for the rest of the portfolio kind of
\nseparate from that.
\nSo really the first order of business for us is to go out and really
\nimplement the commitment that we made which is to offer these terms and
\naround the essential portfolio and get those concluded. And then as part of
\nthose discussions, it could involve some of the other patents or we could
\nend up dealing with the need for licenses to the rest of the portfolio down
\nthe road a little bit. What we\u2019ve included in our guidance and are thinking
\naround fiscal 2015 really just is based on what we would expect to collect
\non the essential portfolio and doesn\u2019t build in incremental revenue at this
\npoint for the remainder of the portfolio, although we do believe there is
\nan opportunity there.
\nOn compliance, we think that we are in a position really to kind of drive
\nthe business back more to normal course before we had the investigation and
\nI think we are pleased with some of the early trends we are seeing. It\u2019s
\ngoing to take some time to get there, but we do believe that we can get back
\nto a high compliance environment in China with some of the tools that we
\nhave available to us and now with the investigation behind us.
\nWe do also think there is going to be some industry dynamics that will help,
\nI do think there is going to be consolidation ar ound the OEM base in China,
\nso you\u2019ll have a fewer number of larger payers, which I think is just an
\neasier thing to deal with from compliance standpoint than a lot of smaller
\nplayers. And they are going to build successful export businesses where
\nthere is a need to play by international rules both inside and outside of
\nChina. So I think over time those trends really point in a positive
\ndirection for us.
\nOperator
\nYour next question comes from the line of Tal Liani with Bank of America
\nMerrill Lynch. Please go ahead with your question.
\nTal Liani
\nHi, guys. I just have two questions quick questions kind of big one. First,
\nwhen it comes to exchange rate, are we \u2013 what\u2019s the mechanism for exchange
\nrate? Is there a risk that actually you see the impact of exchange rate
\nnext quarter because of the mechanism that you can clarify? And then the
\nweird question I have is really for next year and this question was asked
\nmany times, but may be a different way, is it all \u2013 if you think about
\ncompetition, I mean you think about MediaTek and Intel and Marvell and the
\nlocal Chinese, how does it get better from here? I understand that this one
\nis a trough from an expense point of view and margin point of view, but on
\nthe business, how does it get better from here? What needs to happen for you
\nto see growth in revenues on the semiconductor side? And let me stop here [
\nindiscernible]. Thanks.
\nDerek Aberle
\nTal, this is Derek. Maybe I will answer your first question on the FX.
\nReally the primary FX effect on the company is really around the licensing
\nbusiness. And couple of things to remember there I think that you know is
\nthat obviously the sales are reported to us one quarter in arrears. But the
\nbasic \u2013 probably the most significant exposure for us is really the euro
\nand basically when the licensees and not all of them do it the same, so it\u2019
\ns somewhat difficult to always estimate precisely the impacts, but I think
\nwe have a pretty good sense of it at a higher magnitude. But basically there
\nis a mechanism for them to convert their sales in local euro back into
\ndollars for purposes to calculate in the royalties and that creates an
\nimpact to the business. If you think about this year, in particular, there
\nis probably at least a couple of percentage points of revenue growth that
\nQTL has been impacted by just on FX alone.
\nSteve Mollenkopf
\nAnd on next year and to the forward-looking view in terms of the competitive
\nenvironment, it\u2019s \u2013 I would say for us, it\u2019s \u2013 we don\u2019t see it
\nchanging that much and I would say our view of the current competitive
\nenvironment may be different than what you see, you know we look at the
\nmodem tier and modem leadership and the accounts where that\u2019s important and
\nwe pretty good about our position there. I think that\u2019s an important
\ndifferentiator for us. We have also moved quickly to advanced nodes. One of
\nthe things we did this year and we are currently investing in is moving
\nrapidly across the tiers to the advanced nodes, which we think is a good<\/p>\n
\ntier down and that I think has good results.
\nIt’s being offset a little bit now because of the concentration in the
\npremium tier, so you’re not seeing that maybe as broadly as you would
\nthink. The product cycle is quite fast in China as I mentioned. The modem
\ntransition later this year, I think a number of OEM, our competitors are
\nhaving a difficult time producing five more designs and certainly have in
\nthe ability to do multi-SIM and all of the VOIP and international features
\nthat allow them to grow, at the same time we are changing the table stakes
\nacross the tiers on the modem. So we actually view our roadmap as getting
\nstronger over time at least based on our view of the competitive environment
\n. I don’t think at the premium tier with the exception of the vertical
\nthreat at one of the OEMs. We don\u2019t see that dynamic being as threatening
\nas perhaps was implied in the question.
\nOperator
\nYour next question comes from the line of Timothy Arcuri with Cowen &
\nCompany. Please go ahead with your question.
\nTimothy Arcuri
\nThank you very much I had two. First of all Steve, can you again just from a
\nhigher level, can you remind us or maybe discuss the high level merits for
\nkeeping the two businesses together. You had filed previously to spit the
\nbusiness up in the past, but you are being hit with these investigations and
\nthis new one from Korea. So again just getting your view there would be
\ngood. And then secondly I noted that George talked about having to pre-pay
\n950 million for some capacity and that\u2019s in the space of declining
\neconomics in the ship business. So, I was wondering if you can just discuss
\nhow we should be thinking about that pre-payment is this opportunistic or is
\nit more of a defensive I guess?
\nSteve Mollenkopf
\nSo, on the business structure it\u2019s something that we\u2019ve looked out
\nthroughout the company\u2019s history, I think a couple of times even publically
\nit is something that is constantly and periodically discussed at the
\nmanagement team and at the board level. There are lot of puts and takes and
\nthose puts and takes change over time depending on the situation, but I
\nwould say just broadly you should think of the businesses as having
\nsignificant synergies in the ability to deliver products to market.
\nSo, for example the channel of QCT is very, very important to be able to
\nintroduce new technology into the industry and share it\u2019s scale and be able
\nto work. There are many things like that, but that is one of the ones that
\nwe want to make sure we can maintain, particularly given that we are driving
\ninto an environment where you\u2019re going to see convergence between Wi-Fi
\nand Cellular and the modem itself is moving much more rapidly then I think
\npeople are thinking. At the same time the industry, the number of players
\nwho are investing in those technologies and that breadth of technology is
\ndecreasing. So we think we have an opportunity for us to continue to deliver
\nmodem innovation. That being said, it is something that we actively
\nevaluate and it\u2019s obviously something that is one the minds of investors
\nand something that we spend time talking to them actively about getting
\ntheir perspective.
\nGeorge Davis
\nHey Tim, it\u2019s George. On the capacity pre-payment it\u2019s really part of our
\noverall supply chain initiative to drive more cost effective supply chain
\nand it\u2019s an opportunity that we saw and that our partners saw to bring them
\na little bit more certainly and for them to provide us with a better long
\nterm cost roadmap.
\nOperator
\nYour next question comes from the line of C.J. Muse with Evercore ISI.
\nPlease go ahead with your question.
\nC.J. Muse
\nYes good afternoon. Thank you for taking my question. I guess first question
\n, in terms of QCT, can you walk through implied PBT [ph] margins into
\nSeptember and your long term outlook for MSM pricing and then a little bit
\nbigger picture thanking on the chipset side. As you think about adjacent
\ngrowth, particularly hyper connected areas like IOT and Auto, do you have
\nthe scale across technology customer relationships and distribution to
\nsucceed or do you need to look at acquisitions, and if yes, would you
\nconsider large scale M&A, or would you continue to focus solely bolt-on
\nacquisitions. Thank you.
\nGeorge Davis
\nIt\u2019s George. On our margin you are seeing the effects both of the
\npositioning within the premium tier which is having some impact on the gross
\nmargin, but also primarily it\u2019s the increase in Opex in the quarter having
\na little bit of an effect as well. So, it is a combination of mix of the
\nOpex effects and just the market overall in the third quarter.
\nA \u2013 Steve Mollenkopf
\nAnd with respect to the adjacent businesses, there are a lot of technologies
\nthat are leveraged from the mobile space. There are some things that are
\nnot, for example, we got things like networking from the Atheros acquisition
\nand we believe we are going to get a strong portfolio of technologies with
\nthe announced acquisition of CSR, which we hope will close here in this year
\n. I think one of the things you get besides technology is the sales channel
\nand the ability to sell into different types of customer then our current
\nslate in the handset business. And we actively plan that out and that\u2019s one
\nof the reasons why we have done M&A. It is also I think an environment in
\nthe industry right now where there is a lot of consolidation, particularly
\nin the semi-conductor space and it is something that we think about and I
\nthink we can potentially have an opportunity to de-risk some of those things
\nif we continue down through our strategy and we are trying to keep our
\nstrategic options open at the same maintain our capital structure.
\nOperator
\nYour next question comes from the line of Srini Pajjuri with CLSA. Please go
\nahead with your question.<\/p>\n
\nThank you. Steve, this question has been asked, but I just want to ask a
\nlittle differently, you said in the modem differentiation is your key
\ncompetitive advantage and you seem to be banking on that, you know to regain
\nsome of the business, I am just curious you know given that in a lead that
\nyou have, it appears that Samsung is using an internal modem even now, even
\nthough I guess they could have used your modem with their own processor, I
\nam just wonder, is the modem technology that mature that customers don\u2019t
\ncare as much about the differentiation or in a – what do you think cause
\nthat.
\nSteve Mollenkopf
\nWell I think when you have a vertical decision there could be many more
\nelements in the decision than just technical merits or what might have
\nhappened outside of that environment. They have the ability to share one
\nplace or the other. When we look at the tier downs of those decisions we
\ntend to see that it compares at least from a feature and a geography point
\nof view to a product that we probably delivered two generations ago. So, I
\nwould actually view it as more evidence of our modem lead.
\nNow it is possible to portions of the SKUs without having the modem
\nexpertise, but I think you are always better off having in the application
\nprocessor and the modem together and have that worldwide scale, particularly
\ngiven the industry structure today. We are seeing that the very attractive
\nin the case of the internal OEMs or the Chinese OEMs that want to go
\ninternational. So, we still think that modem is an important component. If
\nyou look what\u2019s in the head of any modem player they have enormous number
\nof [indiscernible] they have to sink up Wi-Fi and the cellular network. Just
\nrecently the FCC gave a very positive ruling on the spectrum that will be
\nused for LTE-U.
\nSo, we think the modem still has an enormous migration and then upstream and
\nthen beyond that you are going to have 5G. So the modem continues to be big
\n. In addition, hopefully we are not downplaying the strength of our
\napplication process. So, we have \u2013 we think the best mobile CPU coming and
\nthat\u2019s going to be a portfolio of products, not just one product and our
\nstrength in the GPU is, I think quite strong, we are market leader in terms
\nof mobile GPU shipments and look at the performance of the 89, 94 I think
\nyou would see it\u2019s quite strong. So, we feel like we are in a good position
\n. We just need to get through this product cycle, maintain the investment in
\nthe roadmap and at the same time sort of get ourselves in a position where
\nwe can weather out these storms a little bit easier and I think we are going
\nto have a reasonable business there.
\nOperator
\nYour next question comes from the line of Tavis McCourt with Raymond James.
\nPlease go ahead with your question.
\nTavis McCourt
\nThanks for taking my question. Derek you ran through a few numbers, now I
\nwant to make sure I had them right, they are not addition up to me. I think
\nyou said QTL ASP this year would be down 11% to 12% in the fiscal year.
\nDevice sales would be up 8% to 11% but revenues will be up 8% or so, was
\nthat the right numbers for fiscal 2015?
\nGeorge Davis
\nSo I think we probably \u2013 we kind of mix-and-match a little bit. The units
\nare for calendar year. The ASP that we gave was a global ASP, that\u2019s
\nremember not the one that necessarily will get reported to us, that sort of
\nthe all-in number assuming we were getting 100% compliance. We haven\u2019t
\ngiven guidance on a reported ASP for fiscal 2015 for a number of reasons,
\nincluding it\u2019s probably going to get bounced around by things like catch up
\npayments and the timing of signing some of these new agreements. So I think
\nthat may be your difficulty in trying to triangulate the numbers back to
\nthe 8% revenue guide for QTL.
\nOperator
\nYour next question comes from the line of Mark Sue with RBC. Please go ahead
\nwith your question.
\nMark Sue
\nThank you. In the past [indiscernible], it didn\u2019t make economic sense where
\nsome of the smartphone makers do spend money to develop their own chipsets
\njust for their internal consumption. However, it doesn\u2019t seem that would
\nchange anytime soon because the market is maturing and Samsung, Apple, they
\nall want to focus on improving their margins. So within those confines, how
\nshould we think about the automation in terms of pushing it to new markets
\noutside of smartphones and how to fund those investments so that we can
\nactually see a better return on the invested capital in other segments of
\nthe business? Thank you, gentlemen.
\nSteve Mollenkopf
\nMark, you are breaking up a little bit. So I will try to answer what the
\nquestion was and I think it was related to how we can continue to invest and
\nhave confidence given that some people are trying to go internal. Our
\nevaluation of the efforts to go internal, they actually tend to be more
\nexpensive than if you had bought them externally, particularly when you
\namortize the R&D investment across all of the many different technologies
\nthat are required to produce and integrate it or a mobile smartphone
\noffering. In fact, I would say, particularly, given the fact that in some
\ncases people are launching very early in the node, you really pay a penalty
\nfor yield. And our estimate is that it would be quite expensive right now to
\nbe launching without good yield.
\nI think you will also see if you look at teardowns, the difference between
\nthe size both footprint on the board as well as cost to assemble all of the
\ncomponents that we have in Snapdragon using external partners, it tends to
\nbe fairly expensive. For example, Snapdragon has GPS integrated inside of it
\nand putting that on externally tends to be fairly expensive. There are
\nnumber of things, codec, a number of things that sit there and become more
\nexpensive. So our view of the trend is that things are moving more toward
\nintegrated versus less toward integrated. And when we look at the economics, it\u2019s quite difficult we think to have people compete, have the same internal offering unless you have a fairly large scale, R&D scale.
\nOperator
\nThis ends our allotted time for questions and answers. Mr. Mollenkopf, do
\nyou have anything further to add before adjourning the call?
\nSteve Mollenkopf
\nThank you very much for your attention. We look forward to a call next
\nquarter and will give you an update on our cost initiative at the time.
\nThank you.
\nOperator
\nLadies and gentlemen, this concludes today\u2019s conference call. You may now
\ndisconnect.<\/p>\n","protected":false},"excerpt":{"rendered":"