QUALCOMM Incorporated (QCOM) Earnings Call Transcript & Summary

One thing that is really exciting for Qualcomm, in this one, I'm going to say, gen AI is exactly a tailwind, right? We put ourselves in a mission, in a partnership with Microsoft, to build next-generation PCs. Think about the conversions between mobile and PC. Think about what users want in their PC. They want more mobility. They want a device that is faster, it has more battery life. . And that was the mission on Snapdragon X Elite, including us developing our own CPU, which is the Oryon CPU. And we were on a mission to build the fastest processor for any PC. That was the role of X Elite, and we delivered. We announced that last year at the Tech Summit, and it was -- the performance was incredible. X Elite exceeded our expectations because on the CPU alone, it was faster than anything out there, of any processor for any laptop. But the good thing is that happened at the same time that Gen AI is coming to the devices. And I think that's an incredible tailwind because if you think about the Copilot, we can run the Copilot into the device. The device has an incredible performance separate on AI. We're talking about 75 tops tera operations per second of AI computation. And you can run those things across every app. So I think as Windows change to an AI and a Copilot experience, X Elite is the platform that is going to take that next-generation Windows experience to consumers. And that's a growth opportunity for Qualcomm.

The challenges that your engineers face -- okay, I've been in San Diego at Qualcomm's headquarters, and you guys have lots of really smart people fanning out. But bringing it back to when ChatGPT came out, I mean, what were the conversations about? "Guys, we got to get on this. We've got to hammer more transistors onto each tiny silicon chip." What challenges did they face in getting up to hyper speed?

Yes. It was a combination of two things. The first reaction was, "Wow, finally, this engine that we built, we have an incredible application for it, and we were on the right track." The second thing is...

Were you ahead?

Yes. Because I think it was very innovative to build that type of computation to a device that was battery powered, not in the cloud. The second reaction is how do we get those models ported into the device as fast as we can possibly can. It has been in the last quarter a mad rush. Just to give you a perspective, you talked about ChatGPT, and there are a number of models, also open source models, there's Llama from Meta, right now, we have over 40 different models ported into the Snapdragon. And I think that's been an incredible amount of work over the past 3 months to get this ready. So applications can come to life in new products launching this year.

You referenced cars. We just came from the West Hall. I don't know if you guys have been over there, but it's basically the Detroit Auto Show on steroids. The CES show has become the auto show. It's a de facto auto show at this point. And it's fascinating to see because I can remember being here many years ago, this is my, I don't know, 17th year, and Alan Mulally of Ford was the first auto CEO to be invited and he stood outside, they had a car outside, it wasn't even inside, and they were talking about sync, which back then was sort of that first "get in the car, oh, it knows it's your phone" and here we go. We've come so far from there. Let's talk about the digital cockpit. And when you think about consumer electronics, the car is the most expensive one most of us have.

Yes. Look, I love to talk about cars. And I think CES, to a great extent, it's a car show, among other things. And I can spend a lot of time talking about it because there's fundamentally one thing that is different now. And I think that -- I look at that as the foundation of many of the things we're doing with the Snapdragon digital cockpit and in some of the rapid success we had in automotive. A car is a new computing space. That's probably the best way I can describe it. You have your phone. In the phone, you do a lot of things. It's a separable device. You have your laptop. Laptops didn't go anywhere. They continue to exist. They will continue to exist. You have some cases you got your desktop. Desktop is still there. It didn't get replaced by the laptop. But now you also have the car. The car is a computing platform. If you look what people are doing in their cars and why we see those immersive screens that were enabling digital cockpit, you're getting entertained in your car. You have productivity in your car. You're communicating with people in a car, so it became a new computing space. And so much so that like you'll see many companies, one of their applications and services going into the, "I need to be in the Windows PC. I need to be in the phone." You see they're going to the car. Like a great example, we had a great partnership, we have a number of examples at the show with Salesforce, that Salesforce embedded into the Snapdragon digital cockpit. So you can do CRM from the car. You can schedule different things from the car. We have insurance companies who want to embed their services into the car. You have distribution of television content, so gaming. So the car is a new computing space, and that is a revolution that's created a huge opportunity for the car companies and Qualcomm's role to provide that digital engine.

I have never seen the car people here at CES so excited. We just talked to Dimitris Psillakis of Mercedes. He was vibrating. I mean he was so thrilled. And I know it wasn't just because he was just getting interviewed by me, but I thought it was really fascinating to see how the sort of levitation of all that is going on in the car now technologically, but the generative AI aspect of it takes it to a whole new level. Does it not?

Absolutely. Look, we talked about it in some of the videos, I think we showed, talked about the gen AI providing some experience in the phone. In the car, it's a little different. One thing, you look at those large language models. I personally think the car is an incredible use case of how we can use voice. Because when you are behind the wheel, voice and visualization become very, very important ways for you to communicate with the car. And what Gen AI is doing with the car right now is actually creating an opportunity that you actually have a conversation with the car. So we have a demo, the concept car. You were there in San Diego when we first unveiled that. We have a demo. And the demo shows something that we call the intelligence service manual in the car. So a light blinked up, you asked the car, "What is this light? Why is it blinking?" So the car knowing -- think about a ChatGPT like -- know the information from the carmaker who will tell you, "This is what it is. This is the reason this light is on. This is what's causing it. Here's how you're going to repair it." And then we even ask you, "Do you want me to schedule a repair for you," and, using Salesforce, integrating with some of the dealership, it will say, "Those are the slots available." The same thing, you can ask your car to plan things for you. It's like a large language model, so like doing a chat query, but you're now chatting your car. And we're going to get to the point fairly very soon that things that used to be -- one of my favorite shows in the '80s, Knight Rider, that you can talk to your car, I think that's possible right now and it's just -- as those things continue to develop.

Yes, it's definitely happening. In fact, one of the things that we saw with Mercedes was it has synced the music to the way the car drives. So if you have your favorite song on, let's just say, the Eagle's Life in the Fast Lane, it will speed up a little bit when the music is faster and then slow down -- of course, it must know that there's somebody in front of you, so it doesn't just hit it. But it's really the future is now, and it's happening at light speed, which I think is truly fascinating. I need to know what scares you. What scares you about all of this development? There's an arms race, People are running over each other to try and beat the other guy in developing this stuff. What's the cost that you worry about?

Look, let me maybe give you a Qualcomm answer. For us, this is exciting because I will say, in this space, we are the underdog, right? This is all growth opportunity for Qualcomm. I think you said it correctly. I think we have been well known for what we have done and continue to do in the mobile industry. But we're really changing the company from a wireless communication company to a connected processor and artificial intelligence company. So for us, this is all new growth opportunities. And I think it started to show based on what inroads we made in automotive, the inroads we're making in the PC. And what is good for Qualcomm is our mobile DNA. Because our mobile DNA, the mobile creates a very difficult engineering environment. If you're designing chips, the mobile gives you a couple of constraints. The size is very small. The battery is small. It has to last the whole day. It can't be hot because it's going to touch your face, and you need to increase generation upon generation the computing power. And when we take this to other industries, I think it gives us an advantage. So we're actually excited about the opportunity.

Let's talk about how Qualcomm envisions that relationship between AI and augmented and virtual reality. The headsets are a big, big topic of conversation and a big trend here on the floor at CES. What are the possibilities? We talked to HTC VIVE, and they're already moving into big enterprise usage of their headset. And I just thought it was really interesting, firefighters are training with them. You can feel the heat. They have sensors on you. So you can be pushed back by fire when you're training versus actually having to burn down a whole building. If you know anything about firefighting, they have to subject themselves to that. That's a $300,000 set that they have to build and then burn down. What do you envision there, both for the consumer and for the enterprise opportunity?

Yes. Spatial computing, it's going to be another computing platform that is going to eventually get a lot of scale. And those devices that we have been helping build, they're becoming more affordable, they're becoming smaller, they're becoming more capable. And the simple thing, I think we use this way to describe it, which is, how do you merge the physical world and the virtual world together. And it's going to have a number of applications. For example, I like what you said about enterprise. We're starting to see now -- we started with consumers. We have great partner into Meta with their Quest devices. You see a lot of consumer, consumer gaming. But now you see some of the use cases of enterprise, how you train people, how you enable to be fully immersed into that digital environment, how you're going to evolve communications. The communication that we have been -- we started talking on the phone like this, then we're texting each other, then we learn to hold and have a video call. It's going to be a hologram as you think about the future because you're just going to use those augmented reality glasses and mixed reality. So that's a huge potential. We have been partnering with virtually every company right now. You see what Meta is doing. Google and Samsung is coming next. Sony announced a device. I think Lenovo is building enterprise devices for some of their enterprise customers. HTC VIVE, you saw some of the use cases. I think there's great opportunity. It's just a matter of time.

Is your phone ringing off the hook with all of these guys calling you and saying, "Quick, make a chip for this."

We're very fortunate. I think I have a number of partners out there right now. I'm so glad -- the phone was off the hook when we had the supply shortage right now. I'm so glad that it's behind us and we're just...

Totally behind you? You don't see any shortage anymore?

100% behind us right now. I've been careful, I think, when I say, but the phone market right now, I think it's getting back to normalization. And we're excited about the growth that's starting to show in all those different vectors.

What you just articulated to me brings up this question, as we finish up, Cristiano, will AI eventually create a way, whether it's through holograms or something entirely different that we haven't even envisioned in this room yet, will it eventually kill the smartphone?

I don't think so. I think what is happening -- and that's a big topic of conversation. I wish we had more time.

We got 44 seconds, keep going.

What AI is doing is really merging the smartphone in the cloud, and it's changing how you think about the computing platform. I'll give you an example. Many people use different ways to describe it. They talk about disaggregation. But I think the way to describe it is, let's say that the AI know that based on your calendar, based on the fact that you drop your car at a service and you need to go somewhere, the AI know that it needs to call an Uber for you. And AI will say, "Liz, do you want me to call an Uber for you? I already know from this place at that time to that at that time." And you're going to say, "Yes." Well, at that time, the AI could do one or two things. It could go to the Uber app in your phone and call an Uber for you or it could just go to Uber straight into the cloud and call an Uber for you. It doesn't matter. So what's going to happen now, the phone is going to have a different role that not only is it going to be like what it used to do, which is the phone is good for all the apps that you have on your phone, but also the phone is going to be communicating with the apps in the cloud, so it's going to have a big augmentation. So the phone is not going anywhere, but it's going to get enhanced by AI. It's going to be getting enhanced by the glasses you're going to use it, the same way that's got enhanced by the watch that you use and it's going to get enhanced by what you're going to be doing on the PC.

Cristiano Amon of Qualcomm, we thank you. We wanted to pull all this out of you, and you've done it in a very short period of time for an audience that is incredibly motivated to hear exactly what you foresee in the future for Qualcomm and everything it can do for gen AI. Thank you so much.

Thank you, Liz.

Terrific stuff. Thank you so much.

That was so great. Thank you, Cristiano and Liz.