Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter and Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, July 28, 2021. The playback number for today's call is 877-660-6853. International callers, please dial 201-612-7415. The playback reservation number is 13720943. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers and Don Rosenberg will join the question-and-answer session. You can access our earnings release and the slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now, to comments from Qualcomm's Chief Executive Officer, Cristiano Amon.

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. This is an amazing time to be part of Qualcomm. The need for our technologies and products has never been more evident. We're seeing demand across virtually every industry, because our products and technologies are essential ingredients that enable digital transformation in the cloud economy. We are leading and expect to continue to lead in mobile. In addition, we also expect to lead the evolution of the connected intelligent edge by transforming connectivity and processing in cars, the enterprise, the home, smart factories, next-generation PCs and tablets, XR, wearables, and many more. This is the foundation of a revenue diversification strategy. The strong performance in our business has led to fiscal third quarter revenues and earnings per share that exceeded the high-end of our guidance. Most importantly, we are on track to realize approximately $10 billion in combined revenues across IoT, RF front-end and automotive in fiscal year 2021, validating the positive financial impact of our revenue diversification strategy. Let me provide you now with some additional details. The foundation of our IoT strategy is edge connectivity and processing for the growing cloud base economy. In consumer, we're seeing strong demand, driven by a consumer electronics upgrade cycle and growth in emerging product categories, such as XR and wearables. In edge networking, we had another great quarter, with continued momentum driven by the enterprise transformation of the home in this second wave of enterprise demand, driven by return to the workplace. We're also seeing rapid adoption of Wi-Fi 6 and increased demand for both 4G and 5G mobile broadband devices. In industrial, our product offerings are purpose-built for key verticals, such as transportation and logistics, warehousing, video collaboration, smart cameras, retail, and more. We are at the forefront of enabling this new ecosystem and also making 5G for industrial applications a reality. We are becoming the connected intelligent edge partner of choice. As demand for automotive solutions increase, we're pleased to report that our automotive revenue design win pipeline has reached approximately $10 billion. And based on our third quarter results, our annualized automotive revenue run rate is now over $1 billion. This reflects continued traction across global automakers and Tier 1 customers. Our automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are at the intersection of key automotive industry trends, such as the continued growth of connected vehicles, the transformation of the in-car experience, and vehicle electrification. As the digital chasses become one of the most important assets of automakers, we remain well-positioned for continued growth as a leading technology partner for the industry. In RF front-end, we believe we are on track to become the largest smartphone RF front-end supplier by revenue. Looking forward, we expect to have technology leadership across virtually all handset RF front-end components, while continuing to lead in modem-to-antenna system performance. Now, I will provide an update on two key drivers for handset revenues. First, we continue to be positively impacted by the growth in 5G and changing OEM landscape, resulting in the expansion of our addressable handset opportunity. Our Snapdragon 8 Series mobile platforms have shown significant design win momentum. More than half of our 5G smartphone design wins to date are using our 8 Series and total design wins for Snapdragon 888 increased more than 20% quarter-over-quarter. We're also seeing strong traction with our Snapdragon 7 Series mobile platforms, with nearly 40 new devices shipped or announced during this last quarter alone. Based on our design win traction and performance of our customers, we have increased confidence in growing our handset revenues. Snapdragon premium and high-tier solutions remain synonymous with Android flagship mobile experiences. Second, we're still on track to materially improve supply by the end of the calendar year. We're securing incremental capacity across both leading and mature nodes and optimizing the allocation of our products across the global supply chain. We're also making progress with our multi-sourcing initiatives. In fiscal Q3, the Snapdragon 778 G, the first of several products from our multi-sourcing initiatives, was commercialized in record time and is now shipping in volume. Additional products from our multi-sourcing initiatives will be commercialized in the coming months. I would like to thank our employees, our suppliers, and our customers for helping us navigate the challenging supply environment. In our licensing business, our third quarter results reflect the strength of our patent portfolio and the stability of our licensing program. We are a global 5G IP leader with more than 150 5G license agreements signed to date, up from more than one-third at last quarter. We continued to develop and patent new essential innovations for future releases of 5G, and we expect 5G to have a longer lifecycle than prior generations due to its broad application across multiple industries. I would now like to turn the call over to Akash.

Thank you, Cristiano, and good afternoon, everyone. We are pleased to report another exceptional quarter in a challenging environment, as we continue to execute on our priorities, including 5G adoption, revenue diversification, and operating leverage. Our third quarter results were above the high-end of our guidance, with non-GAAP revenues of $8 billion and non-GAAP EPS of $1.92. These results reflect a 63% year-over-year increase in non-GAAP revenues and more than doubling of EPS, driven by strength across QCT and QTL, including a partial recovery from the impact of COVID in the year ago period. QTL revenues of $1.5 billion and EBT margins of 71% were about the midpoint of our guidance. These results reflect the impact of a stronger mix offset by lower than expected units in China and India. QCT revenues of $6.5 billion and EBT margins of 28% were above the high-end of our guidance. EBT of $1.8 billion nearly tripled versus the year ago period on revenue growth of 70% and 12 points of EBT margin expansion. Handset revenues increased 57% year-over-year to $3.9 billion, driven by the adoption of 5G products in premium and high-tier devices across all major OEMs. Combined RF front-end, IoT, and automotive revenues accounted for approximately 40% of total QCT revenues within the quarter and grew 1.6 times faster than handset revenues year-over-year. RF front-end revenues of $957 million more than doubled year-over-year on the strength of our broad product portfolio and customer traction. As a reminder, our RF front-end revenues include power amplifiers, trackers, antenna tuners, filters, diversity and millimeter wave modules, and excludes revenue from RF transceivers. IoT revenues grew 83% year-over-year to $1.4 billion, an increase of approximately $100 million versus guidance. The outperformance was driven by demand across consumer edge networking and industrial platforms. Automotive revenues of $253 million grew 83% year-over-year on the adoption of connected cars and expansion of digital cockpit revenues. Our increasing design win pipeline now puts us on track to exceed the 2024 revenue target outlined at last Investor Day. Turning to our guidance for handset units and the fourth fiscal quarter. For calendar 2021, we're maintaining our forecast for high single-digit growth for global 3G, 4G, and 5G handsets, including 450 to 550 million 5G handsets. Given the strong adoption of 5G in developed regions in China, we have a bias towards the high end of our 5G forecast. In the fourth fiscal quarter, we are forecasting revenues of $8.4 billion to $9.2 billion and non-GAAP EPS of $2.15 to $2.35. In QTL, we expect revenues of $1.45 billion to $1.65 billion and EBT margins of 69% to 73%. In QCT, we expect revenues of $7 billion to $7.5 billion and EBT margins of 29% to 31%. At the midpoint, this implies year-over-year revenue growth of 46% and EBT dollar growth of 114%. The strength of our QCT forecast reflects sequential growth across all revenue streams, including premium and high-tier device launches and operating leverage benefit from extending our mobile technology and investments across IoT and automotive. Lastly, we anticipate non-GAAP combined R&D and SG&A expenses to grow 2% to 3% sequentially. Based on the midpoint of our fourth quarter guidance, I would like to emphasize some key metrics for fiscal 2021. We expect non-GAAP EPS of $8.24, nearly doubling relative to fiscal 2020. Within QCT, we expect year-over-year revenue growth of $10 billion and operating margin expansion from 17% in fiscal 2020 to 28% in fiscal 2021. With our continued focus on diversification, we're forecasting RF front-end, IoT and automotive combined revenues to grow from $6 billion in fiscal 2020 to $10 billion in fiscal 2021. We expect to exit the fiscal year with a strong product roadmap, expanded design win pipeline, and increased customer traction. Before I finish my prepared remarks, I'd like to highlight a couple of items. As part of our ongoing ESG efforts, we recently started purchasing 100% renewable solar energy for our San Diego headquarters, which will significantly reduce our annual greenhouse gas emissions. Lastly, we'll be hosting our Investor Day in New York on November 16th, where we will provide an update on our long-term strategy and financial outlook. Thank you. And I'll now turn the call back to Mauricio.

Thank you, Akash. Operator, we are now ready for questions.

Thank you. Our first question is coming from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

Great. Thank you. Congratulations on the strong results. Just wanted to focus on the QCT margins. While June is seemingly a softer quarter, with Apple back in the model, the margins came in above your guidance and you’re guiding to a 30% sequentially. Could you, Akash, maybe provide any estimates, or supply constraints or expedited shipments? Did that adversely impact guidance at all? And is 28% EBT margins, is that now good to think of it as a floor? And if not, what are some puts and takes that might move it lower over time?

Sure. Mike, thanks for the question. Really, when you look at our operating leverage performance in the year, we were pretty happy with the way we've seen the operating margin expansion with revenue growth. If you look at what happened in the third quarter, we had a guidance midpoint of 25%. We came in at 28%, and so that's on the strength largely of revenue coming in higher and then strong gross margin performance as well. And then, now we are forecasting a midpoint of 30% in the fourth fiscal quarter. So, really, when you think about it going forward, we plan our margins around revenue scale and R&D investments, and the trick really for us is to optimize those two. As we mentioned in our prepared remarks, as we exit the fiscal year, we feel like we're in a very strong position from a design win perspective to continue to grow revenues. And as we optimize investments against it, I think we have an opportunity to continue to expand our operating margins.

Thanks for my follow-up, maybe for Cristiano. Focusing on the IoT business, which has seen impressive 83% year-over-year growth, how should we think about a reasonable compound annual growth rate for this business? Additionally, what portion of the business currently comes from 5G, and how can 5G contribute to the growth of the IoT business?

Thank you, Mike. That's an excellent question. We are quite enthusiastic about this business for several reasons. Firstly, it is highly diversified, encompassing various aspects of our IoT segment, including consumer, networking, and industrial applications. We are observing significant growth trends driven by accelerated digital transformation. We will share more details on our growth expectations for this business during our Analyst Day. This represents one of the largest market expansion opportunities for Qualcomm, characterized by not only higher growth rates compared to handsets—about 1.6 times our non-handset growth rate as Akash mentioned—but also contributing positively to margins and creating operational leverage. So, stay tuned for more updates; we are very optimistic about the current state of our IoT segment.

Thank you. Our next question is coming from Chris Caso with Raymond James. Please proceed with your question.

Yes. Thank you. Good afternoon. I guess for the first question, maybe you could talk about what generated the upside in the quarter as compared to your expectations. Was it a matter of getting more supply? Because I know supply constraints were a big concern coming in. And then if you could talk to us about the status of those supply constraints going into the end of the year? You talked about getting some additional supply. Does that benefit the December quarter, or where does that supply come farther out in time?

Hey, Chris, it's Akash. I'll address both of your questions, and Cristiano may want to add his thoughts. For the third fiscal quarter, our guidance midpoint was $1.65, and we actually reached $1.92, with most of the upside coming from QCT. We performed slightly better than QTL, which resulted from a small decrease in units sold in India and China in the low tier, balanced by a stronger product mix, particularly with 5G in various regions. In terms of QCT, we were pleased with the growth we observed this quarter, as we saw strength across all revenue streams, not just handsets but also IoT, RF front-end, and automotive. Additionally, we experienced a stronger product mix that contributed positively. On the IoT side, we had significant upside, with revenue $100 million higher than our guidance. Regarding gross margin performance, we are satisfied with how it performed this quarter, and these were some of the main factors that contributed to our results. Moving on to supply, as mentioned in Cristiano's remarks, we expect supply to improve significantly by the end of the year, which is driven by two key factors. First, we are benefiting from multi-sourcing initiatives that we've implemented over the past months, allowing us to utilize available capacity across foundries. Second, some of our suppliers' previously planned capacity expansions will be coming online towards the end of the year. These initiatives are in progress and are benefitting us. We've recently commercialized our first multi-sourcing product, with a couple more on the way. The benefits of these efforts are reflected in our September quarter guidance, and we anticipate even greater advantages in the December quarter guidance.

Chris, this is Cristiano. I want to highlight that despite our strong results, with both revenue and EPS exceeding our guidance, we are still experiencing demand that outpaces supply. Demand is greater than supply across all of our business sectors. Looking ahead to our guidance for the next quarter, it aligns with our previous statement indicating we anticipate significant improvement in supply to Qualcomm by the end of the year. This is positive news, and overall, we continue to see robust demand in every business segment outpacing supply.

That’s very helpful. Thank you. For my follow-up, I wanted to address one of the investor concerns to give you the opportunity to address it. And that's the modem socket at Apple. Apple has also expressed that they're working on their own modems, which is a concern for investors. I know that you're limited in what you can say about that, but I wanted to hear what you could share. Additionally, could you talk about the potential impact if Apple were to pursue that direction and what it would mean for Qualcomm?

Thanks for your follow-up question. Two answers for you and not any different than what you would expect from Qualcomm. I think, the very first one, yes, we're very happy with our relationship with Apple. We're just on their first phone. We have other phones to go and we're very happy with it, the way things are progressing. At the end of the day, you should always think of Qualcomm. We have always been really focused on seller technology, the first with every new generation of wireless. And as long as modem continues to be relevant, there's always going to be a place for Qualcomm in this business. The second part of the answer, which I think is the most important and an opportunity to address investor concerns is the biggest opportunity for Qualcomm in mobile is the changes that are happening in the mobile landscape right now. As a matter of fact, this quarter, Xiaomi is now the number two OEM in award and shipments. And we see the shifts in OEM market share create an incredible opportunity for us. Snapdragon became synonymous with Android premium and high-tier. That is how we are going to go faster than the market and an incredible opportunity for revenue and earnings, looking at the whole value of the Snapdragon platform. We're super focused on executing on this opportunity, and it's going to be one of the key drivers of growth in Qualcomm's handset strategy going forward.

Thank you. Our next question is coming from the line of Samik Chatterjee with JPMorgan. Please proceed with your question.

Hi. Good afternoon. Congratulations on the results. Hi, Cristiano. Hi, Akash. I wanted to start by discussing the RF results and the great progress being made there. It seems like you're on track to become one of the largest RF suppliers. Could you provide us with an update on your market share compared to some of the established players? What gives you confidence in reaching a leading position in that market? I also have a follow-up question.

Hey, Samik. It’s Akash. Thanks for your question. Overall, on the RF front-end side, the starting point for us obviously always is, having the right product portfolio. And so, over the last three years, we've been investing in the breadth of the portfolio and we are in a very good place. I think, as you look forward, not only are we the leaders in the modem to RF end-to-end system solutions, but also each individual component within RF front-end. We feel like we're in a very competitive and strong product position. The second is just the design win pipeline that we have in front of us. We have great relationships with the OEMs in the mobile industry. And so that relationship then extends into providing an end-to-end solution for them. And so, as we look forward and based on our conversations to commitments we have from the OEMs on the designs, we feel very confident that we have an upward trajectory going forward. And then finally, in terms of scale, really when we look at the scale within handsets, we already feel like we're maybe the largest player in the industry in RF front-end. And the opportunity for us is as 5G expands outside, how do we take our position in the handsets while we continue to grow within handsets, but also take it outside and grow in other areas.

For my follow-up, Akash, you talked about the growth in handsets, just kind of thinking a bit more longer-term and into next year, how should we think about what's the primary driver here? Is it still content increase as you get more on 5G phones, or is it really the $10 billion Huawei TAM that you've talked about? And in that context, can you talk about MediaTek products and the competitive landscape there and how that's evolving?

Yeah. So maybe I'll address the first part and then Cristiano can address the MediaTek competitive landscape. Overall, I think the answer to your question is all of the above, right? We clearly have a long way to go within 5G. We're at the front-end of it. And we're going to see the rest of the tiers transition over as well. And as that happens, we still think the metric that we gave previously of a 1.5x multiplier on our revenue and margin opportunities still holds. In addition to that, as you're seeing the changing OEM landscape benefit us with our customers winning share. And as that happens, when you combine that with our product portfolio within 5G and design commitments from our customers, especially in the premium and high-tiers, that positions us to grow significantly as we move into fiscal 2022. Maybe a quick data point to give on Honor, they are in the process of launching three phones with us. One is a premium-tier Snapdragon 888 phone, and then two in the high-tier. And so, it's just an example of how we are expanding our customer base.

Hi, Samik. The straightforward answer is that we see numerous opportunities for growth among other companies in the evolving landscape. It's crucial for Qualcomm to highlight a couple of key metrics. As Akash mentioned, we not only have a solid roadmap but also strong customer commitments to premium and high-tier designs. The total design wins for Snapdragon 800 rose by 20% quarter-over-quarter, and for total 5G design wins, half are Snapdragon 8 Series designs. This clearly indicates Qualcomm's potential in the premium and high-tier segments, allowing us to capture a significant portion of the market value. The handset segment is also growing—handsets are up 6 billion year-over-year, with Q3 2021 handset revenue increasing by 57%. This clearly shows we are well-positioned, and we see this as a major growth opportunity for the handset business, as we continue to execute in this new total addressable market with premium and high-tier devices.

Thank you. Our next question is coming from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Hi, guys. Thanks for letting me ask you a question. I guess this is my first one. I wanted to ask a question on gross margins to Akash. It's impressive that you guys grew your gross margin 70 basis points sequentially, despite the QCT side of the equation dropping in your mix. So, I just wanted to get into a little bit about what's driving that upside in gross margin in the quarter. And more importantly, structurally going forward, given the new markets you're entering into the position you guys have in the market, is there anything structurally that would keep you from getting a gross margin more aligned to kind of even the mid-fifties range where a lot of your fabless peers currently reside.

Hey, Ross. Thanks for your question. As I mentioned earlier, we're quite satisfied with our gross margins. This is due to a couple of factors. First, we have a stronger mix of products, and with increased adoption of our solutions in premium and high-tier categories, this benefits both our percentage and dollar gross margins. Secondly, the business mix plays a role, and as we expand into areas like automotive and IoT, our gross margin profile improves as this growth contributes positively. This will be an important aspect for us moving forward, as you pointed out.

Great. Thanks for that color. And yeah, I should have clarified that the mid-fifties gross margin would be for the QCT side, not overall. But I guess as my follow-up question separately, whether it's Cristiano or Akash, how should we think just about pluses and minuses for the calendar fourth quarter, you have a lot of different dynamics, the timing of premium launches, new launches from the Huawei, Honor, China ecosystem supply coming on board. So just a lot of different puts and takes that could make historical seasonality really be thrown out the window. So, any sort of just even directional color there on those puts and takes would be helpful.

Sure. So, as you know, well, it's a seasonally strong quarter for the company overall. And let me just maybe quickly hit the two businesses. Within QTL, we've said in the past that we expect the holiday quarter to be around $1.7 billion range. So, at this point we're not seeing anything different to give separate data points. On the QCT side, we expect the seasonality to be a favorable thing for all of our businesses. So not just handsets, but RF front-end, IoT and auto. And so, we'll see a typical seasonal benefit. Within handsets, obviously we're getting the benefit from the launch of new handsets that happen during that time, especially in the premium and high-tier, and then, some supply improvements coming into the picture as well. The one thing to keep in mind as a reminder last year, we had a higher than normal sequential increase from September to December quarter. And that was obviously because of two reasons that we would not have this time. First is Apple coming back as a customer to Qualcomm. And so that exaggerated the seasonality. And then also, there was a delay in their phone launch. So, those are two key factors. If you compare to last year, those wouldn't be factors that would imply this year.

Thank you. Our next question is coming from the line of Blayne Curtis with Barclays. Please proceed with your question.

Good afternoon. I appreciate the detailed information on the IoT business that you shared. It’s a vast area, so I’m curious if you can specify which of the three sub-segments are showing the most strength. The business has nearly doubled since you started detailing it. Given its diversity, how would you address the question of where you are observing the greatest strength within these segments?

Yes, Blayne, it's Akash. Let me address that. In our IoT business this year, we generated approximately $1.1 billion in revenue for March, which grew to $1.4 billion. We believe we are well-positioned to continue growing that revenue stream, reflecting some interesting trends. When we analyze the business, we've categorized it into three segments: edge networking, consumer, and industrial. None of these categories are dominant, so it's important to view all three as significant contributors to our total revenue. I’d like to highlight a few points. In edge networking, both our Wi-Fi access point and 5G fixed wireless businesses are performing strongly. Particularly with the 5G fixed wireless market, we are just at the beginning, and it is making a notable impact for us. We are eager about the growth potential it presents in the coming years. In the consumer sector, we have a wide range of products, and revenue comes from several of them. Looking ahead, the opportunities in next-generation PCs and AR/VR will be substantial growth drivers. Lastly, in the industrial segment, we see a very broad landscape, and we are still in the early stages in that market. There’s a long journey ahead of us, and we are excited about the demand for our technologies in all these markets.

Thank you. Our next question is coming from Matt Ramsay with Cowen. Please proceed with your question.

Yeah. Thank you very much. Good afternoon. I guess, my first question goes back to the TAM, that is you guys outlined $10 billion from what Huawei is exiting and your customers are going to go into. We've been all trying to track as Huawei has kind of depleted their own inventory and now yourselves and MediaTek are growing into that business again some supply constraints. So, of that $10 billion TAM, that’s out there for you, just ballpark about how much do you think you can realistically address in the September quarter? And how much of that TAM is still ahead of you guys as you go into fiscal 2022? Thanks.

Thanks Matt for that question. We will stay away from kind of breaking down that TAM. I don’t think we have that level of precision in kind of estimating our opportunity going forward. What gives us confidence that we will get a portion of it in the September quarter, but really this is a big tailwind for us going into fiscal 2022 is our conversations with the OEMs, commitments from them on designs, and really the supply improvements that we will get at the end of the year. And so, those are the three kind of factors that play into our confidence as we go into fiscal 2022.

Got it. Thanks. And as my follow-up, I wanted to ask a question, Cristiano on your automotive business, it seems really well positioned and you guys have talked about the pipeline growing with 5G connectivity being a fulcrum, and then the ability to do Wi-Fi, GPS, Bluetooth, in-dash display, et cetera, on the same integrated platform. I guess, what's the competitive landscape like that across those sockets for Qualcomm right now? And what kind of ASPs are you guys envisioning for that business, if as you would sell it as an integrated solution including RF? Thanks.

Thanks Matt for the question. Look, we really like our position in this space, especially because the trends of connecting the car to the cloud. It’s just the first step where you can do within the telematics or to connect the communications box in the car. You can add to that Wi-Fi, Bluetooth as you outlined, but also Cellular-V2X capabilities. So, a long roadmap. I think we have a very strong position given our understanding of the market, and the ability to provide a very modular solution. I think we're highly differentiated in the space, and it's really showing based on our design wins. Also, you're starting to see digital cockpit becoming more material in the revenue, which is really a much richer silicon opportunity for us. As we look at dashboard, the infotainment, rear-seat entertainment, heads-up display, smart mirrors, smart side-view mirrors, and so forth. And there is a completely redesigned in-car experience. I will argue today, Qualcomm is now winning the absolute majority of premium-tier car RFPs. We are engaged with 23 of the 26 brands, highly differentiated in the space, also because we can take a system approach connecting all those different systems together. You should start thinking about our automotive business as there are going to be a digital chassis that automotive companies will have to build. And we are differentiated because we have capabilities across multiple domains, and it's starting to reflect in the magnitude of our contracted pipeline.

Thank you. Our final question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Thank you. I'm curious about how the easing of supply chain constraints and shortages impacts your EBIT margin in QCT. Are you actively considering whether to sacrifice some of that 30% EBIT margin to regain market share that may have been lost? How are you addressing this? Do you have a specific target for EBIT margin or market share, and what are the trade-offs between the two?

Joe, it's Akash. Our framework on margins really is unchanged from the way we outlined it at Analyst Day last year. It's really a combination of two things. It's optimizing the gross margins, and the way we do that is a combination of the mix between premium high-tiers where the gross margins are a lot more attractive in handsets versus the lower-tiers. And then second is focusing on diversification outside, and so that adds scale to the margin profile. The next point I'd maybe highlight is a lot of the technology that funds the growth in IoT and auto is coming from mobile. So, mobile technology is being reused in these areas on a very large scale, and that allows us to really get the operating leverage benefit that we were planning for. And then, of course, we are balancing that with R&D investments and making sure we're investing in the right things that position us to continue to win in these exciting areas in the long term. So, it's a combination of those factors.

Thank you. Our next question comes from Rod Hall with Goldman Sachs. Please proceed with your question.

Yeah. Hi. Thanks for the question. I wanted to dig into millimeter wave a little bit. Last quarter you said it was about 20% of RFFE revenues. I wonder if you could tell us what it was this quarter. And then, if you might be able to indicate whether you expect that to continue. I mean, assuming it’s risen, do you expect to continue to rise where did that end the year, the calendar year for you? That’s my first question, and then I have a follow-up.

Yeah. Hi, Rod. It's Akash. I'll give you the metric on it and then I'll defer to Cristiano to add color on top of it. From a percent of total RFFE revenue, this quarter was not that different than last quarter in pretty similar range. When you think about it very long-term going into next year and the following year, as millimeter wave gets deployed, we expect that to be a vector for growth within RF front-end, so it will become a larger percent of the total pie.

Rod, in response to your second question, here's an update on millimeter wave developments. We are seeing everything align with our expectations for commercial networks in the United States, Japan, Italy, and Singapore. South Korea and Germany are next on the list. There are also several countries in Western Europe, Southeast Asia, and Russia making strides in this area. At the recent MWC Barcelona trade show, 150 carriers worldwide expressed their commitment to investing in millimeter wave technology, which is very encouraging. We believe there is significant potential for our business model, particularly with millimeter wave technology in China. We are actively involved in preparations for the Winter Olympics in early 2022, and if there is broader deployment in China, it could bring substantial benefits to our model.

Great. Okay. And then, I wanted to dig into the China weakness a little bit more. I know that you guys called it out in your comments, there is the Huawei opportunity I got. But curious if you could just comment on the wider market there, the weakness that we are seeing in handsets. Do you think this is just consistent with the maturity of that market? Do you think there are macro factors that are coming into play here? Could you just give us a little bit more color on what you think is going on in China? And maybe what the outlook there is in the next six months or so? Thanks.

Yeah. Rod, it's Akash. I think, as I mentioned in my prepared remarks, we did see some weakness within the quarter relative to your expectations in China and in India. A lot of the weakness we saw was at the low tier. So, the phenomena we saw is really kind of weaker low-tier, but then mix shift towards the high-end in these markets. And so, that’s a key trend that we are monitoring, which obviously on net/net, the mix shift is a very positive thing for us. The impact in India that we saw in the June quarter, obviously was related to the COVID situation there. And so, as that improves and has improved materially already, we would expect that some of those units come back into the September quarter and that's been factored into our guide.

Thank you. Our next question comes from Timothy Arcuri with UBS. Please proceed with your question.

Hi. This is Pradeep Ramani for Tim Arcuri. I had a couple of questions. Maybe the first one, just given the recent Intel announcement where you're partnering with Intel or IFS, what sort of commitment is this on your part? Is that sort of a volume commitment at this point? I realize it's some ways out, but it would be fair to say that it's going to service the U.S. customer?

Hi. Thanks for the question. Look, it's exactly very simple. Qualcomm, we are probably one of the few companies that given our scale is able to have multi-sourcing at the leading node. We have two strategic partners today, which are TSMC and Samsung. And we're very excited and happy about Intel deciding to become a foundry and investing in leading node technology to become a foundry. I think that’s great news for the United States, fabless industry. We are engaged. We are evaluating their technology. We don't yet have a specific product plan at this point, but we're pretty excited about Intel entering into this space. I think we all determine that semiconductors are important, and a resilient supply chain is only going to benefit our business.

Could you give some details on how the 5G related licensing agreements function for areas outside of smartphones? Is there a price limit, or is it based on revenue? Can you provide some insight on the arrangement?

What you see with QTL right now is that the top line numbers reflect the execution of long-term agreements with major handset manufacturers. On the non-handset side, we've had licensing agreements for a considerable time. Some are based on a percentage, while others are on a per unit dollar basis. We do not disclose details of these individual agreements or the total non-handset revenue, but we are making progress with 5G in the automotive and IoT sectors. However, the overall revenue from non-handset licensing is a relatively smaller portion of our total licensing revenue, so we do not provide a breakdown.

Thank you. Our next question comes from Brett Simpson with Arete Research. Please proceed with your question.

Yeah. Thanks very much. Cristiano, you made a lot of references to the Snapdragon 888 in your prepared remarks. And I wanted to ask more broadly about the Android flagship opportunity you see ahead. And I guess, historically, Huawei and Samsung have kind of dominated this segment, and that’s limited your share to some extent in flagship. But can you just share with us just your perspective on how you think this market plays out for Qualcomm? And what sort of market share you think you can attain? And what sort of timeframe do you think it takes to fully supply this segment of the market? Thanks.

Great question. Look, the market right now is a lot more favorable. And I want to take a minute to outline this. It used to be highly concentrated. If you look at the opportunity right now we have, we have a great relationship with Samsung, which is expanding. We have a relationship with Xiaomi, OPPO, Vivo, all in the premium-tier. We have a relationship with Honor. In record time, we launched Snapdragon 888 with Honor, the Magic3 device. So, if you look, it’s a much healthier market. You have at least five companies at scale that are driving the premium-tier, and that creates an incredible opportunity for us. And as you know, the Snapdragon premium-tier devices, there are a lot more revenues and earnings compared, for example, to just a modem technology alone. And the last comment I want to make on this, we're just at the beginning of this opportunity. We're showing with 5G a much better mix across the devices. The market is moving towards premium and high. We're very well-positioned in this space. And over time, we find the investments we have been making in CPU with NUVIA. We expect to take the differentiation to a whole another level. Thank you.

Thanks Cristiano. Maybe just a quick follow-up on automotive, because obviously with the backlog growing to $10 billion, what sort of silicon content do you think Qualcomm can address in autos? I mean, you talked about digital cockpit, and there are obviously 5G, and RF. When you add it all up, what sort of total silicon can Qualcomm address say by the middle of the decade in integral cars?

There is a lot of silicon opportunities for Qualcomm, and not to make an ASP disclosure. We will provide a lot more color in our Analyst Day, especially how all of the different elements of the digital chassis are evolving. But you see in the automotive business an opportunity for a lot more silicon content and much higher ASPs that we see in other businesses.

Thank you. Our final question comes from the line of Srini Pajjuri with SMBC. Please proceed with your question.

Thank you. I have a clarification and a question. First, on the RF business in the quarter that you reported, Akash. Historically, I've seen kind of handset and RF move hand-in-hand. But this quarter I think RF grew about 5% or 6%, and the handsets declined about 4% or 5%. Just trying to understand what explains that discrepancy?

Yeah. Hi, Srini. There are a couple of reasons. One is, you will see some differences in purchase timing for various things within our portfolio. So, sometimes RF components are purchased earlier that are not explicitly tied to a specific handset, so sometimes you see a timing difference that impacts these things. And then second is design wins, right? While RF is largely thought of as an attach business for our Qualcomm baseband, we do have business outside of Qualcomm baseband. So, we do attach to other devices and so that also becomes a different factor.

Got it. And then on the QTL side, I think you said for the Q4, the run rate should be about $1.7 billion in the peak quarter. Just trying to understand how we should think about growth in this business, Akash, because obviously you're guiding for handset units to grow high single digits and obviously 5G is potentially doubling or even more than that. And some of the adjacencies are adapting 5G. So, as we look into next year or two, can you talk about some of the potential growth drivers? I mean, whether it's in low end or mid end smartphones adapting 5G, or some of their adjacencies. I'm just curious as to why we are not seeing a bit more pronounced growth here. Thank you.

Yeah. Srini, I'll reiterate what we said at the Analyst Day a couple of years ago. When you look at our licensing business, we kind of have a base case for the business and we think of it as other things as upside opportunities. The way to model our business is really, you have our June quarter numbers, and then we are forecasting September and then we gave a data point for December. So, those are reasonable data points to project forward to get to an annual number for the licensing business. There are a few things that could drive upside on top of that, but again we think of it as upside opportunities. The growth outside handsets is a factor. Second is, as I mentioned earlier in the call, we're seeing a mix shift that's very positive for us. And so, as the mix shift continues, we will see the benefit in QCT, but we'll also see the benefit in QTL. And so that would be another upside driver, and especially with 5G penetrating the lower tiers, there will be a factor for QTL as well. And again, it would show up through better ASPs and as a result better revenues. So, hopefully that helps in framing the forward path for it.

Thank you. That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call?

Thanks everyone for joining us on the call today. Once again, I would like to say thank you to our employees who are staying focused and delivering results. I look forward to leading Qualcomm, leading in 5G, and building on the success of our diversification strategy.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.