QUALCOMM Incorporated ($QCOM)

Good afternoon. Thank you all for coming. I'm Stacy Rasgon. I'm Bernstein's senior research analyst for U.S. semiconductors and semiconductor capital equipment. And it is my honor to welcome our guests here today. Chris John Amon, the President and CEO of Qualcomm. .

Now I always say that Chris has been here for many years. I always say here, Qualcomm as a company on the stock has been through a lot of the last 5 or 10 years. But I think now sitting where we are today, it really looks to be coming to its own, especially recently. And, as we know, the biggest part of the business, a we'll talk a little bit about that. But I mean, the fruits of the company's diversification strategy really do look like they may not be ripening with auto and IoT and now potentially as AI goes mainstream, data center excitement. Even the handset piece, we'll see what it does in the near term, but it may have its own moment if and when AI broadly moves to the edge. So we'll talk about that and probably many other things today. It gives me a great pleasure welcome Christiana. -- thank you so much for joining us.

Thank you. Thank you so much.

You don't have like a safe harbor statement or anything the... Thank you very much. And again, I've been looking forward to this. Thank you so much for coming. We will get to the data center and diversification stuff. I think I want to spend most of my time there. But I think I do need to talk a little bit about the other businesses today. And I mean my own view, handsets are probably not in such a great place given memory prices, although I think you guys have tried to incorporate that into the forward outlook. In the meantime, though, I mean, IoT is recovering pretty well and automotive seems to be cruising along. And I guess maybe -- just to give you just an opportunity just to discuss sort of the recent results in the till, I don't want to spend a ton time on it, but just where are we sitting as we are like standing today, both for the existing business as well as maybe where the future may be taking us like just given where we're seeing , what are you seeing?

Yes. Look, I think what we said on the handsets, we -- hence, it's kind of a stable business for Quam. It is -- we have been very, very focused. I remember when I outlined our strategy for handset that was kind of back in 2021 that we have on Investor Day, and we said we're just going to be focused on share of wallet. It's a market that it's going to -- it's stable. We grow single digit. I think we haven't still recovered in terms of total units. It used to be before the pandemic. But if you look at our performance has been great. We've been growing content. I think we've been growing the mix has improved. I think we've been growing share. And I think that's kind of what we think about the business. We significantly improved the operating margin. Nobody was interested not even ourselves and this whole price war that happened in the...

Yes, we've seen those in the past. we didn't really...

We have a completely different strategy in 201, focus on the premium and high tier and focus on silicon content. Now -- what the handset is right now, it is artificially constrained by the memory situation. It's artificially. I think we -- we have seen data points showing about the market was down like 15% year-over-year. It is not a statement of demand. And a Qualcomm specific, I think, commentary that we provided in the last earnings call, which is we can now see the bottom in Q3. And the reason we can see the bottom is because we're significantly under shipping...

Not necessarily a bottom in the market. It's a bottom in your...

We are significantly under-shipping to consumer demand. As you know, we have -- we have a sophisticated licensing business, and we have a lot of visibility on the channel. We have visibility and activations and what happens. So we can see, even with the new prices, the prices became hire for devices. We undership into market demand that give us confidence we're going to see kind of sequential improvement after -- and the magnitude of the market, I think, on handsets, is going to go back to a larger once the member situation gets resolved, and you go through the shift that we're starting to see right now that is happening on the market because of happy to elaborate on that. . We'll get there. But that's kind of the 2 things is going to drive the handset business. We're very happy with our position. I think we had Historically, we had on the Samsung about 50% share. Our baseline now is north share. And I think Snapdragon has become even more relevant when you have a smaller market. I think what we have seen from our customer base is for the high tier, the premium tier, -- then if I have to design for a smaller market, I want to make sure I design Snapdragon. So we're seeing that dynamic play out. IoT, happy with the trajectory. I think a very diversified business for us. There's a lot of categories happy to elaborate what's inside. And then automotive is this machine that we built. We talk about a $45 billion pipeline. We've been executing to that. And I think it's even exceeding our own expectations how well it's performing. I think we're just talk about now ending the year like a $6 billion run rate. Very comfortable when you look at our trajectory...

i can't remember what the target was....

We're very, very comfortable with that number.

Got it. So maybe that's just a good segue into this broader diversification story. So I mean, it was I can't remember the numbers say today, handset is probably still 70% or 75% of the chipset business...

It's smaller now. Memory has helped accelerate diversification.

But maybe talk a little bit about that diversification guest it's not like the handset position that you had has not helped feed into that, especially in areas like IoT and auto, where I do think there was a lot of like cross-talk between the businesses. But maybe just talk a little bit about the diversification strategy, sort of like what set it off and where are you now? And then we can start to maybe talk about some of the individual businesses within there...

So I think before I answer the question, the say, I'm going to go maybe give you 2 comments, like higher-level comments. I think 1 is we are incredibly blessed that we have the handset business. The handset business has proven to be an incredible business. First, from an engineering standpoint, -- the handset is incredibly unforgiven. You have to pack -- especially if you're focused on premium tier, you have to pack the computing performance you'll find today in PCs into -- and a lot of AI into a small device that has to manage terminals cannot get liquid cool, cannot get hot. The battery has to less all day. So it forces you to create a very comprehensive IP that has proven to be incredibly valuable as we diversify the company. And I gave us -- and I think you have seen that they have seen -- even when you look at Apple, for example, they're -- how handset had influenced their computing strategy from the NEO to the MCi, et cetera. So I think that is an incredible asset that we have on a company from a technology standpoint. The other thing is the handset becomes so concentrated as an industry. that I decided when he became CEO, I'm going to do the opposite. I'm going to diversify coat the math. And that's what we're doing right now. We're doing a lot of things in parallel because we're never going to see ourselves in a position, again, that is highly concentrated like that. And I think the strategy is working very well. I think the way -- the way we have done that. We have done with a mission with discipline. I think people can say a lot of things about Qualcomm. -- our technology and engineering and execution, I don't think there's anything that people can say about our ability to execute. So first, we built a platform for the automotive. We saw there was an industry that we could be very disruptive. Then we look at the convergence between PC and mobile. So this is a more scale for IP, become accretive to the business. We've been executing that. We saw that there was an opportunity to drive a change in Industrial. Industrial was about microcontroller and connectivity and we changed a high-performance compute and AI at the edge. We have built what we think it's going to be a very important asset for the future of mobile platforms with AI. We'll talk about that later. That's what we call the personal AI category. And then we have been executing on our broadband business, continue to add assets, robotics, and then the next step will be the data center. So I think our -- by design, we said we're going to create a very diversified company. We're probably going to be very unique in having IP that goes from sub 2 milliwatts on a year but to 2,000 watts on a data center. And I think the strategy is going well. We talk about $22 billion on non-handset and by fiscal '29 not including data center. We stand behind that number. And we're very happy to see how some of those businesses are performing right now.

And to give you a plug, you have an Analyst Day on June 24, where Yes. I presume we'll get some updates to some of these numbers and some I would think...

I think you'll get a lot of details, especially a lot of details on what we're doing in data center. I think people will be very positively surprised and please reserve a seat.

Okay. Let's talk about data center. So you've talked about data center before, different aspects of and there's a few pieces that I'm aware of, so you can correct me, but we have the data center CPU and you've announced something already with Human although I don't know that we've seen much in terms of actual revenue yet, but that's out there. You've sold AI accelerators for a while, several years this AI 100, which was an initial product, but now we're talking rack, so AI 200 and AI 250. I recall a 200-megawatt deal with Human that has been announced, although again, I think we're still waiting for it to show up. And then you announced a hyperscale ASIC customer on the earnings call, which have been speculated and you confirmed that, and there's been some chatter in the press on the identity of -- I don't know if you want to comment there or not, but I guess, first of all, maybe to take those 1 at a time, maybe just [Audio Gap] maybe you can talk to us if you would like to. But I'm curious -- and this almost goes across all the different categories, what is Qualcomm's value proposition maybe to start with CPUs. What is it about it that would make a customer want to buy a Qualcomm CPU for these tests or for whatever testis for versus something else is available because to be fair, there are lots of other vendors that are already there are already established and scaled in that space. So what is it about Qualcomm that enables you to win in this market.

Okay. So a lot to unpack there. So let me similar questions about the other pieces by the way. No, okay. So let me -- I'm going to give you as much as I can. Without front-running our Investor Day. -- to front run -- But there's a lot to act. There's a lot to impact. So first, I'm going to recap what we have said publicly. -- just to make sure because there's a lot of different information. We said publicly that we saw this as a data center now the next step and natural expansion is a massive TAM for Qualcomm and especially that our IP very relevant for that, especially the direction of traffic that data center was going. -- said our data center strategy is going to be based on a number of factors. CPUs. We'll talk about that in a second. . [indiscernible], which is inference accelerator. We're not focused on training. We're focused on infant accelerator. We had unique architecture, including how we think about memory, would 1 we have an XPU, and we have an incredibly large semiconductor machine. Most people don't know that we ship about 40 billion components a year that we're going to be able to do customizing. The other thing we said is a lot of those markets are becoming a bespoke market. So we're very flexible. We're in a new entry. So those are the assets. What have we announced. The very first contract was the contract with you main is actually not on the CPU. It's actually on the XPU has done accelerators. And we...

So if you came first, but maybe I'm you would know better than me... .

And we're very happy that has been a process. I think we're now -- we started with the AI 100, but that's not -- the real scale is the 2020 I think we're on track on the execution. We're very happy with that. That's the very first one. have a shipment date for that -- so when that happens, we did say that we pull in when they announce your main wood data center would start having revenue in 28 in fiscal '20, we're pull into 27. The second thing that we said, we said we were very happy with the progress of our CPU with a U.S. hyperscaler. And we're very happy with that. And I think that it's how we get started. And then given the traction that we have now with custom ASIC, we pull in now revenue that was supposed to be in fiscal '27. We said we're going to even see shipments within this calendar year. So that's what we said -- for the ASIC for the ASC. So that's what we said publicly. Now I'm going to answer your question one. The first 1 was on the CPU. Look, I think if you want to support, I think, the valuation that you probably see right now, companies I can tell, I think people realize that CPUs are very important, especially when you get mix of experts, you have orchestrated a CPU, I think it's going to be a big asset when you think about the TAM. We have a pretty good CPU. I'll even say I probably when you think about the ARM-compatible insertion set, we probably have 1 of the best CPUs in the industry, right?

Is that performance? Is it power? Is it TCO?

All of it. And a little bit of a track record, right? So we're the first 1 to put a 5 gigahertz CPU clocked own a smartphone. We did that. I think you saw what we did in PCs -- we also have our CPU with safety grade in automotive and the Snapdragon right elicit, I think it's been second to none. So all of those markets, our CPU has been the test and benchmarks, and we had designed a CPU specifically for the data center. Very flexible architecture. It scales in the number of core to a very big data center, all the way to on-prem. And it's going to be -- this conversation is going to be relevant future 6G networks. And it also can be a chiplet that can be part of a custom design. So that's -- I think the reason you should look at -- welcome for the CPU is CPU performance power consumption in TCO will matter a lot. And I think we have an asset that's been proven in at least 3 other markets.

Got it. Got it. What about the racks, the $200 million and the $250 million. You mentioned some unique memory architecture. I mean is that the value proposition of that ramp?

So the value proposition of our NPU, well, I think the industry has been talking about XPUs and they have a lot of those, and they have different customizations. I think you have to look at what is happening with the data center right now. The data center is going to a process of disaggregated computes. And let me take a minute to explain this because this is exactly -- I go back to what I said. This is actually very familiar to Qualcomm. The smartphone is the most disaggregated compute ever because there's -- I like to tell this story because it's a very simple example. . When iTunes started everybody buying their iPods and people will go -- have an iTunes running on your PC whole MP3 code happened on the CPO and Intel. Intel architecture has always been speed of everything. You can never do that on the phone. You have to have a separate hardware just to accelerate MP3. So the data center is going into that disaggregation. You started to see what it used to be 1 GPU from NVIDIA for training and inference. Now you start to have a different solution for inference. Now inference for the disaggregating prefuel and decode. So we're building the XPU that is going to be very good and efficient in terms of compute density and power for inference, some of those disaggregating workloads. We also have something that is very unique. We don't need a -- we have a different memory architecture. I think we're going to talk a the memory ...

Can you get the memory? .

We're very, very confident about the ability to get memory for engagements right now. And then the other thing I'm going to tell you is we're flexible. So we're building -- we're building the chip, we're building the cards. We're building the servers, we're building the racks because different type of customers who want different type of deployments. There is a value, I think, of at the system level. We can tap into the ecosystem that already exists for that. And so those are all options of our solution on the accelerator. And happy to talk about the custom...

Yes. Okay. So the customer -- so part of this is you recently bought Alphawave and that brings a number of components that I think are sort of table stakes for that, you have SerDes and other things. Now Alphawave used to talk about their own ASIC engagements -- this particular I just want to love it, this is not something that was acquired with Alpha Wave. This was something that...

Will not get away paying $2.5 billion...

I get the question. So I just wanted to put it out there. Is there anything you can tell us about this as, do we have to wait a few weeks...

So here's -- so there is a science. I think there's science behind amends in Qualcomm, especially when I look at M&A, I'm going to give you a couple of examples, right? I think -- we bought a river. We actually had to do a Ganastic. So we bought a Tier 1 Veoneer, got a river, spin out -- we bought arriver because it was an important asset to complement everything else we're doing for automotive and help us complete the platform. I think we bought NUVIA. -- didn't help us accelerate our efforts on design or CPU, combine everything else we had and we entered in some of those markets. . We bought Alpha Wave because it provided a lot of IP that we needed, a lot of the connectivity IP, a lot of the expertise in custom combined to the -- what we had in engagement and then allow us to go. That's why we think we're very focused and consistently said, now with series about data center, we're missing some assets we're going to go buy alfa and we're going to complement the platform. I think what that happens, there are 2 things that happen with the acquisition of Alpha Wave. One, it complements our portfolio. Second, you build a lot of confidence, I think. Then what do we bring to the table customer? We're not a small semiconductor company. There's a lot of companies that decided to enter the semiconductor business. They probably have not a lot of experience doing a chip. -- have a lot of experience doing the ship. If you look at the number of chips that we do in leading node, we also have such a sophisticated -- and I'm going to say this, I don't want to break. I'm just going to give you the fact. We'll have a such a sophisticated machine to build SoCs. For example, what we do in mobile like clockwork on Snapdragon 8 every year. We taped out a chip on a new node. When TSMC finishes the mask, we go to production. We don't even have to get the chip back, how sophisticated our tools is. All of those things become incredibly attractive. I think, for companies, they're trying to do bespoke solution. So it's our IP, a lot of the IP that comes off of wave, our ability to do this and our willingness to be very flexible this has been incredibly helpful and kind of accelerate our data center ambitions. .

Got it. And so you've talked about -- I'm assuming we'll hear more about the revenue outlook and everything to grow that like in June but you've talked about like I can't remember working substantial or meaningful revenue -- Material revenue in '27. Yes. What does material mean? .

Well, just look at the Qualcomm revenue scale material has to be in the multiple billions that's really what it means. .

Okay. And what about the margin structure of these? I mean we're seeing a lot of other ASIC play. I mean, Hackoverthere Broadcom gets pretty high margins in ASCs. A lot of other players don't quite get that kind of margin. How should we think about the margin -- and to be there, I guess, your margins right now are more mobile-related anyway, so they're probably not as high as I mean can we think about this as being margin -- gross margin or operating margin accretive?

Operating margin accretive -- It is -- all of those things that we're doing are going to be operating margin credit for the company.

Okay. What about gross margin? .

Well, see, I think we did provide a framework, I believe, for the gross margin of the company. The reason I'm going to hesitate about gross margin right now is because a lot of those engagements -- some more chips, some are cards, some are servers, some are rec. So they kind of fluctuate. But I think it's going to be probably very healthy, and it's going to be about making operating margin accretive at the company level.

And the material revenue, that's across all of these things. It's not like it's CPUs and ex-fuseand ASICs collectively material. .

That's correct. I think they all start ramping, but is such that we -- like I said, we're going to pull in. So we're going to start shipping in the calendar year 2016, 2017, it becomes material for us. .

Are you going to split it out as a segment at least so we can look at it or -- are you going to split it out as a segment at least so we can look at it or .

I haven't thought about that right now. .

Okay. Okay. That sounds good. Let's talk about some of the other areas. So I mean, you mentioned a river in the context of automotive. Let's talk about automotive. So you've had these targets out there for a while. Again, it was $8 billion by 2020 $9 million by 2021 or whatever it was. And you've been sort of dead on the trajectory, if not even ahead of it since then. So what are you doing in automotive now that's actually driving that? I guess Arrivo brought some of the self-driving software but like what does role does that play? How do I think about the split of maybe the revenue as well as the order backlog by things like infotainment versus like maybe the more attractive autonomous aspects of this?

Okay. So let's break this down in 2 parts. Let me talk about what the revenue that you see right now and go into the trajectory. And then I'm going to tell you some of the are driving, I think, an acceleration and increase of content in automotive. Let's kind of break those 2 factors. We did talk about publicly about a $45 billion pipeline. I think the pipeline has increased since that time. I won't disclose the new number now, but it's possible we're going to disclose it at the Investor Day. And that has been converting into revenue. I think you see share gains, new models with Qualcomm silicon. That revenue day and the $45 billion pipeline, you should think about 1/3. It's about all that's happening in connectivity in the car. Another 1 is the digital cockpit, all the computer to power all the different screens, -- about 1/3 of that is ADAS. ADAS is processor, mainly processor for autonomy and ADAS, and then it has some components of the stack. This is kind of what it's driving that growth. And you see those growth rates significantly higher than the weighted market growth. I think we guide 50% year-over-year. it's because we're gaining share. I think those new models along with Calcantechnology. The exciting part is the second part. A couple of things happening in the car right now. First of all, the Chinese is accelerating, I think, premium in the car. Actually, -- what they have been done right now is breaking records from silicon to [indiscernible] and that is driving a lot of more premium computing content. .

Are you talking about speed at which they can get this stuff adopted .

New chips adopted and put it into cars and especially because the car right now is also being computing is being pre-provisioned in the car because over the lifetime of a car, we're starting to see a lot of a Gentech AI experience coming to the car. We can talk about that across the board. So that is and it's China, you see that happening right now. The other thing that is driving a lot of the content is an acceleration, I think, of Level 2++, especially in premium car, more processing, I think for ADAS and autonomy. The #2 driver is what's happening with the stack. So we just -- we develop an asset, which I think is a very good asset. It's basically a Level 2+ safety that we've done with BMW, and it's being launched in the BMWXtre.We're getting a lot of interest from other OEMs some already engagements of that. And I think that in combination with Gene end-to-end stack, you always have to have a safety stack that go along the end-to-end. That is driving an increase, I think, of content for Qualcomm in cars alongside where we're seeing a lot more processing capabilities that is happening on the digital cockpit because of GI as well as the ADAS transition to FSD, which is going to be like what a premium car would expect it to have...

Got it. Got it. maybe to talk about IoT. And there's a couple of different pieces of this, and I'm going to go back to your prior Analyst Day, sort of the core business, which at the time was sort of at the bottom of the trough, I think. And you were sort of calling for growth of that business, kind of reaching the prior peak in 5 years. It was, I think, getting to $8 billion or something. And then another $6 billion in the target, and it was from PCs and $2 billion from XR VR. And my last site in view, it looks like the core IoT piece is in recovery, and that's great. I feel like the XR VR is maybe overachieving. And I guess on the glasses, to be fair, it's actually been on my big stack of things to do is to look at that market because it does seem like it's there. the PC piece feels like maybe it's lagging a little bit versus the trajectory. We haven't seen -- and now I mean PCs, just as a market are probably facing some of the same issues that smartphones are facing on that. But -- maybe if you could talk about the different pieces of IoT and what your perspective is on sort of where those markets are where they're going and the growth.

Very good. Look, I'm just going to say, look, we're very happy with the trajectory. It's going as planned, I think that segment is also moving towards all the targets we set up for fiscal 2019. Just to give you an idea, I think we guided the IoT segment for next quarter It's, I think, somewhere in the 1.8 and change I think it's kind of starting to approach like $2 billion a quarter of business. So you can look at the projection, they look at the growth rates you see how we're marching towards what we said we're going to do in fiscal '2019. No, let me unpack what's in IoT. -- out there. It's a good question when you ask me about segment reporting because eventually, I think as those businesses mature, we're probably going to be thinking about how to break it down because there's a lot of things in IoT. And I think in hindsight, it wasn't a great term to represent what is in there. But anyway, we'll get there. So the first thing that you see there is the compute business, tablets and PCs. I will come and talk about that. The second thing that you have there -- it's -- you used to have VR, XR and wearables, which is now all wrapped around what's happening with personal AI devices. So that's in there. You have our broadband business that's in there. You have our industrial business as well. Asia, you can -- we often talk about, if you look at some of our end markets, consumer, industrial networking, it's kind of put PCs in the consumer side with wearables, networking is broadband and industrial. It was about 1/3 each 1 of those segments.

Now let me tell what's happening right now. PC, we're actually very happy with the trajectory. I think we've been tracking -- if you look at our projections for $4 billion, which -- it's around -- in the order of magnitude about 10% share. The markets that we launched, we're tracking to that. The problem with PC, you have to deal -- you have to have the patience because the first -- to be fair, you've sold into that market for like over 10 years, right? I mean .

It was not until Windows 11, that finally, the emulator could run Win 64 pit. So you had a second-class windows for ARM. And by the way, we have to do all the heavy lifting ourselves I think the effort to get armed to run natively, -- we did it with Microsoft. No other company did it. And what happened -- and of course, Apple did it for their ecosystem. But what's happening now, finally, on the consumer side, you now have -- there is no difference between an X86 in an arm. It is now very mature in the consumer. We see that in the markets that we launch consumer, we're tracking in the consumer markets that United States, top 5 Europeans, we're trucking 10% -- we look at the position, the design traction on the channel very strong. We're happy. That is now -- is just going to get its own scale. -- we took the past year getting games and AAA games and all those things to be more mature on the laptop side. Now we're tackling commercial...

Okay. To be fair, but the 10% is 10% where you play. It's not of were play No, no. .

If I get 10% of the market, I already be at the $4 billion a I just want to -- but you have to have this discipline. Now we're in the commercial, which is very important. -- and which is the majority, I think, of the profit pool is. So we've been working. We have about 500 enterprises. We're going to get their CIOs comfortable. And I think Microsoft has been a great partner of this, and he's going to get there. You just have you cannot burn any step. But when I look at the MacNeal, which is excellent because it kind of validates this conversions between mobile and PC. And I think about the performance of some of the products we're building and what's happening in AI. I'll talk about it in a second. I think that's very good. We just have to have patients. The problem is both tablets, MPCs have the same memory dynamics. There's no memory. So the market is artificially constrained until we get that resolved. The other 1 in the IoT segment is what is now what we call the personal AI devices. I am incredibly optimistic about this. And if anything, I kind of agree with you that -- when we talk about the XR2 billion by fiscal '29, I think we're beyond comfortable there. I think because of what's happening with those new mobile category of devices. Every AI company, every AI company in every cloud company from the United States and China and other places or looking those new kind of devices. You hear here and there in the press. We're working with all of them. We have over 40 designs of what is called a personal AI category.

Give us an example, what kind of devices are we falling ...

Okay. The 1 that is the most popular and is going to get the most scale is smart class. And smart glass has come in 2 forms: processing, connectivity, cameras and then you may or may not have a display. Why glasses, why glasses. And you have to really understand what's happening there because it has nothing to do with the definition of a wearable with smart glasses before. as AI now has a role in large language models, our visual model in the man-machine interface. -- becomes very natural for glasses, but is close to your sensors, close to your eyes, your years your mouth, you turn your head, you're watching it and then you can access a model. And what we're starting to see right now is a little bit of the dynamic of the smartphone, not the same, but similar. Every week, somebody adds a new workload. -- a QR code, a payment system gets integrated. Like for example, some of the digital payment systems have been integrated all of those glasses -- so glasses is the big one. I think it's already in the multiple tens of millions of units. It could become 100 million units. Eventually, if this is successful, it could become as big as funds. The second one, I will put it in the is...

We're still buying phones in that scenario.

100% you're buying phones Okay. Yes. Because -- if you give me time to talk about what's happening with the AI transition of phones we're going to -- you'll see the role of both -- now the second form factor that is getting traction is a combination of pens, pendants jewelry. I actually be careful what I say, but there's some other form factors, very interested. GoWatch Microsoft build go watch Microsoft build. You're going to see some interesting things there, too. I think there's going to be the form factors are changing because it's related to the easiest way for a human to get access to a model for a completely Gentech use cases that has no legacy. So that is now we call personal category, and I said we have about 40 designs of day and are all connected to models. The other thing in there is our broadband business, stable. It is -- we're happy with it.

This is like networking gateways and ...

Access points, retail, carrier, and for enterprise as well as broadband. We also now have wire connectivity. We've been executing our SGS PON. We're doing and then also edge processing happening for AI at the broadband business. That -- and that's going to grow for us with 6G. We're going to take a role into that area as well. And then the last 1 is industrial. -- very diversified, very sticky on industrial, I would tell you right now, we're not bound by demand. were bound by speed of building solutions across verticals. We have focused on retail, oil and gas, energy, manufacturing, warehousing .

It really does require vertical solutions, I guess, I mean .

You have to have the silicon, some of the AI capabilities it's common. Like think about, for example, computer vision, it's common. I think the -- what is the Edge appliance, the smart cameras. But then a lot of the players and the software that goes on top is building an ecosystem across each vertical. So that's what is in IoT. .

So let's talk more broadly about AR at the Edge. Talk to me about AI and smartphones. Why do I want an AI smartphone...

You want it for sure. So it's really important I need a few minutes to explain this because we have clarity now. Like I didn't have clarity. We know does this stuff was going to happen, we have different pieces. But now we can see everything together. And the picture, at least for us, is super clear. And we're starting to see what the change is going to be in mobile. One thing I'm going to tell you, 1 thing you're going to tell you. from the early days of cellular from analog to 2G to 3G, 4G, 5G. One thing I can tell about cellular. It changes every time. It changes the players change. Companies go from hero to 0. We're fortunate enough that we survived all of those transitions. And we always under look to understand what is happening -- how is that transitioning? Now we have clarity. I want to explain that to you. So think about what happened with thing to happen with AI is you have Chatbox people go in, they ask something to a chat box and a search and get a response. Then obviously, you get reasoning in start to generate tokens, but then something incredible happen. The open claw happened. Those orchestrators happen. That's what's driving a lot of the CPU. You have now you have the ability to get a bunch of agents. You have mix of experts. You have different models. -- for different things, and you have this orchestrated testing for you. And he started to operate your computer for you is so profound that if you're a SaaS company today, -- you have to design your SaaS software for clients, not only to interface a human, but interface an agent because the agent is going to go to the client. And you start to see what people do in an open cloud, you send a watch app to your computer and they start doing things for you. And that's how computers are going to get utilized and those things consume a lot of tokens. So you're going to start to see now, finally, somebody said, "Oh, this hybrid AI the Kaco's been talking about starter makes sense with different models, mix of experts and smart routing and all of that. So what's happening on Fox. So what happened on phones, you have to understand there are 2 fundamental changes happening in from market. One, I'm going to give an example of what happened when Open Clow and all those different class started. People start to buy meting Apple was sold out of Magenta put the Makani, they put the thing in run.

Okay. But they can run it on anything, not you didn't need a Magma. .

No, but that's not an interesting observation. The observation is -- in the phone, you only carry 1 device. You cannot buy a backpack, put a mac bidding a car battery and walk around. So you're going to have to have it in your phone. So your phone is starting to get the double personality right now. You -- as the human will pick up your phone and you do phone things. You're going to go to your apps and you're going to do the things you do every day of your phone. . Actually, the reason glasses are getting traction because it's not very natural for you to talk to the phone or pointing the phones to things that needs content. You're going to do your phone thing, but the phone now can also run those orchestrators and then the phone is going to start doing things for you on your behalf and it's going to be doing things for the other devices that you interact. -- on your behalf because the agent take this center. It's not the phone, the center, all the wearables are connecting to the phone now is the agent and the center. .

And then on the phone? Or is the agent cloud?

Orchestrator runs on their phone. And see, this -- I'm going to say this to be provocative. I have seen so much discussion about cloud and edge cloud and edge. It's a useless discussion. It's almost like for me to ask you to go to your 300 apps that you have on your phone and let's say, let's say, 1 by one. What runs on the cloud where runs on the end. -- put an airplane mode, they're going to say useless. It's a brick. It's probably an iPod touch, right, with all the Qualcomm IP. So then -- so then you're going to think about it, this is going to be cloud and edge working together. You see all of those orchestrator they run on the device. They do some things on the cloud, MCP protocol, things that go to your app and they start doing things for you. So what we're starting to see right now is the orchestrator comes to the phone and start doing things for you on your phone or for other devices. You may do something on another device in your phone is going to do something for you. And that drives the second change. you're going to see right now between now and summer everyone at the phone -- every 1 of my phone OEMs right now in China, they have their claw. They're going to deploy equivalent. -- come into the phone, you're going to see every OS vendor, talking about a law as part of the OS. And the interesting thing is the nature of the business is changing. I used to think about the OEMs as the customers. Now I think at the OEMs and the cloud companies as the customers. Just look, for example, what's happened in China. Some cloud and AI company actually took over the UI of the entire phone OEM -- and that's going to be the new change in phones. And I think that is driving a completely different discussion. On 1 hand, you have the existing OEM thinking about memory cost is too high. I need I don't know if I can afford all of this compute. This is a smaller market, have an AI company said, "I need more compute. I need more compute. I need to have the ability to do a lot of those things into that device. That's going to propagate to the PC. It's going to propagate because it's 6 billion people use as phones. So yes, your Mac mini separate, you're going to see every OS vendor is going to talking about a claw and you're going to feel which you want to secure, not secure, and you're -- and those are going to be token machines. and that's going to require a lot of competition and leads to me to the last -- that's going to happen to your access point is going to happen to your car. And the last part of this conversation is this concept of hybrid AI. I am going to speak at Computex, and we're going to show a couple of interesting demos like Computex...

Are you leaving there like -- you're going there shortly, I guess the right Yes. .

And what you're going to see in some of those demos is how much is going to cost you when you start having those token machines running everything in the cloud and how much is going to cost when those cloud companies push some of those models to the device and they break the tasks up. I think we're starting to see a lot of conversations about how companies are thinking about how much you can afford, what is open source, what is not. All of this is goodness that is going to drive an upgrade. And then my last comment on this, none of the existing devices to a -- so this is the is that we've all been waiting for it's -- it's going to be those orchestrated and agents and it's going to be generating tokens. And we're going to finally we're going to start talking about what the real conversation because the real conversation in the early days of a smartphone, if I have to tell you that the smartphone experience is going to be defined by what OS vendor, put into the OS or the OEM put into his apps, that is nothing compared to the apps, the developers there. Those agents are going to be some of the applications. And I think the good thing for Qualcomm is none of those devices are ready for it. So you're going to have to go to an upgrade cycle. I can't predict the timing, but we now have clarity how those things are going to play out...

Got it. Got it. the phones today don't have the computing power that are necessary to orchestrate something like this, do they?

The -- right now, you're going to need much faster CPUs to be able to run those orchestrators -- and then eventually, as some of the hybrid AI matures, you're going to need accelerators as well.

Got it. We got a few minutes left to go to the all lightning round, see some questions. I guess it has to be asked. There's the quintessential Apple question, which is here, which is baseline now that Apple starts leaving the model in a bigger way this year, do investors have the right trajectory in mind. And I would follow this up by also saying Apple's licensing business which does have an expiration date, the current agreement, I guess, beginning of April of next year. So what are your thoughts on that?

Look, I hope investors have the right trajectory might we have been so clear ...

Was 100% clear, by the way. So there's no excuse, frankly, if -- they don't have the right trajectory in mind, but any 1 right. Second question Look, .

Look, we -- as you'd expect, we are in conversations about the license. The license is independent of the chip business. I would say, I think the licensing business is probably 1 of the most stable times of our licensing business. I probably feel very confident about the state of the licenses business. And Chrome .

We feel very .

And look, I think you have to ask yourself, especially a lot of those customers' renewal -- this business is being battle tested. So I think there's a lot of clarity about where the patents are, what are the claim charts are, I think the size of the patent portfolio. And I think what I have seen from most of my customers right now, especially in the AI transition, -- the last thing anybody wants in the middle of AI transition is a worldwide patent litigation I think everybody knows. I think that we were always going to defend that business. And I think -- and the fact that we always have done that. It's that in itself, it's a positive thing to bring stability -- so I am -- I will repeat, I think it's probably 1 of the most stable times for a licensing business range Okay.

Is there any like truth to the idea though that like the last time Apple settled -- I mean they had no choice. Intel was late with 5G, the only option less of an issue now, they've got other options..

I think you should follow the court case. .

I guess to be fair, you've got a lot of disputes over many years. And I think eventually, you've come out on top on every single one. I think that is true. So 1 more question here. What's the next -- the given memory issue, hopefully, is abating. I don't know if it's debating yet, by the way, but hopefully, abating. -- handset market shares well forecast. What's the next thing that concerns you? What are you most worried about? Is it competition from China? Is it something else?

Look, I think if you're in the semiconductor business right now and you're a global company, you have a lot to worry about. But I -- look, right now for us, I think we can't wait, I think, for the memory things to improve because like it's just going to be a an immediate acceleration, I think, of our business I think we've be... -- there any signs, by the way, that is..

Are you seeing any improvement or -- getting worse...

It depends. I think it depends on how you look at it. One thing I 1 thing I'm going to say for this -- especially on DRAM, we have seen a lot of investments in China, I think, to build DRAM capacity. And -- and you're qualified with the local Chinese guys, correct? If you have a memory right now, I'll qualify your memory. I'm qualified with everything. So I'm more optimistic than people are about maybe 27, there's more capacity coming in line. So that's 1 thing. And the other thing is we're like laser focus on executing on the data center. We see a great opportunity for the company. I think we're [Audio Gap] .