QUALCOMM Incorporated

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm second quarter fiscal 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during this time, press star, then the number one on your telephone keypad. To withdraw your question, press star, then the number two. If you are using a speakerphone, please pick up your handset before pressing the numbers. Please limit your questions to one question and one follow-up. As a reminder, this conference is being recorded May 1st, 2019. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 136-89810. I would now like to turn the call over to Mauricio Lopez-Hedoyen, Vice President of Investor Relations. Mr. Lopez-Hedoyen, please go ahead.

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Steve Molenkopf and Dave Wise. In addition, Christiana Amon, Alex Rogers, and Don Rosenberg will join the question and answer session. You can access our earnings release and a slide presentation that accompanied this call on our investor relations website. In addition, this call has been webcast on Qualcomm.com. and a replay will be available on our website later today. During the call, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including the most recent 10-K, which contain important factors that could cause actual results to differ maturely from the forward-looking statements. And now, to Commonsman Qualcomm's Chief Executive Officer, Steve Molenkopf.

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. We are pleased to report another strong quarter. Our fiscal second quarter non-GAAP earnings of 77 cents per share exceeded the high end of our guidance range, driven by higher licensing revenues and stronger QCT margins. As we look forward, the rest of the fiscal year will be impacted by a slower market for devices, particularly in China, upstream of the larger rollouts of 5G worldwide. Two weeks ago, we announced a global settlement of our disputes with Apple and its contract manufacturers. We believe the settlement is a win for both companies, and we are pleased with the result and pleased to have it behind us. Dave will provide more details on the financial impact of this settlement in his prepared remarks. But at a high level, this settlement includes two long-term agreements with Apple, a global patent license agreement and a multi-year chipset supply agreement. The settlement also includes a one-time payment from Apple to Qualcomm. The term of the global patent license agreement is for six years – with an option for Apple to extend for an additional two years. This represents a significant milestone as it is Qualcomm's first patent license agreement directly with Apple. In addition, we believe our resolution with Apple enhances our position with respect to resolving our ongoing licensing issues with Huawei. We will also be supplying modems to Apple for future devices under the terms of our new multi-year chipset supply agreement. In the long term, we will also have the opportunity to provide Apple with with other Qualcomm technologies and products to expand our dollar content share in Apple's products, as we have done with our other handset OEMs. We are committed to a strong partnership with Apple. Now that the dispute with Apple is behind us, I thought it would be helpful to describe how we are thinking about the positioning of the company going forward. First, 5G will be a significant opportunity for Qualcomm, both within cellular and in other industries. It is the key technology enabler for the future of the Internet, and having a strong and differentiated technology position is an important asset for our shareholders. This past quarter was a tipping point for 5G when in February at Mobile World Congress, representatives from major Android device manufacturers, network operators, and infrastructure providers joined Qualcomm in celebrating our collective achievement in bringing 5G to life. Since that event, I am pleased to report that the rollout of 5G has officially begun. In the last month, we have seen carriers and OEMs announce and launch commercial 5G services and devices in North America, South Korea, Europe, and most recently, China, representing the first global rollout of a new wireless standard. The arrival of 5G in China is particularly exciting, as it brings 5G to the largest mobile user base in the world. To date, The vast majority of the announced 5G devices for China include Qualcomm Snapdragon chipsets. Second, we enter into the 5G era with strengthened products, a favorable competitive dynamic, and more customer diversity and technology breadth than in earlier generations of cellular. This is due to Qualcomm's continued focus on investing in innovation and R&D during a time of much activity and attention on our company. We've transformed QCT by diversifying our customer base, focusing our investments, and streamlining our cost structure. Our year-to-date non-Apple QCT operating income doubled compared to a two-year-ago period, putting us in a strong position to grow revenues and profits as we begin ramping 5G, in addition to supplying Apple under this new agreement. As 5G network launches continue to grow, so does our QCT design wind pipeline. we now have over 75 5G design wins, more than double the number we announced last January, driven by OEM designs with our first and second-generation 5G modems. In February, we announced our second-generation 5G modem, the Snapdragon X55, our second-generation 5G RF front-end solutions, and the world's first mobile platform with integrated 5G, all of which position us to power the second wave of 5G devices worldwide. launching in late 2019 and early 2020 to drive mainstream adoption of 5G. Our early investments in 5G now allow us to offer the world's first modem-to-antenna system for commercial 5G new radio smartphone devices, spanning millimeter wave and sub-6 gigahertz bands, including baseband, RF transceiver, RF running components, and millimeter wave antenna modules. This systems approach is creating a benchmark for 5G RF front-end performance. Qualcomm is heavily engaged as a critical partner to leaders across many industries as they see 5G mobility as a foundational technology for their digital transformation. Third, our cost structure and investment focus are aligned with the opportunities ahead. We will continue to invest where we can leverage our core competencies and bring innovative solutions to large markets. In 5G... This presents opportunities for growth in our core cellular market in addition to many adjacent industries as they leverage 5G to accelerate their digital transformation. In summary, with our agreements with Apple, the beginning of the 5G ramp, our focus on operational execution and capital return, we think we've laid the groundwork for growth in revenue and EPS and stockholder returns over the next several years. As a management team, we are committed to driving stockholder value by taking thoughtful and deliberate actions that we believe will ensure the long-term growth of our company, as you have seen. We appreciate the positive reaction from investors and analysts to our recent announcement with Apple, especially the feedback from many stockholders over the last two weeks who have recognized and appreciated our commitment to sustaining Qualcomm's long-term differentiation and focus on technology and innovation. I would now like to turn the call over to Dave. Thank you, Steve, and good afternoon, everyone.