| | | Qualcomm, Inc. (QCOM) Presents at Barclays Global Technology, Media and Telecommunications Broker Conference Call - (Transcript)
Dec. 9, 2020 4:19 PM ET
Qualcomm, Inc. (QCOM) Presents at Barclays Global Technology, Media and Telecommunications Broker Conference Call - (Transcript) - Market Insider|
|Blayne Curtis
All right. Welcome back. I'm Blayne Curtis, semiconductor analyst at Barclays. Very happy to have for our next presentation, Qualcomm. Cristiano Amon is back with us. He's the President of Qualcomm. Thanks for joining again.
Question-and-Answer Session
Q - Blayne Curtis
Cristiano, maybe I was saying it from a -- the way to start this off, I always like to start with a broader question. And you guys recently broke out in QCT, the subsegments. And I think it's quite interesting as you look, handset modems are only 2/3 of that bucket, you're in a whole other 1/3 that's growing quite quickly. I was curious maybe you can just talk about the broadening of the QCT business. What has happened and kind of where you see it going in the future?
Cristiano Amon
Very good. Blayne, good to see you. Very happy to be here and participating. It's a great question. We have always said in our company that in -- remember, you go back a couple of years, Qualcomm has been probably the most focused company, just focused on mobile technology. But the scale of mobile and the potential of disruption in other industries, I was there. And as mobile started to disrupt, other industries started to grow into the same direction.
And we're a much more diversified company right now. We have -- what is interesting is we have done some very important technology acquisitions. I pointed to the TDK EPCOS as one of them. But we were able to develop organically, was augmented by technology acquisitions, the ability to develop the engine to diversify QCT. And when we look at the company going forward, it's really more about generating growth based on our mobile assets in a number of different industries. Automotive, it was the first natural, I think, expansion with the 2 transformations in place: one, connected car; other one, changing the electronics. People are driving and looking at their phone. That points to there's more technology in the phone than they had in the infotainment of the car, so that's a great opportunity for disruption right there.
And then we went into a natural extension, which is complexity of 5G creates differentiation opportunities in the front end. And the IoT is still a very, I think, large SAM, which were very -- at the beginning, the disclosure show in that category is already in excess of $3 billion. And we're very optimistic about that. And that's how we should think about Qualcomm going forward, a significant expansion of the semiconductor business.
Blayne Curtis
I do want to talk -- I mean, we'll obviously get to mobile, but just kind of finishing on some of those other segments. Auto, obviously, there's modem attached, but then there's also the infotainment and then you started working on ADAS as well. So maybe just walk you through a couple of drivers within the auto segment. Where is it today? And what do you have in front of you?
Cristiano Amon
Very good. And maybe I'll answer the question by saying now and into the future. So now we have been very focused. We updated our pipeline of $8 billion now in contracted solutions across 2 main drivers, which is basically the C box, where there's connectivity. And once there's connectivity, there's the RF front end attached and also there's Wi-Fi in addition to cellular. That is -- it's growing very, very fast. I think I can probably predict that going forward for this industry, all new models are going to be connected.
And then the second one is what we call the digital cockpit transformation. So silicon that goes into the dashboard goes into the infotainment, rear seat entertainment, smart mirrors and heads-up display. And as the car gets transformed into electronics, electronics is now the first design element when they think about the interior design of the car. So that is really driving that pipeline.
Going into the future, we're expanding in 2 areas. One, it's a Cellular V2X. And I like -- personally, I like the technology. We had a major accomplishment this year, which is harmonization of the 5.9 gigahertz across all countries and standardization of this technology. Now we need to get it to deployment phase. But then we can connect car to car, car to infrastructure and then car to phone, and which kind of has some synergies with the technology road map of the mobile side.
And it's easy to understand the power of this technology. Just look at -- think about navigation systems, and you see a map and you see your car moving. Think about now populate that map of every other car in the road and direction of traffic. So it's a very powerful -- it has the potential. I don't want to make set expectations, but it has the potential to be as significant for safety as ABS and airbags. And I think we see this as a growth opportunity.
And the last one is ADAS and autonomy. And we did announced that we have one engagement with autonomy, and we see that as an expansion opportunity for our auto business.
Blayne Curtis
Because as you said that every car will have some sort of connectivity, your IoT buckets are kind of the catch-all for everything else, I guess, that would have connectivity. You have kind of traditional dongles and then you have broadband access, but then I think you're going to expand into seeing modems in kind of even infrastructure as well. So maybe you can walk us through, the business has been quite strong. You said over 3. It's like maybe even trending closer to 4, very strong in the near term and then kind of what are the big kind of future drivers as you look at it several few years?
Cristiano Amon
All right. So this IoT bucket, there's a lot of things in there, and there's just a lot of opportunity. So I'll go to some examples, but we see a couple of drivers of growth that we like. One is, as you mentioned, broader connectivity beyond phones, right? And you see that, for example, happening with 5G fixed wireless access. We have over 40 OEMs now doing CPE. And as we look at the pandemic, highlight the importance of high-speed symmetrical broadband, it's fair to make a prediction that maybe as we get to 2025, for example, the percentage of 5G as the modem technology in the carrier gateway, it could be in excess of 20%. So that's one that is significant.
But also, I really like about what's happening with the IoT devices, which is connectivity as well as processing, lots of handhelds, lots of payments, point of sale. I think the pandemic kind of eliminated paper money to some extent and has an accelerated digitization of payments, especially with small business. We see a lot of retails POS than industrial handhelds.
And there are other things in there, which is our networking business. There is upgrades of connectivity, access points, small cells. And we see new things such as VR and AR. I'm very bullish that there is going to be a future of the next computing device is going to be likely glasses that you're going to wear with augmented reality, especially as 5G becomes more pervasive.
I can give a very simple example. Think about the glasses that you and I are wearing right now. You can -- if 5G is everywhere, and you can do some of the computation on the cloud, I can just put some cameras and connectivity in those devices. And you can have a Zoom meeting with somebody and then somebody's avatar, you can walk around and you get superimposed images. So there's a lot of opportunities. And as I said, it's a very broad segment and is a massive expansion of SAM for Qualcomm.
Blayne Curtis
Great. So circling back on the mobile market. Obviously, the pandemic impacted right as that 5G was kind of hitting. What we saw actually was 5G continue to deploy and maybe 4G took the bigger hit from it. You talked about Q4, I think, being down 5%. So can you walk us through where you're seeing the recovery? What maybe geographies are still yet to recover? And then I think you talked about growth next year. Can you walk us through your expectations?
Cristiano Amon
Yes, absolutely. Resilience of the mobile market has been really remarkable and, I think, probably expected given how people were connecting through the pandemic. So we started a year, and I think everybody else was a lot more pessimistic about it, I think. And then what we've seen is a V-shaped recovery, which is even though the market is smaller than it was in 2019, as you close '20, it was not as small as people had predicted. And when we -- and we did guide for calendar 2021 to be high single digits from calendar '20. It's probably -- we'll see, but it's below '19 or flat to '19, which that actually shows recovery of the mobile segment.
Now what we like about that is within the units, the transition to 5G has been very, very strong. And especially because we have a situation different than what happened in 4G that all countries did at the same time, especially China. China and 4G, they were late. But now we have the China scale. In the month of September, China 5G sell rate was 60% of all devices, and 64% of the activations were 5G.
So that's kind of very encouraging enough for Qualcomm because of our 1.5 multiplier that we have been talking about it. Not only we like the recovery of the mobile market in '21, but we like more the percentage of devices that are with 5G.
Blayne Curtis
Great. And then maybe just drilling down on that 5G, you've kind of kept your forecast all year. I think some others kind of got a little higher and then maybe kind of pulled back. You're seeing definitely some strength in the supply chain. And I think as you and others talk about the designs, they see higher mix of 5G. So maybe can you just talk about the forecast for this year and next for 5G? And kind of relate that to the strength you're seeing currently.
Cristiano Amon
Yes. In 2020, we guided towards the high end of the range, and we did raise in '21 in our guidance in our earnings last month from -- in excess of 450 million devices to a midpoint of 500 million devices, which is more than double year-over-year. And yes, we have been seeing increased design activity. I think there's a -- it's a very hot, I think, supply chain for 5G right now, especially as a lot of our customers are preparing for their recovery. And more important that there is probably an expansion of a SAM for us and our customers using some of the Huawei dynamics.
Blayne Curtis
That's a perfect leading because I was going to ask you the why. I mean not that you needed one other thing to deal with this year. But I think the question is, it seemed like Huawei had some inventory to burn, it's really, people can't ship much to them, if any, You see strength from the box, Samsung. Have you started to see, one, the competitors kind of position inventory to kind of take share? And have you seen any share shift away from Huawei?
Cristiano Amon
Good question. Maybe I'll start by answering, we like our position because it's -- as we look at the landscape -- and there's Huawei domestic China and there's Huawei outside China. And if you look at the potential players, right, that could win share from Huawei, whether if Apple wins or Samsung wins or Vivo or OPPO or Xiaomi, those are all the customers that we're designed in. So we feel very good they're well hedged regardless of the outcome. I can tell you, it is an expansion of SAM for Qualcomm.
Now we don't know exactly that we're going to have more clarity as we go to, I think, the first quarter or so in 2021. But I expect that within China domestic market, I think I see a lot of opportunities for growth across Vivo, OPPO and Xiaomi. I think the trio one, I think Xiaomi has been have been very, very strong also outside China. And that Huawei just had a spin-off of Honor, and we have been waiting like other companies, to see if a 5G license are granted. We have received licenses for 4G but not for 5G. And all of those things could be playing to dynamics of the market.
I would not discount at this point, I think, Huawei or even Honor. Honor, it's a new OEM. We see that as a more opportunity, even more healthier, I think, market for horizontal model in China, and we'll see how that plays out.
Blayne Curtis
Great. Well, I wanted to ask you on modem competition. Obviously, MediaTek is in the market, there's internal solutions. You've always kind of split share with Samsung. You're actually gaining share at Apple. And then I'm kind of curious, as Huawei modem, whether spin-out with Honor, whether there's any way that, that can kind of resurface in the market. So kind of think about the opportunities within customers that have their own modem, your ability to stay in customers like an Apple where you've gained share. And then whether that Huawei modem ever comes back.
Cristiano Amon
We get the question all the time, and I know it's in the mind of many of the investors. So maybe I'll break that down. But the only other merchant competitor at scale is MediaTek. They're being more focused on China domestic market. I think there have been more focus towards the mid and lower tiers, where at Qualcomm, I think, strength is high in premium tiers. We also have been, because of our position, because of our position now also across many other industries, more of a global provider of technology.
So the way we look at the competitive dynamics, I will address that first. What we see is Huawei current in situation created an expansion of the premium-tier opportunity for Qualcomm, and that's where we play. We're highly differentiated. Also, if you think about China flagship premium and high-tier devices, there's a very strong position of Snapdragon, including with a strong consumer brand in China. So we're differentiated in that space. And we expect to have a very competitive, as we have today, a market towards the mid and below, the mobile has always been competitive.
We also feel good about other drivers of differentiation for Qualcomm. Qualcomm had invested early in millimeter-wave technology, and we're highly differentiated in the technology. And we had stated this position even in the beginning of this 5G acceleration that we believe that eventually, all markets are going to use millimeter wave. You can't hide. You need more spectrum. You don't have enough spectrum. It's a fascinating brand. When you look at every single spectrum holding, the carriers accumulated to auctions across 3G and 4G, if you aggregate them all, you may get 1 or 2 channels of 5G. That's it.
So you need more spectrum. Millimeter wave is going to get broadly deployed. We see now a large number of carriers, now 130 invest in millimeter wave. And this week, we're celebrating Qualcomm because we just saw 2 launches: Korea and Singapore with millimeter wave. So as this technology comes in, we're highly differentiated in that space.
I think looking at Apple launches and the entry-level iPhone 12 with millimeter wave and the price points they offer, it was a massive encouragement to a lot of carriers about to invest in the technology. So we like that from a differentiated standpoint. And we also believe that there is a lot of value as we improve in the market, which is modem plus RF in what we call our modem-to-antenna.
Then I'm going to go to your second part of your question, which is the vertical customers. And I always point out that Samsung as how we think about the business going forward. Modem is only increasing its SAM within devices, right? It's from phones to tablets to computers now to watches and into a number of different devices. There's a lot of surface area. And within the phone space, you have different markets.
Samsung had, had since day 1, the ability to go vertical with 5G. And we think that our road map has proven, even for a company like Samsung, which I'll tell has a lot of assets on semi and on the modem side. They even have an infrastructure business as well. We have built not only a stable relationship but opportunity to grow with technology. We have maintained our share in the markets that we had. We have gained share in new markets. Korea is an expansion. And as they launched new flagships such as the fold and the flip, Qualcomm has been selected for the global solution.
And I think that's a proxy how you should think about vertical. When you think about other large customers that we have, their intent to go vertical, we don't make heroic assumptions that we're going to have that customer. We think, like a relationship like Samsung, is probably how we should think about it. There's a lot of devices to connect. Modem is our core business. We'll continue to push the technology forward. And we had competed with the assets that's been acquired by some of our customers for years, and we know how to compete in that space.
Blayne Curtis
Great. I do want to drill in on a couple of the comments you made on the RF side. You started breaking out this business. You're on track to hit your targets that you set at the Analyst Day in RF. Obviously, there's a couple of moving pieces in there, millimeter wave is one. Maybe start with sub-6 gigahertz cell, right? This is an area where we get a very high attach rate of the 5G blocks with the first-generation phones. And I'm kind of curious, as you look out as the 5G becomes more mature and other vendors start to penetrate, how much share can you kind of maintain on the 5G side? And then I'm really curious, as you look at 4G, where I haven't seen you have much content, can Qualcomm expand in that area as well?
Cristiano Amon
That's a very good question. So I want to start by maybe clarifying one thing, which is our modem-to-antenna strategy is really working. And I heard some commentary from other reports that I read about most of our designs or millimeter wave. Most of our designs are actually sub-6. We've been -- because there's more sub-6 devices over there. We have over 700 designs with Snapdragon. All of them have 5G RF front-end content, and the majority of it is sub-6. And what we like about it, Blayne, is we went for first generation to second generation to third generation, what we see is not losing designs. We're seeing increase of designs and content.
Now let me get to your second part of your question. So we have 3 major vectors of differentiation in the space. The number one is we are investing, and we have deliver solutions that can win on the incremental component -- at the component level, independent of the system-level design of the baseband. And we are starting to win designs with -- of competitors' baseband. We started to win design now across non-Qualcomm platforms because our components are winning on performance.
As an example, just on filter technology, we already have commercial designs with our ultraSAW technology that we exceed the performance of technologies such as FBAR. So we are winning designs at the component level across other basebands.
The second -- so that's the component. The second driver of differentiation is when you think about 5G versus the other technologies, 5G is about you have massive MIMO. You're managing multiple antennas and your managing antenna performance is much more complex. And we like the complexity. And in the modem-to-antenna design, we have now system-level performance that is unmatched by any of the competitive solutions, our customers seeing the benefit of that. And that's why we're winning higher attach at the system level.
The third driver of differentiation is that as -- if you -- as you look at the Qualcomm platforms, it's already tested when our baseband is declared commercial-ready with a commercial software, there's already a validated global RF design that the OEM can leverage. So it's a massive R&D savings for an OEM.
So with those things, we've seen a very successful story. And then to answer your question, the 2021 will be the year that we're going to see broad deployment of 2 5G technologies. One is going to be Dynamic Spectrum Sharing as you're going to get your existing 4G spectrum and convert to 5G, but the other one will be carrier aggregation within the Dynamic Spectrum Sharing so that you can actually get to the 5G performance versus just an icon on your phone because you need to get to a wider channel. That creates an opportunity for Qualcomm to expand our 5G content into the 4G bands because those 4G bands are going to be 4G and 5G. And we're starting to see design activity pointing to that direction right now.
Blayne Curtis
Great. And then I want to ask you, on millimeter wave, you said that it's spanning into a couple other countries. I actually have one of these iPhones. I'm on AT&T. I don't think it's ever topped 2 millimeter-wave antenna, but I do have it. I'm kind of curious, after Apple, as they pushed it across all their U.S. models, how other OEMs are thinking about millimeter wave in the U.S.? And then curious, as C-band launches, whether you think that will take some focus off millimeter wave? Or you think they'll still be investing in millimeter wave in the U.S.
Cristiano Amon
Yes. I don't see any reduction of activity on millimeter wave on the contrary. And I will see the C-band in addition to it, as I said -- and I know that T-Mobile talk about 5G using the layer cake analogy, and that is it's very accurate. This is going to happen in -- across all operators. You're going to convert your existing spectrum, you're going to add new within the mid-bands, the C-band, the 3.5, and then you're going to have millimeter wave. So I expect that to actually be a very positive development in the United States as you start to have more coverage of 5G.
Millimeter wave takes time. You have to add more cell sites. You're dealing with municipalities, you're trying to get permit. Having said that, Japan recently launched, Korea recently launched. And what happened in those markets, the Japan market, for example, if you remember -- and I know by saying that, I'm going to show my age. But if you remember, there's a technology band called PHS. They were cordless technology in the early days of PCS. And they deploy a base station 100-meter apart from each other with fiber backbone. It's perfect for you to deploy millimeter wave. It's just add base stations that look like Wi-Fi access point and you were done. And I expect those countries to have density from millimeter wave and will expand deeply. In the United States, it's going to get there. It just takes time as it's not easy, especially in very dense areas to get site permits. And I think that's the number one challenge of the carriers right now with millimeter wave.
Blayne Curtis
Okay. Well, with that, we're out of time. Thanks again for supporting our conference, and take care.
Cristiano Amon
Thank you very much. Pleasure talking to you. Thank you. |
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