Qualcomm: Achieve non-mobile business revenue of $22 billion by 2029 (1QFY25 conference call)

Qualcomm (QCOM.O) released its Q1 FY2025 financial report (ending December 2024) after U.S. stock market hours on February 6, 2025, Beijing time. The key points are as follows:

Below is the summary of Qualcomm's Q1 FY2025 earnings call. For the financial report interpretation, please refer to “Qualcomm heats up, will Apple's baseband disrupt?”

1. $Qualcomm(QCOM.US) Core information review of the financial report:

2. Detailed content of Qualcomm's earnings call

2.1 Core information presented by executives:

1. Q1 financial performance

Total revenue: $11.7 billion, a record high, exceeding expectations.

Non-GAAP earnings per share (EPS): $3.41, exceeding expectations.

Chip business (QCT): Revenue reached $10.1 billion, breaking the $10 billion mark for the first time, including record revenues from mobile and automotive businesses.

Licensing business (QTL): Revenue was $1.5 billion.

Growth highlights:

Automotive and Internet of Things (IoT) business revenues grew by 61% and 36% year-over-year, respectively.

Emphasized the goal of achieving $22 billion in non-mobile business revenue by 2029.

2. Technology and product progress

Mobile business:

Snapdragon 8 Elite: Powers the Samsung Galaxy S25 series, showcasing deep integration with Google Gemini AI.

Design capabilities: Over 80 PC designs based on the Snapdragon X series are in production or development, aiming for commercialization of over 100 devices by 2026.

Snapdragon X platform: Launched for the $600 price segment in the PC market, featuring multi-day battery life and strong AI capabilities.

Extended Reality (XR):

Long-term collaborations with partners like Meta have driven the development of the XR business.

Collaboration with Google to launch devices based on the Snapdragon XR platform.

Industrial Internet of Things (IIoT):

Launched AI local devices and inference suites to support generative AI inference running on local hardware.

Established partnerships with companies like Honeywell and IBM.

Automotive business:Announced new collaborations with companies such as Ops, Alpine, Amazon, and Google to promote AI-driven in-vehicle systems and advanced driver assistance systems.

Snapdragon Digital Chassis Workbench: Provides a cloud platform for developing software-defined vehicles.

3. Financial Outlook

Second quarter expectations:

Non-GAAP revenue is expected to be between $10.2 billion and $11 billion.

Non-GAAP earnings per share are expected to be between $2.70 and $2.90.

QTL business:

Revenue is expected to be between $1.25 billion and $1.45 billion, with an EBT margin between 69% and 73%.

QCT business:

Revenue is expected to be between $8.9 billion and $9.5 billion, with an EBT margin between 29% and 31%.

The mobile business is expected to grow approximately 10% year-over-year, while the IoT and automotive businesses are expected to grow approximately 15% and 50%, respectively.

4. Legal and Partnership Updates

ARM vs. Qualcomm lawsuit: The jury's verdict supports Qualcomm's CPU innovation and confirms that Qualcomm's contract with ARM allows it to use its proprietary Orion CPU in industries such as smartphones, automotive, next-generation PCs, IoT, and data centers.

License agreement updates: Long-term licensing agreements with two major OEM manufacturers are about to be signed, and negotiations with Huawei are still ongoing.

2.2. Q&A:

Q Regarding the outlook for the QTL business, you mentioned it will be flat in fiscal year 2025 compared to fiscal year 2024. Can you elaborate on the assumptions for overall shipment volume and per-unit royalties?

A Our overall market assumption is that shipment volume will be flat year-over-year or show slight growth (low single-digit growth, around 3%). Of course, this does not take into account potential upside opportunities such as subsidies in China and the AI replacement wave. But this is the foundational assumption for our QTL forecast.

Q Regarding the development of the Snapdragon X platform in the PC sector for 2025-2026, can you share the expected adoption curves for enterprise and consumer segments?

What is the impact of China's subsidy policy on consumer demand, and how does it affect the sustainability of growth for domestic OEM manufacturers?

A PC platform development:

We expect Windows PC business revenue to reach $4 billion by 2029, which means capturing about 12% of the market we are targeting. Progress is going well, with over 80 designs based on the X series currently in development or already launched, with the goal of commercializing over 100 devices by 2025-2026.

In the U.S. retail market (especially in the Windows laptop market priced over $800), the market share of the Snapdragon X series has exceeded 10%, aligning with our long-term growth expectations.

Currently, the first wave is primarily consumer products, and in the future, it will expand more into commercial applications.

China market subsidy policy:

The subsidy policy will start in January 2025 and is currently in the early stages; we will have a clearer judgment in the next quarterFrom historical experience, subsidy policies usually expand market size, but this has not yet been included in our expectations for the second quarter.

The growth of the Chinese market this quarter is mainly due to the increased demand for high-end devices and the improvement of our clients' market share in the domestic market.

Does the expectation of flat Q QTL business for the whole year assume no settlement with Huawei?

Regarding tariffs, have you seen recent growth in personal electronic products related to tariff expectations?

A: Over the past year, we have renewed long-term licensing agreements with almost all major OEM manufacturers, including a recent 4G licensing agreement with Transient (supplementing the previously signed 5G license).

Currently, only negotiations with Huawei are still ongoing, and the expectation of flat for the whole year does not include potential gains from a settlement with Huawei.

It is confirmed that the expectation of flat for the whole year does not include the possibility of a settlement with Huawei.

Regarding tariffs, the market demand growth we are currently seeing mainly comes from:

The strong performance of the Samsung Galaxy S25 series, where our global share in this series exceeded expectations.

The strong demand from Chinese consumers for high-end devices, as well as the improvement of our clients' market share in the domestic market.

These growths are unrelated to tariffs but are related to consumer demand for high-end devices and the push from AI features.

Q: Typically, there are no flagship product launches in the second quarter; how does this affect the seasonality of QCT business?

Will the ASP (average selling price) of Snapdragon chips continue to grow due to AI features and rising costs?

A: Seasonal impact:

The quarterly performance of QCT business is mainly influenced by the timing of flagship product launches. Typically, the first quarter is the peak, and the third quarter is the low point.

Samsung's high share is reflected in our expectations for both the first and second quarters and will not change the overall seasonal trend.

ASP growth:

The ASP growth of Snapdragon chips is mainly driven by consumer demand for higher-performance chips, as we continuously add features in AI, processing power, and connectivity.

Although TSMC's prices for 3nm and 4nm processes are rising (effective from January 2025), our goal is to reflect these cost increases in ASP over the long term.

Overall, the increased market demand for high-end devices has driven the growth of our chip ASP.

Q: Is there seasonality in the quarterly performance of the IoT business?

Will the gross margin of QCT business remain at a high level in the future?

A: Seasonality in IoT business:

The quarterly performance of the IoT business does exhibit seasonality, especially in the consumer IoT sector, which typically prepares for the holiday shopping season in the fourth quarter, while the first quarter tends to slow down.

The industrial IoT and edge networking businesses maintain strong growth across all quarters.

Gross margin:

The gross margin of QCT business performed strongly in the first and second quarters, mainly due to the increase in shipments of high-end devices, which improved the overall gross margin of our product portfolioFuture gross margins will fluctuate with changes in the product mix, but we are currently satisfied with the performance of gross margins.

Q: Has the outlook for the major customer modem business changed?

How large is the PC business in the Internet of Things?

A: Modem business:

Our assumptions regarding the major customer (Apple) modem business have not changed. We expect our share to be 20% in this customer's product releases in 2026. The current agreement ends in 2026. Assuming it is not renewed thereafter, we will have no share in 2027.

We expect our share to be between 10% and 20% in the product releases of 2025.

PC business scale:

We currently do not disclose specific quarterly revenue for the PC business, but we have achieved a 10% share in the notebook market priced above $800, which is a positive start and aligns with our long-term goal of reaching a 12% market share by 2029.

Q: Is the 20% growth in the smartphone business sustainable?

What are the latest trends in the Chinese market?

A: Smartphone business growth:

We expect the growth in the smartphone business to be sustainable. In the first quarter of 2025, QCT's mobile business grew by 13% year-on-year, mainly due to increased shipments and rising ASP.

The high-end device market (priced above $1,000) has grown from 21% of the market to over 30% in the past 3-4 years, which is very favorable for us as we are very strong in this area.

We expect the mobile business to grow by 10% year-on-year in the second quarter of 2025, which is a very strong number.

Trends in the Chinese market:

The Chinese market is performing strongly in the high-end device sector, and we see continued growth in this segment.

Our customers have gained market share domestically, and subsidy policies will also help drive the development of this market.

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