Smartphones ‘still a very strong story for us’: Qualcomm CFO

Qualcomm CFO Akash Palkhiwala joins Yahoo Finance Live to discuss second-quarter earnings, guidance on smartphone components, the push for 6G, and more.

Video Transcript

BRAD SMITH: And shares of Qualcomm here as well. They have slumped this morning, despite the company reporting a 37% rise in sales for the third quarter. The chipmaker's forecast pointed to slowdown in the fiscal fourth quarter sales, citing a decline in smartphone demand.

Joining us now to discuss, we've got Qualcomm CFO Akash Palkhiwala. Akash, always a pleasure to speak with you, especially around some of the earnings results here. First and foremost, when you think about the demand right now as it relates to Qualcomm, where are you seeing strength? And where are you going to be able to unveil some additional capacity in order to deliver on that?

AKASH PALKHIWALA: Sure. So first of all, thanks for having me here. It's great to be here. When you look at our results, we did extremely well. We grew earnings year over year 54%, even in this environment. And we were above the high end of our guidance. If you look at our business, we're doing extremely well in our diversification strategy in automotive and IoT. In both of those areas, we had record revenues.

And especially in automotive, we announced that our design-win pipeline is now greater than $19 billion. So, doing extremely well, and we're excited about not just how our core business, which is handsets, doing, but the opportunity to expand, take the technology in handsets and expand in these new areas, automotive nowadays.

JULIE HYMAN: At the same time, when you're talking about your core business, that smartphone business, you guys are predicting that smartphone shipments are going to decline in the mid-single digit percentage range this year from last year. So, like everybody else, you guys are grappling with a slowing economy here in the US, as well as in many places globally. How long do you think that slump could potentially last?

AKASH PALKHIWALA: Yeah, Julie. You're right. We did forecast a mid-single digit reduction in handset total volume. But if you look at our revenue that we are forecasting for the handset business, we're forecasting just under 50% year over year growth. So even within that market, we've benefited from just increase in content because people want more and more capabilities from their handsets, and also, increase in our market share within that area.

So it's still a very strong story for us. The guidance that we're providing for the September quarter, we're guiding to a 24% earnings growth again on a year over year basis. We're excited about what's in front of us.

BRIAN SOZZI: Akash, did I hear correctly on the call last night, you mentioned 6G? Now, we're still in the 5G rollout. What does 6G even look like? And when do you see the telecoms pushing out devices to support something like that?

AKASH PALKHIWALA: Yeah, that's a great question. So the way we mentioned 6G was our agreement with Samsung. We signed a very long-term agreement with Samsung, the largest handset OEM in the world, a great partner for us. And there are three components to the agreement. The first one is extending our patent license agreement where they pay us royalties for using our patents for technology in wireless phones especially, all the way through 2030.

And since the scope of the license goes all the way through 2030, we expect 6G to be deployed in the second half of this decade. And as a result, 6G was included in that license. It's a validation of our licensing program. It's a validation of the technology that we bring to bear in wireless standards.

The second part of the Samsung agreement was Samsung is going to use our Snapdragon chips in their premium tier phone for global launches. And it's a multiyear deal. So that's another example of in the handset market, we are significantly expanding our presence because our chips are just way ahead of our competitors. And we're seeing more demand for that.

BRAD SMITH: Snapdragon off--

AKASH PALKHIWALA: And then--

BRAD SMITH: Yeah, sorry, go ahead.

AKASH PALKHIWALA: I was going to say, just the last part of it is that with Samsung, they're going to use our chips in other devices like Metaverse devices, in addition to tablets and PCs. So we're excited about the overall relationship with them.

BRAD SMITH: Got it. Snapdragon, you mentioned, that's also going to be a part of this broader automotive play that you have as well. Where within kind of the new EV experience or even autonomous vehicle experience do you expect that Qualcomm will sit within the Snapdragon entity and play that you already have right now? And what type of unveiling is necessary to take place to really recognize that revenue for the business?

AKASH PALKHIWALA: Yeah, so we're very excited about what's happening in automotive. The industry is, obviously, going through a very significant transformation. And what it requires to enable the transformation is all the technologies that we have created for handsets. So we have a very strong presence in creating chips for cars that connect the car to the cloud, that power the inside of the car, the dashboard, and then also powers the autonomous driving features that are so much in demand in cars going forward.

So we're at the intersection of just completely the transformation of cars that's going on. And we did announce earlier yesterday that we're going to have our first automotive investor day in September, where we'll go into a lot more detail about it.

JULIE HYMAN: Akash, I can't believe we've gotten to this point where we haven't really talked about supply and capacity, right, which is quite different from what we've-- the discussions we've had in recent quarters. So give us an update on that. I mean, with sort of demand moderating to some extent, is that actually a boon when it comes to what you guys are able to supply now?

AKASH PALKHIWALA: Yeah, Julie, we always had a very consistent view that from a supply perspective, we expected demand and supply to be relatively in balance in the second half of calendar '22. We saw this issue much earlier than most others. And so we put plans in place. And so we're seeing that there are still pockets of weakness that we need to deal with. But on a broad basis, we expect supply and demand to be consistent in the second half of the year. And that's a great positive for us and our customers.

JULIE HYMAN: Thanks, Akash. Good to see you. Akash Palkhiwala is Qualcomm CFO. Good to get some time with you.