Qualcomm (Minutes): Growth opportunities in automotive and IoT far exceed revenue from Apple

The following is a summary of Qualcomm's Q3 FY2025 earnings call minutes organized by Dolphin Research. For an interpretation of the earnings report, please refer to Qualcomm: Mobile Risks Looming, When Will AI Deliver?

I.$Qualcomm(QCOM.US) Key Financial Highlights

1. Shareholder Returns: Returned $3.8 billion to shareholders (including $2.8 billion in stock repurchases and $967 million in dividends), fulfilling the commitment to return 100% of free cash flow for the fiscal year.

2. 4Q25 Guidance: The fiscal Q4 and full year consist of 13 weeks, compared to 14 weeks in the same period last year (base difference).

a. Total Revenue: $10.3 billion - $11.1 billion; Non-GAAP EPS: $2.75-$2.95.

b. QTL: Revenue $1.25 billion - $1.45 billion, EBIT margin 69%-73%.

c. QCT: Revenue $9 billion - $9.6 billion, EBIT margin 27%-29%; Mobile business revenue up 5% QoQ (Apple revenue decline aligns with historical trends, corresponding to an 8.9% YoY increase), IoT revenue flat QoQ, automotive revenue expected to reach $1 billion.

d. Non-GAAP Operating Expenses: Approximately $2.35 billion.

3. FY25 Guidance:

a. Based on the midpoint of guidance, revenue is expected to grow 12% YoY, and Non-GAAP EPS is expected to grow 16% YoY (compared to FY2024).

b. QCT non-Apple business revenue is expected to grow over 15% YoY for the second consecutive year; IoT and automotive businesses are expected to grow 20% and 35%, respectively, reinforcing confidence in the target of $22 billion in combined revenue from automotive and IoT by FY2029.

c. Deepening customer relationships: Including global ADAS collaboration with BMW and strategic agreement with Xiaomi (to address global trade volatility).

II. Detailed Content of Qualcomm's Earnings Call

2.1 Key Information from Executive Statements

1. Growth Highlights

a. Automotive and IoT revenues grew 21% and 24% YoY, respectively, with a promising outlook to achieve the $22 billion target for FY2029.

b. QCT department's non-Apple business revenue is expected to grow over 15% YoY for the second consecutive year in FY2025.

2. Mobile:

a. Reached a multi-year cooperation agreement with Xiaomi, with the Snapdragon 8 series platform supporting its multiple generations of flagship devices, and shipment volumes increasing annually.

b. The Snapdragon 8 Elite processor is driving the AI smartphone transformation, with 124 related design models released or launched.

c. Among Samsung Galaxy S25 users, 70% use Galaxy AI, and S25 users' usage of Google Gemini AI has nearly doubled compared to S24.

3. AI PC:

a. The Snapdragon X series platform has gained support from leading OEMs such as Acer, Dell, and Microsoft, with several new devices added this quarter, and over 100 designs expected to be commercialized before 2026.

b. In Q2 2025, Snapdragon models accounted for about 9% of Windows laptops priced above $600 in the retail markets of the top five countries in the US and Europe, with a long-term goal of achieving $4 billion in revenue by FY2029.

4. XR:

a. Snapdragon supports 19 smart glasses/mixed reality devices, with Meta AI smart glasses demand exceeding expectations, adding Oakley and Ray-Ban series; Xiaomi's new AI glasses received positive feedback (all equipped with Snapdragon AR1 Gen-1).

b. Technological breakthrough: Demonstrated the world's first 1 billion parameter model running on the next-generation Snapdragon AI platform, launching a smart link controller reference design.

5. Automotive:

a. Added 12 new designs to the Snapdragon Digital Chassis, with 50 models launched this fiscal year; BMW's upcoming NOA-level models will feature its ISO-certified ADAS suite, with details to be announced at the IAA car show in September.

b. 20 OEMs have adopted its Ride platform and driving suite, with most projects expected to be launched globally within the next 18 months.

6. Industrial IoT:

a. Expanded partner ecosystem, including ASUS IoT, Dell, IBM, etc., launching the Dragonwing IQ series (AI inference performance reaching 100 TOPS) and smart video suite.

b. Strong demand for edge networks, with WiFi 7 gateways and 5G fixed wireless access platforms favored by retail and operator customers.

7. Data Center:

a. Deploying NPU-based AI inference accelerator cards and Oryon CPU custom SoCs, acquiring Alphawave IP Group (enhancing high-speed connectivity technology), expected to complete in Q1 2026.

b. Collaborating with Humain to develop AI data centers in Saudi Arabia, with Oryon CPU integrating with NVIDIA GPUs; negotiating with leading hyperscale enterprises, with potential revenue from FY2028 if successful.

2.2 Q&A Session

Q: You mentioned that the mobile business is expected to grow 5% QoQ next quarter, despite a reduced share from Apple. Xiaomi's growth this quarter is significant, which is typical for the current quarter, but investors are concerned about potential pull-forward. Can you explain the growth drivers? Is there any evidence related to China?

A: No signs of pull-forward detected. Next quarter's revenue growth is driven by new product launches, with a new chip to be released at the end of the month, and multiple OEMs preparing new devices, with the market gearing up for new product launches.

Q: Regarding the data center business and the mentioned hyperscale collaboration, can you elaborate on the scope of the collaboration? Is it based on Arm architecture CPUs or accelerators? With potential revenue from FY2028, is it appropriate to consider this business's contribution to other customers now?

A: No further details to disclose. We are advancing product development, possessing IP related to data centers, and Alphawave's IP can complement to build custom SoCs, and we are satisfied with the current development progress.

Q: Regarding the data center roadmap and related strategies, how will Alphawave integrate into the existing portfolio and stack capabilities, in terms of customer selection, chipset standardization vs. customization, and meaningful transaction scale for this business in the long term?

A: We focus on developing two types of products: one leveraging CPU capabilities, including general-purpose CPUs (focusing on hyperscale processors, adapting to their ARM-compatible CPU first-party workloads) and inference cluster hosts (as AI scales, inference will gradually replace training, creating opportunities for us with the market's emphasis on token usage efficiency); the other is inference cluster accelerator cards, which are the two directions of the product roadmap.

We are highly focused on customers capable of investing in first-party workloads or inference clusters. Alphawave IP is important, aiding horizontal scaling and connectivity, with industry-leading connectivity capabilities, reflecting the type of customers we focus on.

We see significant market potential, and with leading IP, Qualcomm has the opportunity to enter this new market. We are in preliminary negotiations with key customers, and we will cautiously disclose information, sharing once confirmed. We are optimistic about this, hoping to create a halo effect, validating the platform and creating future opportunities.

Q: Was there any part of the business weaker than expected this quarter? Can you explain the situation? Additionally, Q4 performance (excluding the impact of Apple revenue) remains strong, can you analyze from a strength and weakness perspective?

A: The product mix this quarter was slightly weaker than expected due to seasonal softness and no flagship product launches. However, this will be offset by strong performance next quarter, as mentioned earlier, with new chips and flagship products to be launched at the end of the quarter, thus seeing demand growth.

Q: Considering the guidance for next quarter and the dynamics of factors like Apple, entering Q1 FY2026, how are normal seasonal factors? Are there any anomalies compared to normal conditions and seasonal trends? Are there any special events that might affect the results in Q1 FY2026, and how should it be expected compared to typical conditions?

A: For Q1 FY2026, we expect all businesses to exhibit normal revenue seasonality, with adjustments made for the market share decline following Apple's phone launch, and no other particular points to emphasize. Although we have not specifically guided for that quarter, past years' trends can be referenced, with quarterly trends similar to before, only needing to adjust for the predicted decline in Apple's shipment volume.

Q: Last year's Q4 saw Chinese OEMs releasing some flagship devices early, and the quarter had an extra week. Based on this, how much boost will Q1 FY2026 have? Will there be greater headwinds entering the following quarter?

A: The business remains strong. Android, automotive, and IoT businesses continue their previous growth trends, with no special circumstances. Apple's dynamics have been discussed, which is a factor. Besides that, it will be a strong quarter, and seasonally, Q1 FY2026 remains the strongest, unaffected by the decline in Apple's market share.

Q: Regarding the data center, from a spending perspective, what impact will entering this new business area have on spending? After the Alphawave acquisition is completed, what impact will it have on revenue, spending, and EPS?

A: On spending, operating expenses have grown very little over the past four years, managed by absorbing wage growth and reallocating existing spending to diversified and growth areas. Future hiring will focus on new skills needed, investing in skills required for diversified businesses like data centers, and beyond that, operating expenses will be managed prudently.

Q: Samsung recently released several phones with self-developed processors, how do you compare them with your anticipated X85? Do you think you can maintain a 100% share in the Galaxy S series?

A: We have a multi-year, multi-generation cooperation agreement with Samsung, with a baseline share set at around 75%, with fluctuations above this level being part of our plan assumptions. Competing with Samsung's self-developed platforms is not new to us, as it has been the case for decades. Historically, our cooperation with Samsung has achieved a high market share, which is the basic assumption. 75% is the baseline, and any share above this level is a positive.

Q: Regarding the high-end flagship layer of mobile phones, you mentioned a double-digit growth in average selling price or content, is the situation still the same? Will X85 accelerate or decelerate this growth?

A: The Android business is expected to grow about 10% YoY in FY2025, exceeding the target set on Investor Day, reflecting our roadmap advantages, competitive position, and the trend of market sales shifting to higher tiers where we hold an advantage. Additionally, QCT non-Apple revenue has grown over 15% annually on average over the past two years, which is a key benchmark for the company's future growth positioning, consistent with the FY2029 target set on Investor Day.

Q: China's share in QCT revenue is rising, and if Samsung Galaxy phone share drops from 100% to 75%, this share might rise further. How do you view the growth trend, prospects, and competitive risks in the Chinese market?

A: Our position in China remains solid. This quarter, we reached a multi-year high-end phone agreement with Xiaomi, with sales increasing annually, using our chips in products for both global and Chinese markets, and Xiaomi will be the first OEM to launch the next-generation Snapdragon 8 Elite chip. Over the past few years, our cooperation has expanded from phones to cars, smart glasses, wearables, tablets, and more, which is just one example of our cooperation with Chinese OEMs, with business being favorable and sustainable.

Regarding Samsung, most of its devices in FY2026 will still use our chips, with only the Flip model using self-developed chips, with market share slightly below 100%. Next year, we will maintain a favorable position and scale according to the agreement.

Additionally, we have been operating in China for 30 years, starting from 3G, learning to develop at China's speed, with our position improving annually. Besides phones, we also hold favorable positions in the automotive field (cooperating with the fastest-growing OEMs) and in industrial, robotics, and other fields. Qualcomm has strong competitiveness and performs well in China, and this situation is expected to continue.

Q: Despite fluctuations in Apple revenue, you have maintained a healthy operating margin. What impact does the decline in Apple revenue have on your margin? Is it positive or negative?

A: We are satisfied with the margin of this business, which will approach the long-term target of 30% this year. In the future, growth opportunities in automotive and IoT far exceed the scale of Apple revenue, and we have the ability to increase revenue and manage margins well, with the long-term target margin unchanged.

Q: You spent $2.4 billion to acquire Alphawave, and have ambitious goals for FY2028. With high-quality IP, will you adopt more acquisition strategies in China to expand scale quickly and capture customers in the data center business? Will there be more acquisitions like Alphawave, or are you considering larger-scale acquisitions? Can you provide more related strategies?

A: Currently, we are focused on completing the acquisition of Alphawave and building the product roadmap. Its IP complements our existing business and can help us establish a competitive position. This is a new initiative for Qualcomm, and like other businesses, if opportunities arise in the future, we will consider supplementing the roadmap, but the current priority is to advance the Alphawave acquisition.

Q: Can you briefly share your views on the application of Gemini and Galaxy AI in the Android field? Can you elaborate? Clearly, some believe Apple products are somewhat lagging in AI, what does this mean for you in the long term? Are you optimistic about this, even more so than in the first fiscal quarter?

A: AI applications on mobile devices are becoming increasingly prevalent. Data shows that Gemini's share in AI models has grown significantly compared to other models. The Android ecosystem has advantages in most AI fields, and as more use cases emerge or AI integrates into applications, it is expected to increase interest in the ecosystem, expanding SAM, driving upgrade cycles, and being a positive factor for the mobile business.

AI is making connectivity more important (especially with increased voice usage), driving the development of more computing and more powerful devices, and fundamentally changing use cases. The threefold difference in AI utilization between Galaxy S24 and S25 is encouraging, and this growth is expected to continue accelerating.

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