Earnings Call Transcript - QCOM Q3 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter Fiscal 2024 Earnings Conference Call. As a reminder, this conference is being recorded, July 31, 2024. The playback number for today's call is (877) 660-6853; international callers, please dial (201) 612-7415. The playback reservation number is 13747430. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead.

Mauricio Lopez-Hodoyan, Vice President of Investor Relations

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a 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 today, 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 President and Chief Executive Officer, Cristiano Amon.

Cristiano Amon, President and CEO

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q3, we delivered non-GAAP revenues of $9.4 billion and non-GAAP earnings per share of $2.33, which was above the midpoint of our guidance range. Revenues from our chipset business of $8.1 billion reflect a sequential growth in automotive and IoT and continued traction of our Snapdragon mobile platforms across leading smartphones. Our automotive and IoT revenues were the result of ongoing execution of our diversification strategy. Licensing business revenues were $1.3 billion. Now I would like to share some key highlights from the business. In automotive, we secured more than 10 new design wins with global automakers during the quarter. These include next-generation digital cockpit connectivity and/or ADAS and autonomy. Our Snapdragon Digital Chassis continues to scale across virtually all OEMs and is now a key asset for the automotive industry. As we look forward, we're focused on extending our industry-leading on-device AI solutions to the Snapdragon Digital Chassis to enable automotive-centric Gen AI use cases and applications. It's important to note that our architecture with capabilities across all domains is uniquely positioned to enable sensor data to be utilized simultaneously for ADAS autonomy workloads and user-centric Gen AI experiences in the digital cockpit. A great example is our Snapdragon Ride Flex solution, which combines digital cockpit and ADAS on a single SoC. Future drivers for automotive growth include Gen AI experiences, the software-defined vehicle transition, central computing replacing microcontrollers, expansion into 2-wheelers, and core to cloud services. In handsets, we are pleased that all Galaxy Z Fold6 and Flip6 are powered by the Snapdragon 803 for Galaxy, delivering extraordinary AI capabilities, premium-level performance, and power efficiency for foldable devices. Together with Samsung and our other partners, we continue to push the boundaries of on-device Gen AI on mobile devices. To that end, we're pleased with the growth and trajectory of AI use cases on smartphones. This continued expansion of AI features is a precursor to next-generation smartphones, which we believe will become AI-centric with pervasive on-device AI working across applications in the cloud. Qualcomm is very well-positioned to help drive this transformation across the industry in the coming years. At our upcoming Snapdragon Summit in October, we will reveal details of our next-generation Snapdragon 8 flagship mobile platform, the first to be powered by our custom Oryon CPU. This platform, combined with new and unparalleled NPU AI capabilities, is already exceeding both our and our customers' performance expectations. In compute, we're very pleased that Copilot+ PCs powered exclusively by Snapdragon X Series platforms became available for purchase on June 18. This marks the start of one of the most significant transitions in personal computing since the launch of Windows 95 and is restoring performance leadership back to the Windows ecosystem. Twenty Copilot+ PCs from Microsoft, Dell, HP, Lenovo, Acer, ASUS, and Samsung are now available across 20 countries and 47 retailers. It's important to highlight the unique Copilot+ and Snapdragon ex-elite dedicated retail spaces in Best Buy, Costco, Curies, Harvey Norman, and many more. We are very pleased with the initial response, with several models selling out at retailers and online. Our retail presence is expected to expand to more than 60 retailers across 25 countries in the coming months. We're also working closely with more than 50 global commercial customers to drive Snapdragon readiness in their respective environments. Additionally, we added the Snapdragon X Series platforms to the Qualcomm AI hub, allowing developers to easily take advantage of optimized AI models to create responsive, power-efficient, and compelling on-device generative AI applications for Copilot+ PCs. As we look forward to 2025, we are already working with OEMs on the next wave of Copilot+ PCs. In addition to new design wins, our X Series product roadmap will expand to address PCs with retail prices as low as $700 without compromising NPU performance. Longer term, we believe the benefits of Snapdragon X Series platforms make it clear that the PC ecosystem has begun the transition to an ARM-compatible architecture. As we look forward, we're forecasting that at least 50% of PCs will be AI capable by 2027. Given our clear technology leadership and competitive roadmap, we expect to be positioned as one of the top silicon suppliers for these devices. We also remain excited about the continued positive momentum in XR, particularly the success of Meta's Ray-Ban smart glasses. Sales are exceeding our expectations, due in part to the integration of Llama into the experience. We foresee an acceleration in demand for extended and mixed reality devices as new use cases enabled by Gen AI gain scale. Snapdragon XR remains the industry platform of choice, and we are engaged with major ecosystem players, including Meta, Google, Microsoft, and others. Most recently, at the Augmented World Expo, we showcased two of the latest XR devices, NTT's augmented reality glasses and Sony's upcoming head-mounted mixed reality device. In industrial IoT, we're pleased to report that we're now collaborating with Aramco on connectivity, AI, and advanced computing solutions for industrial and enterprise use cases in Saudi Arabia. This also includes accelerating the development of the industrial 4G, 5G, and non-terrestrial networks ecosystem, including the first significant wide-area private cellular network for IoT. As the industrial sector is transformed by AI, we expect an increase in demand for more complex on-device processing. This trend aligns well with our core capabilities, especially the computing and AI roadmap we have built for Auto and PC. As high-performance processing and intelligence at the edge becomes critical for the next phase of enterprise digital transformation, we see a unique opportunity to build a leadership position in this space. In the next few months, we will announce our new dedicated product roadmap for industrial IoT, including support for multiple operating systems and the ability to run multi-billion parameter AI models in a comprehensive development platform. Finally, we're very pleased to share that we recently signed a key long-term licensing agreement with Honor, a leading Chinese smartphone OEM. We continue to be pleased with the company's diversification beyond mobile, and we're particularly proud of what we have accomplished to date in automotive and PC. We will provide additional updates on our diversification strategy at our Investor Day in New York on November 19. I would now like to turn the call over to Akash.

Akash Palkhiwala, CFO

Thank you, Cristiano, and good afternoon, everyone. I'll start with our third fiscal quarter earnings. We are pleased to announce strong non-GAAP results with revenue of $9.4 billion and EPS of $2.33, both of which were above the midpoint of our guidance. QTL revenues of $1.3 billion and EBT margin of 70% were in line with our expectations. QCT delivered revenues of $8.1 billion and EBITDA margin of 27%, which was at the high end of our guidance range, driven by upside in both IoT and automotive. QCT handset revenues of $5.9 billion were in line with expectations, reflecting our scale in premium Android handsets and greater than 50% year-over-year growth in revenues from Chinese OEMs. QCT IoT revenues increased 9% sequentially to $1.4 billion as we continue to see a gradual recovery in the industry environment. We delivered our fourth consecutive quarter of record QCT automotive revenues of $811 million, with sequential growth of 34%. Our revenue acceleration reflects content growth in new vehicle launches as we become the leading supplier of advanced computing and connectivity solutions to the automotive industry. Lastly, we returned $2.3 billion to stockholders during the quarter, including $1.3 billion in stock repurchases and $949 million in dividends. Before turning to guidance, I would like to outline three factors included in our forecast. First, consistent with our long-term financial planning assumption of largely flat handset units, we continue to estimate global 3G/4G/5G units in calendar '24 to be flat to slightly up on a year-over-year basis. Second, our license to export products to Huawei, which was set to expire in late calendar '24, was revoked on May 7. This change will impact our revenues in both the current quarter and the first quarter of fiscal '25. Lastly, our fourth fiscal quarter includes an additional week as we align our fiscal reporting period with the calendar quarter end every 5 to 6 years. Now turning to fourth fiscal quarter guidance. We are forecasting revenues of $9.5 billion to $10.3 billion and non-GAAP EPS of $2.45 to $2.65. In QTL, we estimate revenues of $1.35 billion to $1.55 billion and EBT margins of 70% to 74%, reflecting normal seasonality for handset units. In QCT, we expect revenues of $8.1 billion to $8.7 billion and EBT margins of 27% to 29%. We expect QCT handset revenues to grow by low single-digit percentages sequentially. This forecast reflects an increase in purchases from a modem-only handset customer, partially offset by seasonally lower Android revenue ahead of our new Snapdragon premium chipset launch in the first quarter of fiscal '25. We expect QCT IoT revenues will increase by low double-digit percentages sequentially, driven by growth across consumer, networking, and industrial. Following our outperformance in the third quarter, we expect QCT automotive revenues to remain flat in the fourth fiscal quarter. We are on track to deliver approximately 50% year-over-year revenue growth in fiscal '24, providing confidence in our ability to execute to our long-term targets. Lastly, we expect non-GAAP operating expenses to be approximately $2.2 billion. In closing, we are pleased with our execution and financial performance in fiscal '24. Based on the midpoint of our guidance, we are on track to deliver strong non-GAAP EPS growth of approximately 20% relative to fiscal '23. Over the last quarter, industry support for our vision for on-device AI has accelerated and been validated by several key players. Beyond handsets and PCs, we expect on-device AI to drive competitive differentiation for us in industrial, networking, automotive, and XR. Our leading technology and product portfolio has positioned us to continue to execute on our diversification strategy. And in the months ahead, we look forward to introducing new industry-leading products across all our end markets. Finally, as Cristiano outlined, we'll be hosting our Investor Day on November 19, where we'll provide an update on our IoT and automotive diversification strategy. This concludes our prepared remarks. Back to you, Mauricio.

Mauricio Lopez-Hodoyan, Vice President of Investor Relations

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

Operator, Operator

First question will come from the line of Matt Ramsay with TD Cowen.

Matt Ramsay, Analyst

I have a couple of questions that really highlight the diversification the company is beginning to achieve in its revenue. First, in the automotive sector, there seems to be significant potential. Could you discuss the revenue streams emerging from OEM programs that you secured two or three years ago? Do you anticipate this trend will continue over the next several quarters? What kind of momentum can we expect as these units start to launch from the programs you won long ago? Secondly, Cristiano, there is considerable interest in AI PCs. With the holiday ramp period approaching, could you share your current expectations for what the PC market might bring in terms of units or revenue for the company as we look ahead to the next fiscal year?

Cristiano Amon, President and CEO

Thank you, Matt, for your questions. Let's start with automotive. We're very pleased with our automotive performance, and it's encouraging to see the pipeline translating into revenue. There are a couple of key points I want to highlight. Firstly, our automotive revenue is driven by our share of new car launches featuring our technology, which is relevant regardless of whether the industry is focused on internal combustion or electric vehicles. The Snapdragon Digital Chassis has become a vital asset in the automotive sector. In the last quarter alone, we launched 10 new models using our technology and secured 10 new design wins, which further enhances our pipeline. We're excited about the growth potential as these new cars hit the market. As mentioned earlier, we're on track to meet our goal of $4 billion by 2026. Additionally, Gen AI is creating exciting opportunities in automotive, particularly with large language models enhancing user interfaces for drivers. We're starting to see innovative use cases developing, which could lead to an upgrade in the digital cockpits we provide. Regarding PCs, we're pleased to report that performance has exceeded our expectations. The new Windows version, Copilot+, is built on an ARM-compatible architecture, and we're anticipating gradual ramp-up over time. Currently, we have 20 models launched that are surpassing our internal targets, with some models even selling out. We expect this momentum to continue as the market transitions. We will have new product announcements at IFA, and we're excited about the additional Copilot+ features being introduced by Microsoft. Similar to automotive, we believe PC will play a significant role in diversifying our company, and we will monitor its performance each quarter.

Operator, Operator

Our next question is from the line of Samik Chatterjee with JPMorgan.

Samik Chatterjee, Analyst

Congrats on the strong print here. I guess, Cristiano, if I start you off with those smartphone question here related to AI smartphones. One, can you share if you're seeing any appreciable difference in the demand for smartphones with AI features in them from consumers already? And as you look to the pipeline in terms of design wins for next year, how are you thinking about the proliferation of the AI features and capabilities into more mid-tier or outside of the flagship smartphones that you work with your customers? And I have a follow-up.

Cristiano Amon, President and CEO

Thank you for your question, Samik. Regarding smartphones, I want to emphasize something we appreciate. This was reflected in some metrics shared by Akash, highlighting a 50% growth within China with local OEMs. This growth has expanded the size of the premium tier. Even in a market with flat or low single-digit growth, the premium tier is experiencing faster expansion. We are observing a larger premium tier supported by AI. In response to your question, we are pleased with the progress of AI features. We began with a few but now have tens of AI features, and once we reach 100, we'll notice a shift where a smartphone with AI features will be considered an AI smartphone. We don’t have any unrealistic expectations in our model, but we are optimistic about the direction this is heading, which could lead to an intriguing upside if we enter an AI-driven upgrade cycle. It's still early, but the use cases are getting more compelling. I mentioned the increased use cases in the Galaxy Flip6 and Fold6. China has several use cases that will be introduced in the next flagship. You also asked about integrating AI into mid-tier devices, and we plan to do that. Similar to our approach with PCs, we are expanding our roadmap without compromising on AI capabilities, which will also apply to our mobile strategy. I am particularly excited about the upcoming launch of our next Snapdragon featuring our custom CPU. You will see a comparable shift in performance that we achieved in the PC ecosystem, restoring performance in the Windows ecosystem; we aim to replicate that in smartphones, with AI playing a significant role in the narrative.

Samik Chatterjee, Analyst

Got it. And a quick one for Akash. Akash, the guide for September revenues, that looks pretty similar to what you were sort of soft guiding us to back sort of 90 days ago, although you now have incremental headwinds with the license to export to Huawei. How should we think about sort of where you're finding the offsets? Where is the upside to help you offset that incremental headwind?

Akash Palkhiwala, CFO

Thanks, Samik. We're pleased with how the quarter has unfolded. In our handset business, we anticipate low single-digit percentage growth quarter-over-quarter. For IoT, we're expecting low double-digit growth, with strong performance in industrial, edge networking, and consumer sectors. In the automotive sector, after a very strong quarter in June, we're projecting flat revenue for the September quarter. Both IoT and automotive are exceeding our earlier expectations, and this positive impact is reflected in our guidance.

Operator, Operator

Our next question is from the line of Chris Caso with Wolfe Research.

Chris Caso, Analyst

I guess first question is just a clarification on the extra week in the quarter that you referred to. Can you speak about what impact you might expect it to have on both revenue and cost? And if there's any implications on that the absence of the extra week, as you go into the following quarter, which is obviously a seasonally strong quarter.

Akash Palkhiwala, CFO

Yes, Chris. When considering the two factors I mentioned for our guidance, the additional week and the reduction in Huawei revenue largely offset each other. The net effect on our overall guidance is minimal when you take both factors into account. Specifically regarding the extra week, not all weeks are equal across different areas of our business. We have projected additional revenue on the QCT side and incremental operating expenses as well. Additionally, within QCT, the revenue forecast and the benefits from our flagship phone launch remain consistent regardless of the number of weeks. Overall, when looking at the two main factors I discussed, they essentially balance each other out.

Chris Caso, Analyst

Okay. Understood. Moving to QTL, the guidance for the fourth quarter is outside the range previously mentioned. Your expectations for global handset units remain unchanged. Can you explain the reason for the QTL guidance and its sustainability going forward, considering that the first quarter is usually stronger for that segment?

Akash Palkhiwala, CFO

Yes, sure. So the QTL guidance is relatively straightforward. If you look at June to September, we typically see very small growth on a quarter-over-quarter basis. So we factored that in. And then we have the extra week on top of it as well, which is also factored into our numbers. So that's how we got to the number we're guiding for QTL.

Operator, Operator

Our next question is from the line of Stacy Rasgon with Bernstein Research.

Stacy Rasgon, Analyst

I want to ask the second half of Chris' question again that you didn't quite get to. The extra week, I should think about the implication for December quarter seasonality coming off of that. What are you guys thinking for December? If you could help us shape that a little bit?

Akash Palkhiwala, CFO

Sure, Stacy. As you know, we usually see growth in the first quarter leading into the December quarter, and we anticipate it to be the strongest seasonal quarter of the year ahead. When considering this quarter, there are a few factors to keep in mind. First, the launch of our new Android premium tier chip will positively impact us. We will transition from 16 weeks down to 13 weeks within the quarter. Additionally, compared to last year, we will not have any product revenue from Huawei, which we had last year. Overall, when looking at year-over-year comparisons, we expect revenue growth to be largely in line with the growth we experienced in the December quarter last year.

Stacy Rasgon, Analyst

Got it. That's helpful. If you could also just give us any sort of incremental color. How much of the guide actually includes how much of the guide is PC revenue at this point for next quarter? I know you said the consumer piece sounds like it's growing in IoT; that's where it is, but how much of it actually is PCs?

Akash Palkhiwala, CFO

Yes. I mean Stacy, in all candor, we're a few weeks into our launch. And so it's too early to kind of have either a bullish assumption or a specific assumption on PC. We do have indications from our customers and we've tried our best to factor it in as we usually do. But as Cristiano said, to us, this is about the longer-term growth opportunity and being very specific on sell-through in the short term is not really something that we have insight into. But we will, as we get to Investor Day, we're going to give a lot more disclosure on our specific plans on revenue ramp.

Operator, Operator

Our next question comes from the line of Joe Moore with Morgan Stanley.

Joe Moore, Analyst

I wanted to revisit the 50% growth in handsets in China. It seems like you mentioned growth in the premium segment there. Can you provide insight into how much of this growth is driven by price versus units? Is the market expanding? Additionally, could you comment on market share since your figures appear to be better than those of your competitors?

Akash Palkhiwala, CFO

Yes. So if you look at the total handset market, our general assumption is that from '23 to '24, it's flat to slightly up. So the market is not growing. But within that, the premium tier, the trend has been very positive. We've gone from greater than $400 representing 21% of the market now to representing 31% of the market. And so that's very significant growth that we are benefiting from. And as you know, we are very strong at the premium tier. And as that market expands, we get to participate in that, not just from a revenue perspective, but content increase perspective as well.

Operator, Operator

Our next question comes from the line of Christopher Rolland with Susquehanna.

Christopher Rolland, Analyst

I guess in your latest Q, you talked about a bunch of new licenses coming up. I think they expire early fiscal '25, including Huawei. I guess, first of all, the 4G at Huawei would this might affect these negotiations? Do you expect everyone else to sign in those negotiations as well? And then lastly, do we think about Huawei that impact is roughly $150 million a quarter. Is that a fair number on the 4G stuff from Huawei?

Alex Rogers, Executive

Chris, this is Alex. Thanks for the question. So if you look at the licensing progress basically over the last year or so, we set out to execute on a number of renewals and extensions. And we've done actually a really good job doing that. The most recent was getting on or signed up to a long-term agreement. And then, as you know, Apple extended through '27. But we also noted recently that we have two major Chinese OEM signed long-term. While we haven't named them, they are significant handset manufacturers. And then we're working through negotiations with others that we still have optimistic expectations in terms of getting them signed up. We also recently announced that we signed a tranche to a 5G license, and we're still negotiating with them. There's some litigation ongoing, but I think the important thing is to focus on the 5G license with that company and the ongoing negotiations. So Huawei is a company that we've been engaged with, just like the others in terms of trying to move negotiations forward. We expect that to continue. We don't really have any news on that just yet.

Akash Palkhiwala, CFO

And then from a revenue breakdown perspective, as you know, we don't break down our QTL revenue by OEM, but a reasonable way of thinking about it is look at the scale of the market, the number of units, any specific OEM contributes to the scale of the market, and apply that to our overall revenue stream.

Operator, Operator

Our next question is from the line of Ross Seymore with Deutsche Bank.

Ross Seymore, Analyst

One question, one follow-up. First one, probably more for Cristiano. I just wanted to see how you feel with your leadership position on both the modem and the app processor side in your handset business. How do you feel about the relative market share that you'll have in the penetration at given customers? There's kind of perpetual debate about what you're doing with your lead Korean customer, year-to-year, gen-to-gen same thing with your modem-only customer. So as you look forward over the next year or two, how are you feeling about the penetration that Qualcomm can have at the major customers?

Cristiano Amon, President and CEO

Thank you for your question, Ross. It's a complex one, so I’ll address it step by step. Regarding our modem technology, we are quite confident in it. It's a core strength of our company, as we continue to lead the country in the number of wireless patents and essential patents, driving our technology roadmap forward. With respect to our partnership with Apple, we are sticking to the framework we outlined previously. After extending the chipset agreement, we expect to maintain that alignment. Currently, we have no new information to share, and any developments beyond what we communicated before would be considered a bonus. When considering the application processor, the discussion becomes more intriguing. We have consistently maintained our leadership in AI performance, sustained peak performance, and mobile gaming through our Adreno GPU. For the first time in some time, we will introduce our own custom CPU, which will be unveiled at the Snapdragon Summit and included in flagship devices launching towards the end of this year and early 2025. I believe this will enhance our advantage in application processors. Additionally, as I mentioned in this earnings call, the launch of the Copilot+ PC marks a significant transition for Qualcomm, shifting our perception from a communications-focused company to a key player in computing. This shift is likely to influence our handsets as well, particularly with our custom CPU. Regarding our collaboration with Samsung, we have finalized agreements that align with the GS24 launch, and we are pleased with our partnership. We see numerous opportunities as AI becomes integrated into premium smartphones.

Ross Seymore, Analyst

I guess as my follow-up for Akash. One, in the answer to your prior question, you said that your year-over-year growth in December would be about the same as it was last December. Just a clarification. Was that just for QCT? And then I guess my bigger picture question, how should we think about gross margins in QCT going forward? Looks like you're implying them down a bit in the September quarter, but still flat year-over-year. As the diversification process happens, automotive, PCs, etc., how should we think about that line in your income statement?

Akash Palkhiwala, CFO

Sure, Ross. So that comment was really focused on the overall company, so not just QCT, but the overall Qualcomm metrics. From a gross margin perspective, we did slightly better than we expected. We had guided in the third quarter. And what we're doing is we're guiding fourth quarter in line with the guidance we had provided for the third quarter. I think as you look forward beyond the fourth quarter into fiscal '25, using the fourth quarter as a way to model the going-forward path is a reasonable way of thinking about it.

Operator, Operator

Our next question is from the line of Tal Liani with Bank of America.

Tal Liani, Analyst

Can you hear me?

Cristiano Amon, President and CEO

Yes, we can.

Tal Liani, Analyst

I would like clarification on how you define your addressable market in the compute sector. Is it primarily focused on consumer laptops or enterprise solutions? Also, regarding AI and its integration into handsets, we hear from carriers that they are not yet fully engaged, as they struggle to find viable applications. What do you believe will drive the deployment of AI in handsets? What types of applications do you foresee emerging, and what is the expected timeline for their rollout?

Cristiano Amon, President and CEO

Tal, this is Cristiano. Thank you for your question. Let me take the first one. You should think about addressable market in the following way. First of all, it's the Windows 11 addressable market. We're very focused right now on laptops, whether it's commercial laptops for enterprise or consumer laptops. We're ranging price points, I think, especially as we talked in the prepared remarks, extending the roadmap from $700 and above. And what is defined as AI PC is a metric that I can provide to you. And I think there has been a number of OEMs indicating their respective views, but we forecast about 50% of our computers sold in 2027 will be AI PCs. That's one way to think about it. And we continue to basically see the transition of as upgrades are happening to Windows 11 and Copilot+ PCs, an opportunity for us to participate with a highly differentiated solution. I think your second question...

Akash Palkhiwala, CFO

It was on AI applications.

Cristiano Amon, President and CEO

It was about AI applications for devices. Think of AI's role in phones, whether you’re texting, talking, or tapping. It will play a crucial part in the human-computer interface and significantly change the user experience on apps. This shift is less about carriers and more about applications, affecting how existing apps are used and leading to the development of new, relevant agents. For instance, if you use WhatsApp, you'll notice the ability to search with Llama and utilize various features within their model. Over time, many models will have multiple functionalities across different apps. The best way to measure this growth is through the increasing number of use cases, and we are pleased with the current trajectory. I would liken this to the smartphone evolution; initially, there were around 10 apps, then 100, then 1,000, and eventually hundreds of thousands. The progression became clear at that point. We see ourselves at the beginning of a similar journey, but we are encouraged by the rising number of use cases, which will enhance AI NPU performance in the silicon and potentially expand the premium and high-tier segments.

Operator, Operator

Our last question is from Tom O'Malley with Barclays.

Tom O'Malley, Analyst

I have one for Cristiano and one for Akash. Just very recently here, obviously, in the quarter, there's a huge step-up in the auto portfolio, and I think you guys did a good job of kind of describing what drove that. But you've also, in your deck and kind of in your commentary, talking more about AI PC being a driver. Cristiano, if you look at kind of the next 12 months, you hosted an Auto Analyst Day and you kind of talked about the opportunity being back-end loaded, and I think the end date was kind of the late 2020s. But if you look at the next 12 months, what opportunity do you think is more exciting to you, the automotive side or the IoT in terms of revenue growth? Obviously, the buckets are different sizes, but just breaking those 2 out as to what can drive some growth there. And then on the Akash side, if you look into Q4, you obviously have an extra week there, but you are seeing OpEx step down. Could you just walk through the moving parts that I would expect it to be up a little bit just given the extra week?

Cristiano Amon, President and CEO

Thank you for the question. I appreciate the opportunity to explain this. You should think of Qualcomm not only as a company focused on building one large business of differentiation, but rather as one that is developing multiple businesses of diversification. We are very focused on this strategy. When we mention Auto Investor Day, held in September 2022, we outlined how it will evolve into a significant platform for Qualcomm and positively impact our financials. This quarter, you can see those results starting to materialize, and we expect this trend to continue. Our pipeline is substantial, with projections of $4 billion in 2026 and $9 billion towards the end of the decade, and we are on track to meet these goals. Regarding PCs, it is still early, but we are very pleased with the progress as it is exceeding our expectations, with some models already sold out. I anticipate that by the next Investor Day, we will be ready to share specific metrics regarding its expected growth and overall contribution to Qualcomm. This is an area we are particularly excited about, but we are not stopping there. I encourage you to watch what we will reveal next quarter. AI and computing are driving our industrial roadmap, which we are currently redesigning and will unveil in the coming months. We believe many markets can benefit from our technology. Our focus is on growth and diversification, exploring multiple opportunities rather than relying on a single one.

Akash Palkhiwala, CFO

And Tom, on your second question on OpEx, we had some non-labor material-related spend and tape-out related spend in the third quarter, which is why third quarter OpEx was higher and it goes down into the fourth quarter despite the extra week. And so it's just timing of non-labor spend that drove it. But fundamentally, no change in kind of the way we are managing OpEx. We're very committed to operating discipline and hiring, even when we do it, it is very focused on specific new skills that are required for diversification. So you won't see a difference in the way we are managing the OpEx for the company.

Operator, Operator

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

Cristiano Amon, President and CEO

No, I just want to just quickly thank all of our partners, our suppliers, our employees for a great job on PC execution. I think we're very proud of what we accomplished. We will continue to drive AI across each one of our businesses. We feel we have a very unique position in the ability to run AI at the edge. We're very happy with the automotive traction, and we're actually looking forward to the next generation of products launching in the coming months, as I said, hopefully creating a new vector for growth of the company in the future in industrial IoT. Thank you very much.

Operator, Operator

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