| | | My notes from CFO George Davis' discussion at Citibank this morning. These are my highlights of the discussion...not a verbatim transcript. While they were recorded by me with some care, they are reasonably accurate and not absolutely accurate. So, reasonably accurate or your money back!
We expect to get “large majority” of buyback done in FY19
Growth strategy: leveraging handset tech into adjacent markets & being disruptive. Also RFFE / TDK. Snapdragons into PCs.
More confident of this growth plan now than we were in 2016. IoT, Auto, Compute
NXP largest scale M&A opportunity that fit our strategy. It was a component in our strategy...but it wasn’t our strategy.
Disappointed re: NXP, but feel quite good about future organic strategy.
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RFFE: was 5% and now 15% of market Strong attachment in 4G, in China, and in premium tier OEMs. 5G will really help Q’s RFFE.
Tunable RFFE is disruptive. Modem works with RF asset to tune RFFE dynamically. Reduces BoM & helps w/ phone power utilization.
Currently playing below our weight in RFFE but 5G will be a huge help.
Mesh wifi is very strong. Q has leading devices and strong margins. Carrier space wifi needs aligns with our 802.11x technical abilities.
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Handset $23B SAM ...but Q now has a ~$100B SAM with adjacencies...down from $150B w/o NXP Our Plan B to NXP is also attractive!
Data Center: refocused on edge computing and supporting China JV
Q quite excited about Advanced Driver Assistance System in cars. Also seeing widespread adoption of SD platform for car infotainment.
NXP promised +$1.50 EPS accretion. Now “lack of time” impacts getting comparable FY19 EPS via repurchases
“Being able to get to the $1.50 EPS in ‘19 based on just the sheer fact of time is going to be problematic.“ [roughly 14:00 minute mark]
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Q’s breach of contract case against Apple CMs in SD getting closer Depositions underway. Are now 7-8 months closer to legal milestones.
Quite excited about what the next year has to offer: executing very well Product portfolio has never been stronger. Cost control is strong.
Auction was good news/bad news: long SHs weren’t going to participate more than half were hedge-related buyers.
Our shareholders have high expectations for our stock. -end of August stock rally didn’t help.
$25B remaining on buyback. Feel very good about accretion coming from us buying back between 25-30% of Q shares
Little softer than expected in ‘18 MSM units, but still a solid number overall. ASPs have been quite strong, esp in China with “tiering up”
-tiering up plays into Q’s strengths with Snapdragon products
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Apple can’t emphasize Q in their products while dispute continues. But 5G is a very powerful force: Q is well ahead in 5G and in 4G too.
75% of our 4G patents read on 5G as well.
If someone wants a quality entry into 5G, their engineers have to talk to Q. Need Q’s products to be highly confident in their 5G plans.
QCT margins: 5G will really help, but will be small impact initially. 2019 is 5G onset. 2020 is building 5G ramp. 2021 will be a 5G market.
Industrial logic of Q-NXP combo remains. Logic remains for 2 companies to work together but no JVs or projects to announce.
Apple: litigation forcing items are reaching decision points as gaining/losing leverage
-you have a very large OEM that will not have a 2019 5G phone launch [Apple?]
Q expects to get to a negotiated solution with Apple...it sometimes happens at literal courtroom steps (i.e. Nokia).
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Huawei: interim payment reflects we’re making progress...it will come to a head by end of this year. We are making progress: we will get paid for the past royalties and get the right outcome going forward. Its important to get this deal right...no rush.
$700M is not payment in full by any means! Just a sign of good faith
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Future use of Apple settlement proceeds: want flexible balance sheet going forward and have the available $30B repurchase authority
Cash flow is key. Want to have a strong investment grade balance sheet. Can be net debt if necessary as long as have cash flow.
Options: ASR, tender offers, private transactions (unlikely), open market buys.
Want to get “large majority” of shares IN in 2019 [i.e. retired]. Nothing specific to actually announce now...to avoid arbitrage activity. |
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