QUALCOMM Incorporated

Ladies and gentlemen, thank you for standing by. Welcome to Qualcomm's second quarter fiscal year 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. If you'd like to ask a question during this time, press star, then number one on your telephone keypad. To withdraw your question, press star, then the number two. If you're 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 today, May 3rd, 2023. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 137-37571. I would now like to turn the call over to Mr. Mauricio Lopez-Hodoyan. Vice President of Investor Relations, Mr. Lopez-Odoin. Please go ahead.

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Christian Amon and Akash Palkawala. In addition, Alex Rogers will join the question and answer session. You can access our earnings release and a slide presentation that accompany 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 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 the comments from Qualcomm's President and Chief Executive Officer, Cristiano Mon.

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In a challenging macroeconomic environment and broad downturn across the semiconductor sector, we're pleased to deliver fiscal Q2 results consistent with our prior guidance. We delivered fiscal Q2 revenues of $9.3 billion. Non-GAAP earnings of $2.15 per share were at the midpoint of our guidance. Our chipset business delivered revenues of $7.9 billion near the high end of our guidance range. Our licensing business delivered revenues of $1.3 billion at the low end of the guidance range on weaker demand for handsets. The evolving macroeconomic backdrop has resulted in further demand deterioration, particularly in handsets, at a magnitude greater than we previously forecasted. As a result, we're operating under the assumption that inventory drawdown dynamics remain a significant factor for at least the next couple quarters. Additionally, While expectations are for a rebound in China demand in the second half of the calendar year, we have not seen evidence of meaningful recovery and are not incorporating improvements into our planning assumptions. While the challenges we are facing are impacting the semiconductor industry, we remain focused on managing what is within our control and will continue to execute on our diversification strategy and leading technology and product roadmap. As market visibility remains limited, we're actively managing operating expenses and will continue to evaluate additional opportunities to drive greater operating efficiencies without losing sight of the automotive and IoT growth opportunities ahead. Let me now provide key highlights from across our business. In handsets, we extended our 5G technology and product leadership with the Snapdragon X75 5G modem RF system. The world's first 5G advanced ready modem RF platform that will drive the next phase of new 5G capabilities globally is starting in 2024 across segments, device types, and networks. The X75 modem is now the benchmark for 5G performance and features for all flagship smartphone launches next year. Our Snapdragon 8 Gen 2 mobile platform is the standard for Android flagship devices globally, with launches across leading OEMs, including Samsung, Xiaomi, Vivo, Oppo, OnePlus, Honor, Motorola, Asus, and ZTE. Additionally, our Snapdragon 7 series is redefining the high tier. Our recently launched Snapdragon 7 Plus Gen 2 mobile platform outperforms its competitors' premium-tier solutions, winning multiple accolades for its superior power and performance. We're seeing excellent adoption across Chinese OEMs, resulting in share gains. OEMs are also reporting strong initial sales for products powered by the 7 Plus Gen 2. In automotive, We see continued traction across global automakers and tier one customers driven by the increased adoption of our Snapdragon digital chassis. We are very pleased to be partnering with Mercedes-Benz on our next generation Snapdragon digital cockpit platforms. This is a result of our long and close collaboration with the ambition Mercedes-Benz software factory and engineering teams and various partners to create an industry-leading MBOS premium cockpit experience. The new platforms will be featured in Mercedes vehicles beginning in 2023. Additionally, our OEM partners recently launched vehicles with our third-generation Snapdragon cockpit platform, including the Xpeng P7i and Lotus new Electra SUV. Notably, during the quarter, we won 12 new designs across our Snapdragon cockpit and the Snapdragon connectivity 5G platforms with automakers across the globe. We remain on track to execute on the milestones outlined during Automotive Investor Day. In consumer IoT, we continue to be encouraged by the positive momentum with Windows on Snapdragon. Dell recently launched the Inspiron 14-inch laptop powered by the Snapdragon 8CX Gen2 compute platform. In addition to OEMs, we're expanding our ecosystem across BIOS, hardware, software, ODM, and channel partners. We're also launching the Windows on Snapdragon Developer Portal to enable consumer and enterprise ISVs to test, port, and optimize their applications directly on Qualcomm Silicon. Our next-generation Snapdragon compute platform with custom Orion CPUs and industry-leading AI acceleration is on schedule to enable commercial device launches in 2024. As a reminder, we remain the platform of choice for all significant ecosystem players for XR, notably Meta, the joint partnership with Samsung and Google, and broadly in China. While still in its early phases, we believe the merger of physical and digital spaces will become a significant opportunity for Qualcomm. We also continue to win designs for home robotics, smart appliances, and smart camera applications with household names such as Bosch, LG Electronics, Panasonic, Samsung, and Sony. In edge networking IoT, We're very pleased to share that we're now collaborating with Reliance Jio on rolling out 5G FWA across India, servicing millions of residents. We also recently announced the Qualcomm 5G fixed wireless access platform Gen 3, offering operators the ability to expand their service coverage to new areas while lowering costs and enabling faster deployment. Additionally, we continue to lead the transition to Wi-Fi 7, with more than 175 cumulative designs across all product categories. Access points account for 89 of these designs, with 16 launches in the quarter. In Industrial IoT, we announced a Qualcomm Aware platform to empower developers and enterprises to easily build real-time intelligence and visibility solutions. The platform combines simple, secure, and scalable cloud-based services with power-optimized and precise location tracking and an extensive hardware ecosystem to deliver tailor-edged solutions across many industries. Additionally, we led the Bluetooth SIG Working Group to help establish a new standard for electronic shelf labels that are scalable, ultra-low power, and highly secure. This will help enable large retailers to accelerate the digital transformation of the store with electronic labels that can interact with both store and consumer devices. Our OEM partner, SCS ImagoTag, recently announced an agreement with Walmart to deploy electronic shelf labels across 500 stores over the next 12 to 18 months. I would now like to provide a perspective on the disruptive trends in the artificial intelligence space and the significant opportunity for Qualcomm. Demand for generative artificial intelligence models is growing at an exponential rate. Generative AI models, such as ChatDBT, Stable Diffusion, and DALI, have already scaled to millions of users in a short period of time. We believe that these models will evolve quickly, continue to grow in popularity, and change user experiences across mobile, personal computing, and automotive. Beyond changing internet search, these models will have an impact on content creation such as text, images, audio, and video for both entertainment and productivity. It will also transform many industries. For these models to realize their full potential and scale, they will need to run locally on devices at the edge. At Mobile World Congress, we demonstrated the world's first on-device stable diffusion, a greater than 1 billion parameter foundational model for text-to-image applications running completely on a Snapdragon Power Android smartphone. In the coming months, we will significantly improve performance and be able to run models in excess of 10 billion parameters locally on the device. and we will increase this capability substantially for products in 2024. Qualcomm is uniquely positioned to enable the proliferation of AI use cases on edge devices. We're advancing AI to make core on-device capabilities ubiquitous, such as perception, reasoning, action, and now content creation. With millions of AI-enabled platform shipments per year, Unparalleled AI processing performance per watts in the broadest range of device categories from smartphones to PCs, automotives, and IoT, Qualcomm is firmly at the forefront of this upcoming transformation. Further, very large AI models are placing significant incremental demands on energy-intensive and expensive cloud computing infrastructure. As such, A hybrid AI architecture leveraging accelerated computing at the edge can offload or support cloud processing by running AI inferencing directly on the device. Beyond cost optimization, additional benefits of running generative AI on device include improved latency, security, privacy, and the ability to meet data compliance requirements. This is a new and exciting opportunity for Qualcomm in one of our priority investment areas. As I close my prepared remarks, I would like to reiterate that the secular technology trends driving the long-term growth opportunities for Qualcomm remain unchanged. Despite the disappointing macroeconomic environment, our investments in technology leadership, our best product roadmap in history, and strategic customer relationships across multiple industries, position us well to execute on our strategy and expand across new and diverse end markets. I would now like to turn the call over to Aakash.