QUALCOMM Incorporated (QCOM) Earnings Call Transcript & Summary

Hi, everybody. My name is Mike Walkley. Very excited to have Cristiano Amon from Qualcomm here today. As most people know, we have a buy rating on Qualcomm. Lots of good things are happening with 5G and RF. So we're going to cover a broad range of topics. The format today is going to be a little longer Q&A than our typical slots, thanks to Cristiano giving us some extra time. So we really encourage the audience. You have the board there to type in questions. We'll definitely try to incorporate those. It looks like we got a good number of users already dialing in for this. So I'll kick it off here. First, Cristiano, thanks so much for joining us today. I hope you, your family and all the Qualcomm employees are safe and well.

So maybe just to start off, 5G, obviously, big growth driver for Qualcomm. Maybe we'll just start on the macro, kind of what are you guys seeing on 5G and the momentum building for that market this year and the next?

Very good. First of all, happy to be here, Mike, pleasure participating at this event and spend time with you all. So look, I'll start by saying it's really good to be -- and if you look at anything positive in the current environment, it's good to be in telecom. I think telecommunications and especially transitioning technologies that enable everything to stay productive, connected. And I think we're seeing that right now. So 5G momentum, even though we have a market that is contracting on the mobile side, I think 5G continues to gain traction. So our -- when we look at the calendar '20 5G smartphone market, it is leaning towards the high end of our projection, 175 million to 225 million units for the calendar year. And we -- if you remember during the Analyst Day, we forecasted '21 at 450 million, '22 at 750 million units. And when we look at the market right now, even within this year, it's moving towards the higher end of our range. When you look at specific traction, we have a large number of OEMs, now over 45 different OEMs that launch 5G devices. And I'd like to look at the China market, it's a very good proxy. So when we look at China, 5G sell-in. And the reason I want to highlight China is because there's a large percentage of devices. They're from OEMs that are based in China and especially the devices at the lower price points, which accelerate the transition of 5G. So if you look at sell-in data in China, we saw 49% of all devices going into the channel to be 5G in Q2 calendar, up from 29% in Q1. So you see the momentum. And then on a monthly basis, it doubled from where it used to be. It was 30% in March. When you look at a monthly basis, the June data was 63% of all devices in the channel going 5G. So it's -- and the price points we already see in devices now close to a little over $200, which shows it can address the majority of the price point. So we're very happy about that. Traction continued to be strong. And the device ecosystem already switched to 5G, independent of the network. It takes time for the network to be built, but the device is already switching to 5G. We're very excited about that.

Great. Before we delve into some more areas, maybe just sticking with the macro. Obviously, with the pandemic, there's some markets like emerging markets were a little soft, and there's been some good traction. It's great to see 5G on track. Can you kind of just walk us through what you guys are seeing on a macro basis for smartphone demand and how that's flowing through to your QCT demand?

No, happy to talk about that. While we continue to have some uncertainty about the timing and scale of recovery, we're cautiously optimistic what we saw. Look, when -- if -- we had -- when we look at what happened in the June quarter, we had provided prior guidance in the June quarter for the market to be 30% down. And the actuals came in around 20%. In their September quarter guidance, we're now updated to a 15% decrease year-over-year. And that's encouraging data. It's basically showing that the -- while we still have uncertainty, we're starting to see recovery. As I mentioned earlier, I think the telecom sector is probably an area of being positively impacted. And in the middle of the technology transition, especially when you have a market change, that means that 5G devices are the ones that are going to get purchased. And we're excited about what we see. The other thing we like about the macro, for Qualcomm, we usually are more higher in premium tiers so that we have significant leadership with our Snapdragon. And in emerging markets, when you have the lower-priced devices when we see kind of more competition, the data that we saw in the September quarter was actually showing a better mix. We do have weakness in emerging markets as we expected. But some of the developed markets, we saw better recovery. And that points to higher-tier devices as well as 5G devices, which is a thing that we like to see it. And overall, I think we're seeing -- if we look at the forecast for the first 3 quarters of 2020 and we look at what happened to the year, it's probably implying year-over-year reduction of approximately 10%, which is kind of much better than we all expected. So again, there's still some uncertainty on the speed of recovery but better news than we thought.

Great. Thanks for that backdrop on the macro. And it's nice to see it's trending better than we all thought in terms of demand out there. Maybe to date myself here, I've covered Qualcomm for over 20 years now. And whenever there's a new air interface, it's always been a great time for the QCT business to do well, helping the premium tier phones come to market. Can you talk about 5G opportunity from Qualcomm as it relates to the competitive environment? A question we get from investors all the time is with 5G maybe relative to even older 3G and 4G standards, you compete a lot more with internally supplied companies. So it might be a longer answer for you, but maybe you could start with the merchant companies, the competitive environments like MediaTek and then how you win business with integrated companies.

It's a great question. I'll take a little bit of time answering the question because there's a lot in there. But I will start by saying, when we look at the competitive environment in 5G for us, it's a better environment than we had before in 3G and 4G. If you look from each one of those transitions, there were a larger number of competitors that we have in merchant providers as we go to 3G to 4G. And we look at 5G, the market is kind of more established. So we actually like the competitive environment. And as we think about Qualcomm and 5G, we probably have different drivers of differentiation that we feel pretty good about it. And let me kind of explain that conversation going to the next level of detail. One of the questions, I think, the -- that I would assume a lot of the investors is going to have, with every new technology transition, Qualcomm always benefit from investing early and having a leadership position. And then over time, as you go to that transition and all of the devices in the mobile market, because the mobile market is very competitive, is the consumer electronics industry right now. Every other consumer electronic feature is now integrated into the smartphone. You expect to see higher competition, technology slowdown and you started to see kind of an erosion of value over time. I would like to look what happened in 3G, 4G and tell you about how it's different in 5G. And then I'll elaborate about how we think about specific competition. What is different in 5G right now is the complexity of the standard is much higher and is a standard designed not to serve only mobile, but a lot of other industries. And I think the vectors of competition are different because, first of all, it's a standard design to work across all different spectrums, including very complicated spectrum such as millimeter-wave, and have millimeter-wave plus the new bands and the legacy bands that get converted to 5G all working together. And then you start to have a lot of feature requirements coming to the modem for industrial applications, just we're going to see that with release 16. So first is the technology road map is more complicated and companies like Qualcomm that have a system capability, we see ourselves as a company that creates standards, not only go implement the standards. It's a significant advantage. The second thing is we have -- on the merchant competition. We always have competition. And right now, I will say, MediaTek is a very capable competitor that we've been competing with them in 3G, been competing with them with 4G, expect to competing with them in 5G. But the reality is, we have another dynamic which is the change in the China market, which has been the place where MediaTek has historically been competing with Qualcomm. If you look at what happened to Huawei, Huawei International business, because they're now having access to Google, is creating a lot of growth opportunities for our customers in China to go outside China. And Qualcomm kind of become the belt and road the partner of choice as they go into the sockets that were left behind by Huawei. Those are high in premium. Those are not mid- and low-tiers. And then if you look at our portfolio of products versus MediaTek, we historically -- even with a high competition of 3G and 4G, we always had retained the high-end premium because of our technology capabilities. Those becomes the solution that the China ecosystem wants to use outside China. So that -- we're seeing that, and it's showing in the rates. The growth rates of companies like Xiaomi and Oppo outside China is much higher than within China, and Qualcomm is the solution of choice. So that's kind of different at this time, and we like that trend. The other one is we have now the ability to -- sorry. Sorry about that. The other one that we see and we like is it's a different competition environment because we entered the RF front-end space. And as we entered the RF front-end space, we have been doing modem to antenna system-level differentiation by having a lot more components to differentiate from digital to the antenna and, to some extent, we've actually started to see RF front-end right now being a key differentiation in addition to digital because we can put the 2 together and have a significant feature advantage at the system level, save R&D, faster time to market as well. And then the last one is your question about competition with customers going vertical. And let's -- I always point to our relationship with Samsung as how we think about that. Samsung has been vertical forever. They have their own chipset in 3G. They have their own chipset in 4G, and they have their own chipset in 5G. They actually already launched multiple generations. And if you look at our relationship with Samsung, points to all those things that I told you about the complexity of 5G. We're actually growing even after they were able to commercialize a 5G modem. We just -- this time around, in addition to United States and China and Japan, we also expanded to Korea. Some of the new devices such as the Fold and the Flip, they're using Qualcomm now globally, as well as some of the A series, which is right below the flagship. So that is showing that we're able to compete. We have a vertical solution because of the complexity of 5G and the ability to drive performance. And then the obvious question is about -- everyone asked about is about Apple. I would argue that a company like Samsung have a much better chance of succeed just looking at their assets. They have infrastructure. So they are on the other side of the modem link. They have infrastructure in Japan, those are the markets they have infrastructure, in Korea and in the United States. Those 3 markets, they have infrastructure. They know exactly where the modem features are because it needs to be enabled within their base station. And those are the 3 markets that they chose to use Qualcomm. So -- and the way to think about it, if we can compete with a company like Samsung, which is a very large semiconductor company, a lot of other assets and infrastructure, I think we can compete with any other company that have also desire to go to a vertical approach. The last comment and also long answer is, companies looking into verticalization, they usually do this for cost optimization and BoM optimization purposes, not for a technology leadership. And this is our #1 core competence as modem. I think we're probably the company across the entire industry being more focused on wireless. So as long as technology matters and the road map continues to evolve, we think Qualcomm is going to be in a very good position.

Great. Thanks, Cristiano. A lot of unpacking from those answers. And just to remind people from the audience, feel free to type in questions. We're starting to get some good questions coming in also. But just wanted to focus on Huawei. Great news that in geopolitical U.S.-China tensions that Qualcomm was able to create a long-term licensing update with them or get that deal done. But I'll speed to talk about how HiSilicon's impacted? And what's that doing for your opportunity? Because it sounds like your customers are filling that void, you're gaining share within the Android base. But do you think you can eventually maybe even ship into Huawei down the road?

Yes. That's a very good question. Let me start by answering a question you didn't ask, but I want to use this opportunity to talk about it. It's -- we have been saying all along, and I've been talking about this for probably more than a year now, that Qualcomm, in one way, because of our business model, we're kind of a stabilizing force between the United States and China in the middle of the current tensions. Because if you look at our business model is, we have license of intellectual property. It's not that we have a situation that we have to transfer IP in order to have market access to China. No, we have a licensing program, and we license our IP. So it has the elements of the Phase 1 deal that the United States wanted the respect of intellectual property. The Qualcomm is a great example of that, that the Chinese can also point to. On top of that, it's export of semiconductors from the United States side and allow the China ecosystem to grow as part of their Belt and Road strategy to grow outside China. So if you look at the Qualcomm business model and our engagement, exactly a stabilizing force. And there is no better example that in the middle of the current geopolitics, we're able not only to renew the license agreement of companies like Oppo and Vivo, but actually settle our license with Huawei and completely independent of having any product engagement with them. As we had said over the past several quarters, given the current sanctions, actually, our Huawei business is now negligible, right? So that is clearly an example, I think, of Qualcomm actually have a stable business in China. And then as you think about the growth opportunity, as I mentioned in the prior question, for the China ecosystem to grow outside China, especially because of the things associated with 5G in a lot of the international security conversations and the geopolitics, Qualcomm becomes an ideal partner. So we really like the position we have. So now let's talk about your question, whether we see opportunities for Qualcomm to supply to Huawei. It's -- we had applied for a license. Like many other American companies, we need a license to be able to sell 5G products to Huawei. We have not yet received an answer. So at this point, we continue to work it, but we can't really set any expectations because we don't have a license to sell to Huawei. And I expect, when we look at the -- of the current environment, if a company like HiSilicon, over time, become a merchant provider of semiconductor, it's probably -- it changes more the dynamic of the China market, more for companies like MediaTek than for Qualcomm. Because all of the geopolitics that are being associated with this whole topic positions Qualcomm as actually the company that can serve the global 5G market across all markets, including other industries. So I expect the competition to be probably more intense in China domestic, if that happens.

Great. And one more question on the competitive environment. A question I get a lot, and there's some of the audience here today, is just, you're getting back into Apple after being out for a while. They bought Intel's business. Can you just talk what you can share maybe about how long your multiyear agreement might be? Or if you have a multiyear agreement with Apple? And how difficult would be them to catch up to you in 5G and maybe displace Qualcomm over time?

Okay. So -- and I touched on that briefly, I think, when I gave the example of Samsung. So specifically on -- we're very happy with the relationship right now. I think we'll restore the relationship, the 2 companies working very well together. It's about building the best products we can build together. We've been very clear, this is not a onetime engagement. It's a multiyear agreement. We're not disclosing the duration of the agreement, but it is not a short-term agreement. I think it's consistent with all the agreements we signed with them at the time of the settlement. It's just a long-term relationship. Specifically to your question about Apple developed their own modem. Like I said before, we have -- every OEM that have a large scale, you have the scale to afford the fixed cost and R&D to be able to do it. We've been competing for years with that Intel asset. It changes addresses over time, but we've been competing with that since the Infineon day. So we don't have an issue competing with that. Companies, they usually have the scale to do their own modem. They do it for a cost optimization, a BoM optimization. That's where they look at the advantage. They don't do it for performance or technology. I think if that's the case, we have been proving historically that Qualcomm always have been the first to market with every new features, especially because of our role in standards. And we believe that unlike the other generations of wireless, 5G has a number of features, as you think about its application broadly. Just think, for example, just think, for example, in addition or a faster smartphone and more bands. Some of the use cases that we have been demonstrated, as you think about now the future of the enterprise, think about what's happening working from home, we demonstrated, for example, with a 5G PC that you do on demand computing using the bandwidth and the latency to run things on the cloud that you would otherwise need a workstation to do it. Think about the evolution of the gaming industry into making mainstream game in mobile devices with streaming of data that's going to use a lot of the new features coming for latency and ability to do a lot of the new capabilities bringing the cloud to the device. So all of those things give us a much, much longer road map of features than we saw with the other generations of wireless. And I think we'll continue to be the highest performance provider of 5G. And I don't see how we will have any issue coexisting with an OEM that have a lower cost solution that they do themselves like we had for many, many years at Samsung. And I end this question by saying, Samsung has been developing their own solution. They already launched 5G and we have a vibrant business that is growing, and it's been -- and, I think, a great relationship for Qualcomm.

I want to switch gears a little bit. I remember sitting together at the Analyst Day in November, and Qualcomm shared this ambitious goal to get over 20% share in RF over time. And a lot of investors around me were pretty skeptical, but then you look here at your guidance for the September quarter, your Q4, and I think you guys mentioned that embedded in that guidance is already 750 million in RF relating to 4G and 5G. Can you just talk about the success in RF? Why your customers are choosing you? And how quickly you might hit that 20% share in terms of your growth? It sounds like it could happen as early as next calendar year.

Yes. We're very happy about that. It's one of the fastest growing business, I think, we have at QCT. It's one that I'm personally very proud. It took a lot of work to get to this position and against severe skepticism. And -- but I feel the strategy for Qualcomm worked very well. We kind of prepare ourselves to enter in -- using 5G as an entry point. We -- after we learn our lessons, what it would take to succeed in this business, we did a lot of R&D, a lot -- some organically, some we -- through acquisitions such as the TDK EPCOS. And I think we came out with the solution which is very competitive across a number of fronts. I'll start answering your last question, which is the current designs that we have today will get us to the 20% projection we made at the Analyst Day. So I think -- so we actually will have opportunities if we continue to gain traction to probably see upside. Why are customers choosing our solution? We're competing with multiple vectors of differentiation. Some of it didn't exist in the industry before we're able to create. So I'll start with a very simple one, and I will evolve into some of the more complex. The simple one is when we build our chips and we have a brand-new chip, a brand-new Snapdragon, and we sample it to customers, and then we start developing the software, we develop all the features and we take that globally. That's one of the key, I think, assets of Qualcomm. We take that globally across every carrier, across every infrastructure vendor, and we test it, and then we should provide final commercial software for our customers to develop their product and launch phones. And in the past, the way we do this, we will select which companies will be in the Qualcomm reference design. We will select from other competitors, whether it's Murata, Skyworks, Broadcom, Qorvo, which VA, which fields there will be in reference design. For those companies, it was a big deal to be in the Qualcomm reference design. But now the Qualcomm reference design is done with all Qualcomm components. So when we see SR chip, our customer, if he chooses to use the Qualcomm RF front-end solution, it's already tested, ready to go. So you have a significant time to market and R&D savings. Our customers still have the ability, because it's open interfaces, to design solutions from the competition but then they have to design and they have to test that and validate. So that is one easy to understand vector of differentiation. The second -- and that's because of the channel, the ability to pretest and provide a solution that is ready to be commercialized. The -- and that's -- and if you think about that, it's even more valuable as we think about 5G outside the phones. As you go to some other industries, such as IoT, automotive, the PC industry, that's become an even more valuable asset given the smaller number of units of those devices and their global reach. The second driver of differentiation is we have been creating system-level capabilities that was not -- did not exist before. Those are features. You'll probably hear about us talking about things such as Smart Transmit as an example. So you have features that those features exist because we have a system-level approach. We can get signals from the baseband and we use those signals in real-time to tune the performance on the RF, and we deliver capabilities. In the case of Smart Transmit, you have multiple DBs of advantage. It means, for example, in technologies such as millimeter-wave, the difference of having coverage or no coverage icon in your device. And those have been -- our customer base is finding that extremely valuable as it provides significant and measurable performance advantage. The vector #3 of differentiation is we had invested to compete at the individual component level, independent of the system-level solution. For example, for years, I think we hear from the investors that there was no alternative into performance for technologies such as FBAR. So last year, with our development of our BAW solutions, we achieved parity. This year, with our UltraSAW technology, I think we have been demonstrating to customers and we exceed the performance of FBAR. So in summary, we can compete at the component level, we compete at the system level, and we compete by shortened time to market by providing a test of solution. We're in the RF front-end business to stay, and we expect to continue to be a growth story for Qualcomm.

Great. And Cristiano, just building on that question. Obviously, phone design wins, they take quite a long time, and you've got the designs at hand to get 20%. But if you look at 5G, it seems to me, just given 5G is small in the mix, that your RF content design might be even better than that 20% as you win more relative share to maybe some of the RF competitors. Can you talk about 5G, how that's important in terms of driving share gains? And how important is millimeter-wave rolling out? And maybe you can have a longer answer for you again, maybe also update us on just millimeter-wave rollouts and why that's important for increased content for Qualcomm?

Yes. So I will answer your question, I think, qualitatively because we didn't make a specific disclosure between 4G and 5G. But when we said about 20%, we said of the overall market, including 4G. So it's fair to assume that our share on 5G content, if you measure it that way, is higher. And I think it's fair to assume that if 5G does better as a percentage of total devices than we have forecasted, that's also upside for Qualcomm on the RF front-end as well. So -- and we like what we see in the market, as we talked in the beginning of this conversation, that 5G is really going in the right direction. Then you have a question about millimeter-wave. Look, we had invested in millimeter-wave early. We've been very focused in making sure that, that technology could scale. We're big believers in millimeter-wave. I don't think you can have the full benefits of 5G without millimeter-wave. And millimeter-wave is not a question of if, it's just a question of when. You should assume that every market that has 5G right now will have millimeter-wave. You see auctions taking places. It's -- we had made a statement before that by 2021, you should expect all developed economies will have millimeter-wave commercialized. I think China is thinking about millimeter-wave for the 2022 Olympics, Winter Olympics, which means you have to launch that in 2021. And in millimeter-wave, it's a significant driver of growth in earnings for QCT. We did talk about -- as an example, just trying to give you a metric, we did talk about the 1.5 multiplier for QCT. When you go like-to-like, if you -- regardless what the tier is, if it's premium tier, high-tier, mid-tier, from 4G to 5G, we see a 1.5 multiplier as you get more digital content in value as well as RF front-end. And that assume the current mix that you have of just a few markets of millimeter-wave and the majority of the market was sub-6. If millimeter-wave increases in penetration, that number is much higher than 1.5. Just because in millimeter-wave, there's a lot more content, there's a lot more RF front-end modules, and it's a much more complex design. So -- and we -- as we see millimeter-wave, for example, being auctioned and deployed in markets such as China, we see Japan already launched. Korea is going to launch this year. China could be a big change if that happens within the 2021 time frame. That changes both the competitive dynamic as well as the opportunity for Qualcomm in a very positive way.

Great. And just building on that question in terms of competition, because I agree with you, it does seem like millimeter-wave is getting some good traction out there that should play well to you. How do you see the RF competition, maybe more M&A in the space given the move to 5G? Maybe just talk about that? And then another question I get a lot too to kind of bundle it together is, some major premium tier phones are coming that maybe you don't have RF content today, but how might you get into those given the longer design cycles, particularly with millimeter-wave, more of the mix globally?

Okay. So I think I will say, for the Snapdragon family of products, I think in every one of our designs that has our Snapdragon MSM, we do have 5G RF front-end content. If I understand your question, what I will say is, as we rebuild the relationship, a lot of opportunities exist for us with this large customer in the future. We like the position that we have as a trusted supplier. And as you said correctly, some of those design cycles are much longer. But we definitely see that as opportunities we can explore in the future. As far as when we think about the competitive landscape, look, the technology always evolves. And I'm a big believer in this modem to antenna. I think when you add system-level capabilities to individual components and you can significantly change the performance, the features, and we've seen that with our traction in RF front-end. It may or may not drive changes in the landscape or M&A activities. But independent of that, I think there's a lot of merit in what we're doing, which is the combination of digital and front-end into a single solution.

And then kind of building on that, another question again, which ties to when you answered earlier on this 1.5 multiplier effect. But I think demonstrating that, if you just looked at your March quarter, your revenue per MSM as we track it on Wall Street since you share MSM units in total QCT revenue. That jumped, what, I think, 35% sequentially, and it's staying at strong levels. As automotive come back, other things come into that revenue line on QCT and then you have some new major customers who may not have as much of a solution as some others, how should investors think about that revenue per MSM opportunity either staying at these higher levels, growing or maybe shrinking with some more lower-tier phones coming out over time?

Yes. So I think there's 2 answers there. There's a short term and there's a long term. The short term, if you look at the conversation we just had in the beginning of this meeting, we talked about that we saw weakness in emerging markets, but we saw the rate of recovery in developed regions has been much better. And the mix improved because of the higher component of developed regions. You see more of high and premium tier devices. And I think that's explaining, I think, what you see in the revenue per MSM. If -- when we expect a broader recovery from the pandemic and you started to see growth again in emerging markets, then the lower-tier devices will probably bring some of the revenues per MSM to kind of more normal levels, but the new normal because of the 1.5 multiplier as 5G starts to be a higher percentage of the devices. On that topic, one data point that I gave to you earlier that we saw now, price points of 5G devices in China get close to $200. And it doesn't matter for us, even if it's lower tiers, we have the 1.5 multiplier. As some of those devices enable the transition of emerging markets to 5G, we're going to see that effect as those 4G units get replaced for 5G units, of the 1.5 multiplier. So overall, I think we may have short-term fluctuations because of the pandemic and the fact that the emerging markets are more affected now. But in the long term, it is a positive story in our revenue per MSM because of the 1.5 multiplier, as more of millimeter-wave gets traction in more markets. We know that it's even a better number. And then as you go -- as 5G penetrate into other industries, the computing industries, the automotive industry, the IoT industries, those are very positive, I think, developments for that metric.

That's very helpful. Question from the audience, which I think is an interesting one. Covering you, Qualcomm, all these years when the standard slow down, it allows your competitors to maybe slowly catch up and create some price pressure. Can you just talk about what you see on 5G, when you see it maybe slowing down in terms of the question is more commoditized. But how do you see the 5G standards with a lot going on, creating new technologies to keep Qualcomm's competitive advantage?

Yes. So we do -- and I addressed briefly that question, I think, before in our conversation. We feel much better about 5G, the ability to have a technology road map that keeps moving forward than we saw with 4G. And I think it's better for me to answer that question taking the 30,000 feet view, from a big picture standpoint, how we think about things in Qualcomm. The big transition from 3G to 4G, there were 2 things that happened there. One thing that happened there was you just have now broadband in a device. But once you have broadband, they need to do something with it, so you need to have a computer in your hands. And I think that's what we did. We developed, within the Snapdragon family, a lot of the high-performance computing capabilities for better powered device. And with that, I think you saw what was the revolution that happened in the industry. And even with the high competition that we had as you migrate some of the feature phones to smartphone, remember, for the entry level, the value proposition of having a smartphone was incredible. We have maintained our differentiation in the premium tier. I think Snapdragon has been highly differentiated at the premium tier. We saw a different mix of OEMs, we saw the market probably put pressure given that you have Huawei being vertical, you had Samsung being vertical at the tailwind at the 4G, and then you have high competition in China. But Qualcomm had maintained a highly differentiated solution. What we see now in 5G, it's a little -- when you go a lot of the big trends, is you could have the next sets of spatial or computing platforms because you can connect everything to the cloud. So like the smartphone transition, we're going to see over the next 5 years, okay, unlike a situation you saw that you'll get an asymptote and it drives towards commoditization. You're going to see over the next 5 years new devices coming in, such as 5G-connected augmented reality glasses that we started to see. Finally, some of those new things are getting ready to get escape velocity, and that will be the other device in addition to the smartphone. You're going to see new use cases as you bring the cloud to the device and you started to see mainstream gaming, productivity applications. And then you're going to have requirements that are coming from other industries such as, for example, the industrial and enterprise digital transformation. So those things are very different than we saw in 4G. I know we have said we had a very, very ambitious statements that 5G will be the future of the Internet. And I think that allows Qualcomm to basically use our strengths and keep the technology leadership ahead of our competitor. So it is different. We feel pretty good about what's happened with 5G right now, and we have a very long runway.

Great. That's helpful. And Cristiano, lots of investment going on in Qualcomm. You've RF now ramping. You're getting back into Apple, so the MSM unit should go up nicely just by getting into that large OEM again. 5G is ramping. So as all these revenue inputs are going into the model and the business starts to scale, a lot of this R&D has probably been done in advance. So how should investors see that maybe flow through to longer-term EBT margins for QCT?

Look, this is a great question and, I think, one that we can remain, I think, consistent in our answer. When we look -- when our -- compared to our peers in mobile, and I think there's a -- you can look at peers within the semi industry, but most of our business right now is in mobile. And look at our peers in mobile. I think we're doing better than our peers. Like I said before, we may had a scale issue at the very end of 4G just because of companies like Huawei that was highly integrated. Maybe it's a different landscape right now going forward. But where we are right now, we executed successfully on a strategy to also diversified away from mobile growing to other adjacent business as well. Those are all accretive to QCT, and we've been building more value with both digital and RF. So we kind of -- what we said in the Analyst Day where we stated we see how we're going to get to the long-term operating target of QCT, which is above 20%. We're not going to set a specific projection of the time frame, but if you just look at the results right now, we feel good about being able to get there. And the company is -- you're correct, is going to get more scale, it's going to get more leverage on the R&D. And that momentum continues as 5G penetrates into other industries as those are highly accretive to the QCT margins as well.

Great. That's very helpful. A lot of questions coming in. Obviously, there's some good news this week with the Ninth Circuit Court ruling. Can you just talk maybe about the licensing business? Because that's been an area of concern for investors over the years. But just this last quarter, you got a deal done with Huawei in a tough political environment, and you've seen deals with most leading OEMs. What does this news yesterday mean for you? And can you just talk about overall how you're feeling about the licensing business?

Yes. It's -- look, it's the most stable, I think, time we have seen for the licensing business. We're very happy about where we are in QTL. We have licensed all the major OEMs in the industry. We had resolved a dispute with Huawei. And then the Ninth Circuit decision, which is a major victory, it basically clearly identify the licensing business model. It's in our practice are valid, it kind of -- it's a full reversal of the prior, I think, district court order. We're very happy about that. And I think what I can tell you is it's a very stable time for a licensing business. It's a major creation of value for Qualcomm, continues to feed our ability to create inventions in that space. And let's not forget that it's stable in China. It's not a small thing to get in the middle of all the geopolitics, all of the things that are happening with Huawei to be able to resolve the license and actually get paid for intellectual property for the Huawei business, especially in domestic China. So we're very happy about that. I think investors are probably seeing it's a stable time for their licensing business right now.

Good to see. I agree. It's lots of ups and downs with the licensing, but it certainly seems stable. And just to kind of nail this point home, just can you talk maybe about the top OEMs, how recent you've reached deals with them and if there's any up for renewal in the next couple of years? Because that's always an area investors asking me about.

We're not providing, I think, any disclosures on the individual agreements. But I think we have been consistent, a lot of those -- the licensing agreements are multiyear, long-term agreements that we have in place. And as I said before, I think it's a time like we have not had -- and we always had disputes, this is a time like we have not had in a long time with all the major OEMs are our license with long-term agreements.

Great. Just a follow-up question for you. If you look at your business, a lot of focus, rightfully so, is on the smartphone side. But if you look at QCT with 5G coming, maybe you can share with investors, what are some of the use cases we're not thinking about or some of the technologies that you and the Qualcomm team are excited about in terms of just, wow, this is a great new 5G opportunity plus? And then also what could be meaningful for the model over time?

That's a very good question. I'll do my best to be succinct. I can talk about that all day. So -- and I'd like to break that down into consumer and enterprise. Because I think one of the probably least understood opportunities of 5G and what it actually does within the enterprise or whatever the future of the enterprise is post-pandemic, right? So let me just start with the consumer. We have always said that one of the key attributes of 5G, the easiest, easiest one to understand, is that we'll do to video what 4G did to music. Like music right now, there is -- no matter what, it's streaming. There is -- everything other than streaming is now legacy or vintage. So the music, no matter what condition you have in 4G, even if you have a weak signal, it's good enough for you to stream music. That's going to happen with distribution of video, in the ability of users to generate content. What we see in this pandemic right now, things that is changing the nature of video. What I'm doing with you right now, I'm actually streaming video. I'm doing user-generated content. So I think what the transformation that 5G will have in general consumption of video, it's going to be very pervasive. And as you get coverage, that's going to be the difference that consumers will see between 4G and 5G. The second one, just building on the crescendo, is what's going to do, also thinking consumer with the gaming industry. I think you can already see, for example, just look at the Microsoft xCloud. They have some users on beta that you can play mainstream games from the cloud on a mobile device. So you can basically make a premium smartphone your own Nintendo Switch. So that's -- and that's with mainstream titles because they're all in the cloud. That's a transformation of a gaming industry that is yet going to go to this trend of adding capabilities to your phone, and that's going to be enabled by 5G. But now those are some example consumers. The next step will be as devices change and you have companion devices such as augmented reality glasses. I think we invested early, we have every single design today that matters across AR and VR with Snapdragon because we believe that's going to -- that eventually is going to get escape velocity, will ignite the developer ecosystem. And you'll be able to do it. It would create a major market. It is no longer a technology issue to have a device like this with cameras connected 5G to the cloud, that you can do face recognition and you go to the social network and get information overlaid to you. So we're going to see that as significantly changed. The one that I like the most is enterprise. And that's -- I'll make a bold statement. If you believe, as an investor, which I think you should, we do. If you believe in the future of the enterprise cloud, which is driving a lot of growth in valuation in Microsoft, then for that to happen, you need a 5G device on the other end. Just think about what's happening right now with the home. The home right now is becoming an extension of the office. So if you look at what happened is over 75%, if not higher, of all the workloads on the PC now are cloud-based. If you don't get access to your documents in your office, you're going to use them on One Drive and then you need very high bandwidth and low latency for you to, instead of having a hard drive, focus on all the data on the storage. You need a very fast uplink versus the asymmetric data that you have on the Internet. You have the ability to do on-demand computing because you're now going to have access to a workstation. And then on top of all of that, you've started to change the nature of the devices and bring productivity to mobile devices as well. So all those things are going to drive a lot of new use cases on productivity in enterprise like we have not seen before, and that's going to be a very good story, I think, for Qualcomm and for the 5G momentum.

Great. And just in the shorter term, with 5G starting to roll out and we're all displaced now, can you just talk about the broadband consumer opportunity and the networking opportunity? It just seems like there's a lot more remote connectivity, and there's going to be -- I see it from some of my other companies, there's just big demands for whether it's hotspots or new fixed wireless solutions?

Yes. Right now, in general, what we see during the pandemic are the demand for 5G mobile broadband as well as even our Wi-Fi 6 systems, demand is way higher than we had forecasted. And I believe there's going to be a very big business that we can create with 5G mobile broadband. We did not have in any other generation of wireless really a solution that could compete or augment fiber or coax for broadband, but you can do it with 5G. And even with technology such as millimeter-wave, combining the millimeter-wave all the way to the home and use Wi-Fi to take that -- Wi-Fi mesh to take that through the walls inside the home, we see opportunities right now. So we're actually seeing that across the globe, within United States and Europe, even in highly mature fiber markets such as Japan and Korea, we're seeing demand for mobile broadband. I think 5G, for the first time, will be a tool used by wireline carriers for broadband. The pandemic brought a much higher demand to upgrade Internet to higher speeds. And we expect that to be a fast-growing business for Qualcomm.

Great. I'm getting the less than a minute warning here. So I want to thank everybody for the great questions coming in. And Cristiano, I can talk to you for hours, so I appreciate your time. The time flew by. Maybe just give you the final word here. Any final thoughts for investors on the Qualcomm investment case.

Yes. Look, I know that we had a couple of years that -- with a lot of, I think, external factors. But I think the good thing, and we're very -- I think we're very proud of the Qualcomm team. I think in the middle of all of this, we're able to get the fundamentals right. We invested in the right technologies, we positioned the company for growth. We address the concerns that existed with concentration and all the risks, geopolitics and verticalization, by building business in the automotive sector, in the IoT sector, that they're all growing, going to RF. I think the company now is probably in one of the most stable times that it had in a very long time. And we believe that 5G, because of its broader reach across industries, is probably going to be one of the biggest opportunities in the history of this company. That's why we honestly believe that some of the best days of Qualcomm is still ahead, especially as we continue to build on the 5G momentum to expand Qualcomm across many different industries.

Okay. Well Cristiano, best to you and everyone at Qualcomm, and thank you for your time today. Thanks, everybody.

Thank you so much. Appreciate it.