Earnings Call Transcript
QUALCOMM INC/DE (QCOM)
Earnings Call Transcript - QCOM Q1 2021
Operator, Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm First 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 February 3rd, 2021. The playback number for today's call is 877-660-6853. International callers please dial 201-612-7415. The playback reservation number is 13714808. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations.
Mauricio Lopez-Hodoyan, Vice President of Investor Relations
Thank you and good afternoon everyone. Today's call will include prepared remarks by Steve Mollenkopf and Akash Palkhiwala. In addition, Cristiano Amon, Alex Rogers, and Don Rosenberg 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, 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 include 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, Steve Mollenkopf.
Steve Mollenkopf, CEO
Thank you, Mauricio and good afternoon everyone. Fiscal 2021 is off to a great start with record first quarter non-GAAP revenues of $8.2 billion, up 63% year-over-year and record non-GAAP earnings of $2.17 per share, more than doubling from the prior year. The simultaneous global adoption of 5G combined with the increasingly complex technical requirements and an accelerating pace of change drives a significant multi-year industry transition that plays to our strength. QCT revenues of $6.5 billion were also a record, up 81% year-over-year and 32% sequentially. Notably, our strong performance and outlook would have been even stronger had we not been supply constrained. Within QCT, we saw strength across our portfolio. Our RF adjacency demonstrated continued growth with quarterly revenues more than doubling year-over-year and crossing the $1 billion threshold, a significant milestone. We are executing extremely well in our strategy to address many of the technical challenges of delivering a true modem-to-antenna 5G experience and capture a higher dollar share of content in smartphones. We are also well-positioned with design wins across the mobile handset ecosystem, a strong pipeline for further growth in smartphones and a roadmap to bring our RF expertise to adjacent industries. Our automotive revenues of $212 million were up 44% year-over-year and our design win pipeline has grown to $8.3 billion from just $3 billion three years ago, placing us on a trajectory to achieve our fiscal year 2024 revenue target of $1.5 billion. Our IoT adjacency also passed the $1 billion threshold in Q1 and grew 48% year-over-year, driven by the growth of our core technologies for the digitization of consumer, networking, and industrial applications. Our team continues to execute extremely well in spite of supply constraints and the continued impact of the pandemic. Our strategy is playing out largely as we expected, positioning us well to capture the rapid deployment of 5G in both the core handset industry, as well as creating new opportunities in adjacencies. In our licensing business, our broad portfolio of foundational system-level innovations and intellectual properties across 3G, 4G, and 5G, along with valuable implementation patents is unmatched and recognized in part by having signed more than 120 5G license agreements, up from 111 license agreements last quarter. Our continued success in licensing reflects our development of foundational technologies enabling 5G standards coupled with leadership in developing the standards themselves; leadership in developing the products necessary to implement 5G technology and leadership in enabling the industry to rapidly implement 5G seamlessly worldwide. This process continues through the successive releases of 5G currently under development as our foundational innovations, coupled with our ability to implement 5G in products and coordinated deployment in new verticals, continues to drive progress outside the handset industry. We continue to invest in complementary technologies that will enable the adoption of 5G use cases that will benefit consumers and businesses in a variety of industries, as well as in agriculture and the advanced important social objectives of both urban and rural environments, including improvements in healthcare and education in a more widely connected future. We have also spent the past decade deep in AI research and development, resulting in the creation of the technology necessary to scale AI across industries and products from smartphones and automotive to the IoT and data centers. To make AI ubiquitous, we focused on making efficient hardware, algorithmic advancements, and software tools available to developers and OEMs. We believe AI will transform industries and our technologies will help accelerate the commercialization and scale of AI, making AI ubiquitous around the globe. Our commitment to our high-performance processor roadmap was reflected in our recently announced proposed acquisition of NUVIA. We look forward to combining NUVIA's world-class CPU and technology design team with Snapdragon to enable our ecosystem of customers to redefine computing performance, drive innovation, and deliver a new class of products and experiences for the 5G era. Just two years ago, we first announced our Snapdragon 855 mobile platform, the world's first commercial platform supporting multi-gigabit 5G and demonstrated end-to-end 5G consumer experiences with real demos over live millimeter-wave 5G networks and devices. Today, we have an expanding portfolio of differentiated 5G solutions across multiple tiers of our Snapdragon mobile platforms. With high performance basebands, advanced RF front-end designs, and leading-edge process nodes for our flagship solutions, we are well-positioned to address growing 5G demand in the handset space and across our adjacencies. In RF, our position today is the result of executing on our strategy to extend the breadth of the products we offer. In just a few years, we have emerged as one of the largest RF suppliers in the smartphone ecosystem with a long-term roadmap supporting 4G and 5G sub-6 bands, in addition to 5G millimeter bands, enabling us to expand our RF leadership end-to-end product applications. The automotive industry continues to change rapidly and the car is becoming more connected, more autonomous, and more electric. As these trends disrupt the industry, 5G connectivity and new experiences and user demands, such as always-connected digital cabins for infotainment, real-time navigation, and entertainment are becoming the new standard. We are working to meet the increasing demands of safe and premium driving experiences powered by 4G LTE and 5G connected services. With integrated cellular V2X, WiFi, Bluetooth and precise positioning technologies, our 4G and 5G platforms are designed to securely connect vehicles to the cloud, each other, and the surrounding environment. With over 150 million vehicles on the road today connected with our modems, we are a leader in automotive telematics. We are evolving our strong position in automotive telematics to a strategic industry partner building incumbency with continued innovation as the auto industry undergoes rapid transformation. Our third-generation automotive cockpit solutions have been selected by 20 of the top-25 automakers and our recently announced fourth-generation automotive platform demonstrates our leadership in high-performance compute, computer vision, artificial intelligence, and multi-sensor processing. Lastly, our recently announced strategic engagements with General Motors and leading Tier 1 suppliers including LG Electronics, Google, Panasonic, and Visteon are further evidence of our strong alignment with the automotive industry. Turning to IoT, we continue to drive momentum in compute with the launch of our second-generation Snapdragon 8cx, the introduction of our commercial and educational platforms for both Windows and Chrome and continued ecosystem progress. We are also driving industry leadership in XR with over 40 design wins and strong ecosystem momentum with global operator partnerships. We believe XR has the potential to be the next computing platform. Our networking solutions target the full potential of Wi-Fi 6 with a blend of advanced technologies and protocols, targeting networks deployed in enterprise, venue, and prosumer applications. We are also extending our advanced Wi-Fi 6 feature profile into the 6-gigahertz spectrum with second-generation platforms. We are capitalizing on the transformation in private and public networks, enabling millimeter-wave indoor and outdoor launches in North America and Japan with our small cell solution, bringing higher reliability and speeds to consumers, as well as providing connectivity for 5G enterprise private networks of the future. Lastly, we are accelerating the deployment of our core technologies for digitization of non-mobile industries across retail, utilities, transportation, and manufacturing applications. It is exciting to see the strategy we laid out several years ago playing out largely as expected and placing Qualcomm in a very strong position for Cristiano to carry the vision forward as he executes on the many opportunities in front of us over many years. Being CEO of Qualcomm for the last seven years has been a privilege and an honor. The foundation of Qualcomm's leadership is a relentless commitment to innovating with great products, focusing on large industries with technical challenges that are hard to solve. This is what always gave me the confidence we would succeed even when it wasn't obvious and I have every confidence Cristiano shares this vision. I would now like to turn the call over to Akash.
Akash Palkhiwala, CFO
Thank you, Steve and good afternoon everyone. We are extremely pleased to report strong results to start our fiscal year. We delivered a record first quarter with non-GAAP revenues of $8.2 billion and non-GAAP EPS of $2.17, which was above the high end of the strong guidance we provided at the beginning of the quarter. These results reflect year-over-year increases of 63% and 119% in revenues and EPS, respectively, driven by strength across QTL and QCT. In QTL, we recorded revenues of $1.66 billion, up 18% year-over-year and EBT margins of 77%. In the December quarter, we saw a year-over-year reduction of 7% in global 3G, 4G, 5G handset shipments compared to our planning assumption of a 5% reduction, reflecting the impact of COVID and softness in the domestic China shipments. In QCT, we delivered record results with revenues of $6.5 billion, up 32% sequentially and 81% year-over-year. These results were driven by strength across handsets, RF front-end, automotive, and IoT. Our strong revenue growth drove EBT margins of 29%, which was above the high end of our guidance and increased 900 basis points sequentially as we realized the benefit of operating leverage. We are also pleased with our continued diversification as we delivered record revenues in RF front-end, automotive, and IoT. RF front-end revenues of $1.1 billion more than doubled on a year-over-year basis, reflecting the strength of our broad product portfolio across all frequency bands and customers. Automotive revenues of $212 million grew 44% year-over-year as our telematics and digital cockpit products continued to benefit from the industry rebound. In IoT, revenues grew 48% year-over-year to $1 billion across consumer, networking, and industrial applications, driven by an acceleration in demand for our products and technologies. Our non-GAAP combined R&D and SG&A expenses of $1.78 billion were lower than our previous estimate, primarily due to the timing of certain R&D expenses within the fiscal year. Turning to 5G adoption, we estimate approximately 225 million 5G handsets in calendar 2020 and forecast 450 million to 550 million units in calendar 2021. We are extremely pleased by the adoption of our 5G chipsets across OEM partners with over 800 designs using 5G modem and RF solutions. Our recently announced 5G premium-tier mobile platform, the Snapdragon 888, already has over 120 design wins. We now have 5G offerings across several tiers, from our premium-tier Snapdragon 888 to our recently announced Snapdragon 480, all capable of supporting millimeter-wave. For global 3G, 4G, and 5G handsets, we estimate that shipments declined 12% on a year-over-year basis in calendar 2020. In calendar 2021, we expect total handsets to grow in high single-digits year-over-year. This assumes an impact from COVID in the first half, consistent with the exit rate of 2020, and a recovery in the second half. In addition, QCT's addressable market will expand to include Huawei's existing share, which is estimated to be approximately 16% of total handsets in 2019. Turning to our second quarter guidance, we are forecasting revenues of $7.2 billion to $8 billion and non-GAAP EPS of $1.55 to $1.75, a year-over-year increase of 46% and 88%, respectively, at the midpoints. In QTL, we estimate revenues of $1.25 billion to $1.45 billion and EBT margins of 66% to 70%. This is in line with normal seasonality following the strong holiday quarter and reflects the slightly lower handset forecast I previously outlined. In QCT, we expect revenues of $6 billion to $6.5 billion, up 52% year-over-year and EBT margins of 23% to 25%, reflecting EBT dollar growth of 125% versus the year-ago quarter. Consistent with historical trends, we estimate non-GAAP combined R&D and SG&A expenses to be up 5% to 6% sequentially due to normal calendar year resets for certain employee-related costs. We estimate that the pending acquisition of NUVIA will increase fiscal 2021 non-GAAP combined R&D and SG&A expenses by approximately $100 million, a portion of which is contemplated in our second quarter guidance. Looking forward to the third fiscal quarter, we estimate QTL revenues to be in a similar range as our second quarter guidance and expect QCT earnings to double on a year-over-year basis. This forecast contemplates the current seasonality of the QCT business, following the strength in the first half of the fiscal year, which was driven by 5G flagship launches, including Apple, the holiday season, and Chinese New Year. In addition, we are seeing demand significantly outpacing supply, given the constraints affecting the industry. Beyond the third quarter, we continue to forecast strong growth across QCT, driven by new device launches, design win traction, and strength in our adjacent platforms. Lastly, we launched our latest annual corporate responsibility and ESG report yesterday, which is now available on our website. I'm pleased to share that we have successfully met or exceeded our 2020 goals and have disclosed 2025 targets, focused across key areas of diversity and inclusion, purposeful innovation, and reducing our carbon footprint. We continue to respond to the expectations of our stakeholders to disclose ESG information in alignment with international standards. Before I finish my prepared remarks, I want to thank our employees for their continued hard work and focused execution. I will now turn the call back to Mauricio.
Mauricio Lopez-Hodoyan, Vice President of Investor Relations
Thank you, Akash. Operator, we are now ready for questions.
Operator, Operator
Thank you. Our first question comes from Samik Chatterjee with JPMorgan. Please proceed with your question.
Samik Chatterjee, Analyst
Hi, thank you for taking my question, and congratulations to both Steve and Cristiano. To start, regarding the seasonality, it seems that you are projecting a mid-single-digit decline in revenues for the QCT segment, compared to a mid-teens decline in QTL. Can you clarify the reasons behind this difference? I've noticed this has raised some concerns among investors, as it appears that the sell-end of chips is exceeding the sell-through base, resulting in some inventory build. I would appreciate your insights on this matter.
Akash Palkhiwala, CFO
Yes, hi, Samik, this is Akash. We are not observing any significant inventory increase in the channel. To clarify, when we look at QCT and QTL revenues from the December quarter to the March quarter, we’ve consistently discussed seasonality in that business. Our guidance reflects this, which aligns with the typical trends seen in the handset market and the mix of OEMs impacting the dollar amounts. Previously, we mentioned a midpoint of $1.7 billion decreasing to $1.4 billion from December to March. We ended up slightly below the midpoint in the December quarter and are similarly guiding just under $1.4 billion for the March quarter. That’s our message regarding QTL. For QCT, with Apple now contributing to our revenue, there is a new seasonality factor compared to before. However, if we set that aside, our seasonality remains quite strong with significant growth from December to March, benefiting not just from the mobile platform and the launch of our Snapdragon 888 chipset, but also from robust performance across RFFE, automotive, and IoT sectors. Overall, there’s strength in every area, and we see the seasonal revenue patterns reflected in the numbers.
Samik Chatterjee, Analyst
If I may follow up quickly, historically, before the U.S. restrictions were implemented, you mentioned that Huawei did not significantly contribute to earnings despite some MSM in your shipments. Do you anticipate any changes following the restructuring of that business, especially with part of it being sold to Honor and other adjustments happening within the Huawei brand?
Akash Palkhiwala, CFO
Yes, as I mentioned in my prepared remarks, we view the Huawei market share as a significant growth opportunity for us. Whether that share goes to other OEMs or remains with Honor or Huawei, we have a chance to sell into it. Looking longer-term, particularly in the second half of the year, we believe this presents a substantial opportunity for us. However, for our second quarter guidance, we do not anticipate any material revenue from Huawei or Honor.
Operator, Operator
Thank you. Our next question comes from Mike Walkley with Canaccord Genuity. Please proceed with your question.
Mike Walkley, Analyst
Great. Thanks. And, I guess, my best to Steve navigating some tough times and best wishes to Cristiano also. My question, I guess, just focusing on the margin front, really strong margins on QCT. I know there's some seasonality into Q1 and an increased cost. But given the strong margin start to the year, Akash, how should we think about margin trends over time as you leverage and harvest that 5G investment?
Akash Palkhiwala, CFO
Thank you, Mike, for your question. I am very pleased with the QCT margins for the December quarter, which came in at 29% operating margins, and our gross margins were also very robust, contributing positively to our operating margin profile. Looking ahead, there are a few factors impacting our margin outlook. From a gross margin standpoint, there isn't a distinct trend. As we have previously mentioned, we believe we can maintain margins that are consistent with our recent performance, with the potential for growth. We maintain this perspective. Operating margins will depend on the revenue profile. When excluding seasonal variations, we are quite satisfied that we set a target about 15 months ago at the Analyst Day, and we are on track to meet or exceed that goal.
Mike Walkley, Analyst
Okay. Thank you. And then just a follow-up on the margins on the QTL side with a lot of the legal things dying down and signing over 120 5G contracts. Do you see the leverage on that side also maybe if you can reduce legal costs, or there's still high audit costs involved there? Thanks.
Akash Palkhiwala, CFO
Yes, Mike, from a QTL perspective, really legal costs have been at a stable lower level for the last several quarters. And so the margin profile that you're seeing kind of reflects stabilization of the legal cost and really it's about the topline revenue and focusing on kind of expanding and keeping the licensing business steady going forward.
Operator, Operator
Thank you. Our next question comes from Chris Caso with Raymond James. Please proceed with your question. Chris, your line is live; you may proceed with your questions.
Chris Caso, Analyst
Hi. Excuse me. Thank you. So, for my first question, wondered if you could address the shortages and obviously it's something we've heard from a number of others in the industry this quarter. Can you talk about the extent to it? And in your opening remarks, you mentioned that revenue would have been higher if not for the shortages. Could you help us to quantify that some and then perhaps talk about the next couple of quarters, how that may play out if you recapture some of the business that you weren't able to ship in the December quarter and how that proceeds?
Cristiano Amon, President
Hi, Chris, this is Cristiano. Yes, I'm happy to address that. We have noticed a shortage across the entire industry, driven by several factors. One key factor is the V-shaped recovery in many sectors. We also saw an acceleration in digital transformation, which aligns with the trend of enterprises transforming their operations. For Qualcomm and QCT, this has created an opportunity due to the expansion of our addressable market. Huawei represented 16% of the available market across all our OEMs. This has resulted in demand outpacing supply. We're pleased with our performance in the premium tier, for example. In the high tier, we're seeing share gains in fiscal 2021, and we anticipate that the situation will normalize in the second half of the year.
Chris Caso, Analyst
Okay. Thank you. And with that, you made some comments about the fiscal third quarter, that perhaps you could clarify. First on the QTL side, you were talking about similar levels on QTL, if you can help us to reconcile that with your view of mobile handset units, I think you said growing 7% sequentially. And then you gave us something to go on with regard to the QCT side with the profitability doubling. And I guess, with that, should we assume that profitability doubling would be at similar operating margins to what you're guiding for, for the March quarter?
Akash Palkhiwala, CFO
Yes, Chris, this is Akash. I believe QTL will see consistent market behavior between the March and June quarters, which is reflected in the data we provided for the June quarter. Regarding QCT, it's reasonable to anticipate very strong performance, with profits doubling on a year-over-year basis, and the margin profile will be influenced by the revenue scale we discussed earlier. The figures in our third quarter results show the natural seasonality of the business, now that we have Apple in our revenue stream, and the timing of their purchases throughout the year is reflected in the data points we're sharing.
Operator, Operator
Thank you. Our next question comes from Joe Moore with Morgan Stanley. Please proceed with your question.
Joe Moore, Analyst
Great. Thank you. I wonder if you can give us color on the growth in RF being so impressive when you look at 5G units potentially kind of more than doubling, when you look at millimeter-wave really at one customer and one region. I'm just surprised at how robust December is and kind of can you talk to the sustainability of those revenue levels and the growth drivers going forward.
Cristiano Amon, President
Hi, Joe, it's Cristiano. Yes, it's very consistent to what we have been saying since the beginning of 5G. We saw 5G as an entry point for us. We have a highly differentiated solution with our modem-to-antenna platform and all of those designs. I think we updated the design count now 5G is in excess of 800 designs. They all contain 5G RF front-end components. Also we like that it's very diversified RF front-end revenues across our customers, also with a lot of sub-6, it's not only millimeter-wave, even though we are very happy with the expansion prospects of millimeter-wave and that's definitely an accelerator for Qualcomm. So, it's a business which is now one of the fastest growing businesses we have. We're happy we achieved the threshold of $1 billion and we'll continue to grow as we grow 5G.
Operator, Operator
Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Please proceed with your question.
Stacy Rasgon, Analyst
Hi guys. Thanks for taking my questions. First, I wanted to dig again in the chipset margin guidance. So, you're guiding chipset profit dollars down over $400 million sequentially on about $280 million revenue decline, that's like a 150% negative incremental margins. But presumably the mix ought to be getting better as Apple and the handset stuff rolls off in the adjacencies. It sounds like they grow. So, like what is going on in there? Like why are the margins coming down that much, given the revenue trajectory?
Akash Palkhiwala, CFO
Yes. So, a couple of factors, Stacy, it's Akash. First is, as I indicated in my prepared remarks, we typically see kind of a resetting of certain expenses on the OpEx side, so you have OpEx growth that happens between the December and the March quarter. And this is consistent with history. So, if you go back and look at our numbers in the past, you kind of see the same increase. So that impacts the margin a bit. Second is we did see some strength in certain pockets in the December quarter in our gross margin profile. So, gross margin profile was higher in the December quarter than our recent trend and what we're guiding forward is something that's consistent with our recent trend. So, any upside to that would be something that, of course, we're going to try to execute on, but it'd be upside to our guidance.
Stacy Rasgon, Analyst
Thank you. And then if I can follow-up on QTL margins. So you're guiding 68% on, whatever it is, $1.35 billion at the midpoint. In 2019, you were actually running higher than that, you were at like $1.1 billion to $1.3 billion, so lower revenues, you've had margins that were in line to higher than what you're guiding now with legal costs that presumably were higher. So, like what's going on on the QTL side, why aren't margins higher on this revenue level?
Akash Palkhiwala, CFO
Yes, Stacy, there is nothing specific happening. If you refer back to Analyst Day, although I don't have the 2019 numbers in front of me, we presented our expectations for the full year regarding QTL, anticipating a margin above 70% due to the Huawei outcome. We are effectively working towards that target, and we believe we are well-positioned to achieve it.
Operator, Operator
Thank you. Our next question comes from Blayne Curtis with Barclays. Please proceed with your questions.
Blayne Curtis, Analyst
Hey thanks for taking my question. Just revisiting on the margin side, given the shortages you're seeing and just kind of if you could just comment on your input costs and whether that's kind of rolled in yet or whether that's an impact kind of going forward to EBT margin?
Akash Palkhiwala, CFO
Yes, I think, Blayne, as you'd expect, a lot of our conversations with the customers and suppliers are around how we address supply and our agreements on price generally tend to be longer term. So, really that's where we are focused on, as kind of being good partners to our customers and focusing on supply. Margin is consistent with our recent history and that's what's reflected in the guidance.
Blayne Curtis, Analyst
Thanks. And then just for the June quarter, the doubling of QCT profits. I think, obviously, the new large customer; you may be seasonally down there just on the Android side, that's typically a stronger quarter particularly if the market is going to double. So, just kind of the moving pieces actually look like Q-to-Q would be down sequentially from March to June to keep that doubling of profit. So, just any perspective on your outlook with your Android within that?
Akash Palkhiwala, CFO
Yes, Blayne, I don't want to highlight a specific trend. I believe the strength of our business remains consistent across the quarters on Android.
Cristiano Amon, President
This is Cristiano. I just want to add a small data point. As Akash mentioned, there is some seasonality due to one large U.S. customer. However, if you look at what's happening outside of that, we are quite pleased with our gains in premium and high-tier shares. I highlighted the addressable market that is opening up to us from Huawei, which will drive growth, particularly for the QCT premium and high-tier segments as we move through the quarters.
Operator, Operator
Thank you. Our next question comes from Tal Liani with Bank of America. Please proceed with your question.
Tal Liani, Analyst
Hi guys. You mentioned that smartphone sales are expected to increase, moving from a decline of 12% last year to a rise in the high single digits this year. Can you provide some insights on the growth by region and types of smartphones, as well as the composition of this year's growth?
Akash Palkhiwala, CFO
Yes, hi Tal, this is Akash. To reiterate our guidance, the market declined by 12% from 2019 to 2020 and is expected to grow in the high single digits from 2020 to 2021, reflecting ongoing COVID impacts in the first half and a recovery in the second half. A crucial factor for us within that market is how 5G develops. Our forecast indicates a rise in 5G from 225 million in 2020 to a midpoint of 500 million, demonstrating strong growth and serving as a key driver for our revenue increase in chips. Additionally, as Cristiano mentioned earlier, Huawei, a significant OEM, had previously relied heavily on high silicon for their chip needs. However, with the market changes, we now have access to 16% of the market that wasn't available to us before. Looking ahead, we view this as a substantial expansion of our serviceable available market.
Tal Liani, Analyst
As a follow-up, if the market is transitioning from decline to growth, what is the impact on QTL overall? Specifically, will this growth occur primarily in high-end countries where we are already approaching the price ceiling of $400, or will it mainly take place in developing markets where growth can also enhance the total addressable market, meaning units multiplied by price? I am seeking to understand how the price ceiling affects QTL.
Akash Palkhiwala, CFO
Yes. From our perspective, we see 5G positively influencing the average selling price as it penetrates lower-tier markets. This shift enriches our product mix, and as consumers upgrade their devices, they tend to purchase more expensive options, which presents an opportunity for QTL. However, we are not incorporating this into our forecasts at the moment, though we recognize it as potential upside as it develops.
Operator, Operator
Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Please proceed with your questions.
Ross Seymore, Analyst
Hi guys. Thanks for letting me ask the question and first of all, congratulations to both Steve and Cristiano. I wanted to go back on the QCT side to the China dynamic and that 16% increase in your SAM. How are you guys handling the potential inventory dynamic where the Honor side might keep the share and you could get design wins there? But all of the aspiring share gainers are also going to build to take share, so there's the potential for inventory coming back. I realize, in a period of shortage, it might not be an issue for you, but how are you managing avoiding that pitfall?
Akash Palkhiwala, CFO
Yes, it's Akash. We're definitely trying to manage the situation carefully. We have strong demand from various OEMs, but as you've noted, the market is primarily driven by supply. This means we have more opportunities to sell and increase our revenue than we can supply right now. That's our main focus, and we currently don't have any inventory concerns with our customers.
Cristiano Amon, President
If I could answer your question.
Ross Seymore, Analyst
As my follow-up, it's definitely something that we are trying to manage carefully. I mean, we do have very strong demand from various OEMs. But as you rightly pointed out, it really is more of a supply-driven market, and so we have more opportunity to sell and increase our revenue than we can supply at this point. So, that's the primary focus, and we don't really have any inventory concerns at this point with our customers.
Cristiano Amon, President
Ross, this question, I just want to add one thing. Given the size of those customers, the semiconductor supply chain is probably sized for where the market sizes. So, that in itself provides some correction on inventory.
Operator, Operator
Great. Thanks for that color, Cristiano. I guess, as my follow-up, if I went back to the margin side of things, it seems like you're guiding the implied gross margin down about three points sequentially in the March quarter. And then I understand QTL goes down and QCT up. So, from a mix perspective, that would happen, but it's still a little bit greater than I would have expected. You answered in a prior question, Akash, a little bit about a normalization that you're assuming there. I wanted to dive a little into what was driving the upside in the December quarter and why would that change going into the March quarter.
Akash Palkhiwala, CFO
Yes. The upside in the December quarter was primarily due to the mix across businesses and some customers making purchases earlier than usual. This operational mix was the main factor for the increase, and we are not predicting that to continue going forward.
Ross Seymore, Analyst
Thank you.
Operator, Operator
Thank you. Our next question comes from Matt Ramsay with Cowen. Please proceed with your question.
Matt Ramsay, Analyst
Thank you. Good afternoon, everyone. For my first question, many have inquired about the 16% of the market that was previously held by Huawei and is now open to you. I believe you all addressed the potential for inventory buildup up to this point. It's well-known that Huawei had been accumulating finished goods and semiconductor inventories before the situation arose. Cristiano, do you have any insights on how long they might stay in the market and how that could affect the opportunity for market share shift that might arise for you from a timing perspective? Thank you.
Cristiano Amon, President
Hi Matt. Thank you for your question. We assess those factors based on design activity, which makes it difficult to predict inventory levels, particularly for the high and premium tiers. Whether the range comes from a carrier in the portfolio or a retailer, the market is already evolving. As I mentioned earlier, we have observed very strong design activity. We are in a favorable position as we are well hedged. Whether iOS, Samsung Android, Vivo, Oppo, Xiaomi, or even companies like Honor gain traction over time, we are well-positioned to navigate those outcomes. However, it's important to note that distributors and carriers are already shifting the portfolio, which is reflected in the current design activity we are observing.
Matt Ramsay, Analyst
Got it. Thank you for that. I guess an unrelated follow-up question. I was interested in the acquisition of NUVIA. The team had made some changes on the CPU side a few years ago to be, I think, more dependent on, I guess, licensed cores directly from ARM for the Snapdragon portfolio and I wonder what the acquisition of NUVIA might signal around your intentions there, number one. And number two, about ambitions into markets that include Chromebooks, notebooks, 5G connected, consumer prices, et cetera, if there are any comments there on the TAM, Akash that would be helpful. Thank you.
Cristiano Amon, President
So, let me start and then I'll turn it over to Akash to discuss the total addressable market. We are very excited about that acquisition. One remarkable aspect of our announcement was the overwhelming support we received from the mobile ecosystem, with almost all OEMs present except for two that aren’t relevant. Additionally, we had the entire computing ecosystem represented across both Windows and Chrome. This highlights our vision of complete integration between mobile and computing. We believe we are at the onset of this integration with our Windows and Snapdragon program, which presents us with opportunities for significant performance improvements, leveraging Qualcomm's power advantage in both premium smartphones and the computing sector. This is expected to be a major differentiator for Qualcomm in the future.
Akash Palkhiwala, CFO
If you consider the addressable market for PCs and Chromebooks, it exceeds a couple of hundred million units. This is a very large market, and it's crucial for us to integrate leading CPU technology with our other mobile assets to approach this market in a distinctive way. We are confident in our ability to achieve this. Additionally, the CPU has significant implications beyond mobile phones and PCs, extending into automotive and IoT markets as well. It is an asset that will be widely relevant to the end markets we target.
Operator, Operator
Thank you. Our next question comes from Mitch Steves with RBC Capital Markets. Please proceed with your question.
Mitch Steves, Analyst
Yes. Congratulations guys. I just had a couple of questions here, just kind of circling back to the inventory thing, kind of looking at the full year. So, maybe first, I mean, how does Qualcomm kind of mitigate the idea that some people are overbuilding on the smartphone side, trying to gain share from Huawei and if they're going to have the back half kind of drop-off? And then secondly, maybe a better way to ask this question, I know you guys don't give full year guidance, but if I look at the full year in terms of calendar year basis, what kind of balance do you guys think the revenue is going to look like? Is it going to be more 45%, 55%? Just how should a calendar year look like now, now that Apple is kind of a major customer for you guys?
Akash Palkhiwala, CFO
Mitch, on your second question, if you just look at our profile of customers, right, as we go past the third quarter and go into the fourth quarter, we're going to have flagship devices being launched again, going all the way to the holiday season. So, it does become a kind of a pretty area of strength as we go into September and December quarter relative to June. So, we are expecting revenues to grow significantly, not just in mobile but in RF front-end that goes with it, and then also in IoT and auto, we're continuing to see strength in the design win pipeline. So, it's really across the board.
Cristiano Amon, President
In response to your first question, Mitch, I want to emphasize again that we do not perceive any discrepancy between sell-in and sell-out. Instead, we observe that demand is exceeding supply, and it is the availability of supply that is truly shaping the market. Therefore, we have no significant concerns in this regard at this time.
Mitch Steves, Analyst
I guess maybe if I can sneak this in, so I guess what do you think is causing that demand surge? Is it just 5G? I'm just curious as to what's giving you guys the confidence that continues for the rest of the year?
Akash Palkhiwala, CFO
Sorry, Mitch, can you repeat that question?
Mitch Steves, Analyst
So, you guys are saying you're confident that demand is out-stripping supply and the sell-through is fine. So, I'm curious as to why you believe the demand is there and it's so significant versus the prior cycle.
Cristiano Amon, President
It's Cristiano. Let me address it again. There are a couple of factors at play. We have been stating, and I believe it has been a critical driver in QCT, that we are growing in a market that is experiencing single-digit growth, but we are outpacing that growth thanks to our advancement into 5G and the expanding addressable market. For instance, the Huawei example with its 16% market share illustrates this. Additionally, we've observed positive developments in 5G. For the calendar year, we actually reached the upper end of our guidance with 225 million 5G units, and our forecast for 2021 estimates around 550 million at the upper end, indicating a strong transition to 5G. The device ecosystem is continuing to evolve, and we see an expansion in our addressable market. All this contributes to our confidence, and as I mentioned earlier, supply chain issues have been widespread across the industry, not just limited to handsets. We have also noticed an accelerated digital transformation across the industry in a V-shaped recovery, although we expect things to normalize towards the latter part of 2021.
Operator, Operator
Thank you. Our next question comes from the line of Brett Simpson with Arete Research. Please proceed with your question.
Brett Simpson, Analyst
Yes. Thanks very much. I just wanted to dig in a bit on the shortages that you flagged. Just specifically what is the main sort of source here of the shortages? Is it more sort of 5-nanometer yield challenges you're seeing and that's sort of impacting the premium flagship segment that you operate in or is it more sort of PMICs and what's happening with SMIC? I mean, can you maybe just talk a bit more about some of the challenges you're having here? And specifically, when do you think we come out of the shortage situation? Is it going to be the June quarter or do we have to wait for the second half before things get back to normal? Thank you.
Cristiano Amon, President
Thank you for your question. The straightforward answer is that the semiconductor shortage is widespread, affecting not just leading nodes but also legacy nodes. Legacy processes are utilized in various sectors including automotive, networking products, and consumer electronics, as well as in many attachments such as power management and RF chips. The V-shaped recovery we've observed throughout the industry, combined with accelerated digitization, is boosting demand for semiconductors across the board. Regarding the 5-nanometer process, we are ramping up a new process that is aligning with our expectations. In fact, during this ramp with our partner, we shipped more for Snapdragon 800 early on than we typically would. We anticipate that supply will normalize towards the latter part of 2021 as additional capacity comes online and demand in other sectors aligns with supply.
Brett Simpson, Analyst
Thank you. I would like to follow up on QTL. You've shared successful developments in QCT related to automotive, mentioning that 20 of the top 25 automakers are utilizing the cockpit platform and the significant $8.3 billion backlog. How should we consider the QTL opportunities in the automotive sector specifically? Can you provide insights into the progress of royalty agreements and what royalty rates we might anticipate for 5G, especially given the unique use cases in automobiles moving forward? Thank you.
Alex Rogers, Executive Vice President
This is Alex. Thanks for the question. We've had a long-term licensing program in automotive telematics for 3G, 4G. We're actually having quite good success with our 5G licensing, of course, not a lot of 5G units have hit the road yet. We haven't released details of the licensing program or the particular royalty structure at this point in time, but maybe at some point in the future.
Operator, Operator
Thank you. Our next question comes from C.J. Muse with Evercore. Please proceed with your question.
C.J. Muse, Analyst
Yes, good afternoon. Thank you for taking the question. I guess, first question, with RF front-end doubling calendar 2020 versus calendar 2019, curious if there is a framework that you could provide in thinking about the growth trajectory into 2021. Obviously, you had two quarters now of Apple millimeter-wave in there, would love to hear any thoughts that you could provide in terms of how to think about the growth here in 2021 and beyond, if you can?
Akash Palkhiwala, CFO
Yes, it's Akash. At Analyst Day, we established the financial targets for the RF front-end business. We indicated our goal was to exceed 20% of an $18 billion market. We are confident we are progressing towards that goal more quickly than we initially planned. We previously mentioned reaching this target in 2022, and now we believe we can achieve it sooner. We're quite pleased with this development.
C.J. Muse, Analyst
Okay, that's helpful. And as my follow-up, you've had a number of questions, I guess, on the supply constraint front and EBT margins for QCT. But, I guess, I wanted to ask a little bit differently. In terms of higher wafer and OSAT costs and you talked earlier about how you have longer term contracts with set pricing, curious how we should be thinking about perhaps higher costs earlier in the year versus later in the calendar year and what that might mean for the trajectory of QCT margins over time. And I guess as part of that, you showed great growth from 14% to 22% in calendar 2020. Considering your outlook for 5G, should we be seeing another kind of stair step higher for margins there? Thank you.
Akash Palkhiwala, CFO
Yes. C.J., from a wafer cost and fab cost perspective, really kind of not much of a story for us. It's really consistent with what we had expected before and we feel confident that we can execute to the margin profiles that we've outlined, both kind of from an Analyst Day long-term perspective and also guidance we are providing. Really as you look at the second half of the year, we are looking forward to strong revenue growth across all of our businesses and, of course, the margin will benefit from that as well just as we get scale and the operating leverage benefits shows up.
Operator, Operator
Thank you. Our final question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.
Timothy Arcuri, Analyst
Thank you. My first question is about QCT. You previously estimated a 15% decline for QCT in March during the last call, but now it appears to be slightly down from the December base, aligning with your guidance. This is noteworthy even with the constraints you mentioned. It seems that March's component performance is better than expected three months ago, even as sell-through from licensing has been somewhat worse than anticipated due to COVID. So, my first question is what factors contributed to QCT performing better than your earlier projections? Additionally, this is the fourth quarter where these two segments are not aligning favorably. I would like to understand your perspective on this issue, Cristiano, especially as we head into the latter half of the year. Thank you.
Akash Palkhiwala, CFO
Tim, it's Akash. One of the main factors that drives the two businesses in different directions is the timing of purchases by large customers. We observed some increased purchases heading into the March quarter compared to June. The impact depends on how inventory strategies unfold for various customers. The timing affects when we notice improvements in our financial performance. However, there is no specific story behind the underlying trend; it's simply how things develop based on sell-through and the timing of part purchases.
Cristiano Amon, President
Look, if I can add one thing just real quick. Also, maybe it's the beginning of this process, but QCT is showing also other growth drivers, like the automotive growth driver, the IoT growth driver. So, over time, as the business gets more diversified, I think, you're going to have probably less correlation between the two.
Timothy Arcuri, Analyst
Thanks. Thanks for that. And I guess my last question is on millimeter-wave. So, I guess, the first 100 megahertz of C-band is going to clear at the end of this year. And it seems like the big U.S. carrier that was kind of driving that is going to maybe shift some of their CapEx over to build out C-band in the next two years. I know some of the other U.S. carriers are talking about building out millimeter-wave in 2023 and beyond. Can you just talk about the pace of adoption for millimeter-wave? Obviously, you have a lot of leverage there. Do you think it's going to be lumpy, or do you just see it growing from here? Thanks.
Cristiano Amon, President
Hi. This is Cristiano. Look, we are very pleased with what we see in millimeter-wave. We restate what we said, I think, you need millimeter-wave for the full potential of 5G and especially as you look at some of the more advanced applications beyond smartphones, millimeter-wave continues to be a requirement for the premium devices in the United States. We're very pleased to see that one of our large customers had brought millimeter-wave across all price points of their devices. In this quarter, we saw Germany with the auction rules starting for millimeter-wave at 26 gigahertz and we continue to see activity indicating that China is likely to have millimeter-wave for 2022. So, we're happy with what we see; it's progressing as we plan, and as you said it correctly, millimeter-wave is probably an accelerator of our 1.5 multiplier in QCT.
Operator, Operator
Thank you. That concludes today's question-and-answer session. Mr. Mollenkopf, do you have anything further to add before adjourning the call?
Steve Mollenkopf, CEO
Yes. Thank you. First of all, I want to thank folks who gave the kind words on the call, I know Cristiano feels the same way. This is actually, if I count correctly, my 50th earnings call. So, I appreciate the hard work from the Qualcomm team, making it a record. I look forward to seeing where the company goes; it's exceedingly well-positioned. And thank you all for joining us today. Thank you.
Operator, Operator
Ladies and gentlemen, this concludes today's conference. You may now disconnect.