QUALCOMM Incorporated

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm third quarter fiscal 2020 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're using a speaker phone, 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 July 29, 2020. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 137-06353. 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 Akash Balkhawala. In addition, Christiane 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 the replay will be available on our website later today. During the call today, 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 our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's Chief Executive Officer, Steve Molnikoff.

Thank you, Mauricio, and good afternoon, everyone. Our fiscal third quarter non-GAAP earnings of 86 cents per share was above the high end of guidance, driven by strong licensing revenue and solid performance in our chipset division. We recently signed a new long-term global patent license agreement with Huawei, including a cross-license granting back rights to certain of Huawei's patents. We also entered into an agreement settling amounts due under the prior license agreement. We are pleased to have successfully reached resolution with Huawei. As Akash will explain later, royalty revenue from Huawei begins in fiscal Q4 and is not included in our fiscal Q3 results. Alex and the QTL team have done an outstanding job in executing over 100 agreements covering 5G and building, by a wide margin, the most extensive licensing program in mobile. This is a tribute to our track record of driving important and fundamental innovation. With the signing of the Huawei agreement, we are now entering a period in which we have multi-year license agreements with every major handset OEM. Our entire company has executed very well despite the ongoing impact of COVID-19, while maintaining the safety of our employees as our highest priority. We continue to advance our product and technology roadmaps, support our customers, and meet a very complex set of R&D and supply chain requirements. And the current environment has not impeded the pace of our innovation. In the last four months of work from home, invention disclosures are up over 30%, with 5G-related invention disclosures up even more. Turning to the handset market, fiscal Q3 was better than the expectations we shared with you last quarter. In China, just midway through the calendar year and despite the impact of COVID-19, 5G now represents the majority of domestic mobile phone shipments. According to the China Academy of Telecommunication Research, June domestic 5G smartphone shipments represented 63% of total smartphone shipments, more than double the penetration in the month of March. Given the strength of June 5G handset data in China, along with flagship 5G device launches in the second half of the calendar year, our calendar year 2020 5G forecast of 175 to 225 million handsets remains unchanged, with our bias now towards the upper end of that range. As Akash will explain shortly, we are anticipating the next inflection point in our 5G ramp to start in fiscal Q4, with strong year-over-year growth in revenue and earnings per share, leaving us well positioned for continued growth in fiscal year 21. Turning to QCT, design wind momentum remains strong. There are now over 660 designs announced or in development based on our broad portfolio of 5G solutions using Snapdragon 8, 7, and 6 series platforms, or using our X55 modem, with a strong pipeline headed into next year. In the premium tier, we now have over 165 designs announced or in development from our Snapdragon 865 5G mobile platform. We recently announced our 6-series Snapdragon 5G mobile platform, which has the potential to make 5G accessible to more than 2 billion smartphone users around the world. Our systems approach to 5G RF front end has been extremely well received. Virtually all of our 5G design wins continue to be powered by our RF front end solutions, whether they support 5G in sub six millimeter wave or both. And as a consequence of our RF front end strategy, we expect to emerge in fiscal 21 as one of the largest global RF front end vendors by revenue. We remain focused on executing on the significant growth opportunities that we have in place today in the handset space. As you would expect, we are also working in parallel to position Qualcomm for similar success as 5G moves beyond smartphones. We see a significant market transition occurring as the cloud converges with 5G and AI, positioning 5G as the next evolution of the Internet. This new architecture at the edge plays directly to our strengths in low-power, high-performance computing and connectivity. where Qualcomm's wireless innovation leadership can drive new opportunities for growth as we have in 5G-enabled smartphones. Qualcomm's leadership in global standards bodies is an early indicator of how we are working with the mobile ecosystem to meet the high technical requirements to drive adoption of 5G to new industries. Just this month, 3GPP completed 5G New Radio Release 16, the second 5G standard that will greatly expand the reach of 5G to new services, spectrum, and deployments. It delivers key technologies spearheaded by Qualcomm for transforming industry, such as enhanced ultra-reliable low latency, advanced power saving, and high precision positioning needed for mission-critical applications like industrial IoT. While Release 16 is now complete, our work driving 5G technology evolution to fully realize the potential of this latest release continues. In addition, We are already working with the mobile ecosystem on release 17 projects and are researching advanced technologies for release 18 and beyond. We are very excited about our 5G future and our ability to commercialize the breakthrough technologies that will drive differentiation for Qualcomm over many years. I would like to now turn the call over to Akash.