Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm 4th Quarter and Fiscal 2019 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 Call.
International callers, please dial 201-612-7415. The playback reservation number is 136 95,634. 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 Steve Mollenkopf and Akashpal Kowala. In addition, Christiana Mone, 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 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 ks, 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.
Thank you, Mauricio, and good afternoon, everyone. We are pleased to report strong results in the Q4 with non GAAP earnings of $0.78 per share, above the high end of our guidance range on solid performance in our licensing business. We are also pleased to see our licensing revenue return to a seasonal pattern with fiscal Q1 as a high based on our recent licensing agreement with Apple. Over the last several years, we have invested to establish Qualcomm as a leader in 5 gs. As a reminder, 5 gs brings a significant increase in complexity over 4 gs, such as new and dense network architectures, high performance basebands, advanced RF front end designs, increased processing requirements in addition to driving the leading edge process node.
We are actively focused on helping to define and standardize releases 16 17 features to support the expansion of 5 gs into new large adjacent markets such as enterprise, industrial IoT and automotive. The complexity and expansion of cellular technologies beyond the smartphone into nearly every industry play directly to Qualcomm's strength and are why we believe 5 gs will represent the single biggest opportunity in Qualcomm's history. Looking ahead to fiscal year 2020, the company remains focused on these 3 key priorities. Number 1, continue executing on 5 gs with our partners around the world. The number of OEMs and operators launching 5 gs products and services continues to increase throughout the year.
There are now over 40 OEMs and over 30 year.
There are now over 40 OEMs and over 30 operators launching or announcing 5 gs products or
commercial service, up from approximately 20 OEMs and operators, respectively, at the start of the year. Looking forward, we expect 5 gs to launch in all regions within the next 2 to 3 years. On the product side, in September, we announced plans to accelerate 5 gs global commercialization at scale by expanding our portfolio of 5 gs mobile platforms into the Snapdragon 7 Series and 6 Series, launching as early as calendar Q1 2020. Our integrated 5 gs SoCs will support both sub-six Gigahertz and millimeter wave at the volume tiers across all geographies. As we continue to expand our 5 gs product portfolio, our design wins are also increasing.
We now have over 230 5 gs design wins launched or in development, up from 150 in the prior quarter, virtually all of which are using our RF front end solutions for 5 gs sub-six and or millimeter wave. Notably, multiple OEMs are now shipping or have announced their second or third 5 gs device models using both our Snapdragon 5 gs core chipset and our modem to antenna RF front end solution. In Korea, the migration to 5 gs continues at a strong pace. According to the Korean Ministry of Science and ICT, Korean operators have already signed up 3,500,000 5 gs subscribers through September, a pace that remains faster than its migration to 4 gs. Additionally, 5 gs millimeter wave services are in planning stages by Korean carriers for calendar 2020.
In the United States, Verizon has committed to deploy 5 gsultrawidebandmillimeterwave in 30 markets by year end and T Mobile separately announced plans to cover 200,000,000 people with 5 gs on 600 Megahertz before the end of this year. And in Europe, there are multiple 5 gs launches across Switzerland, Italy, the United Kingdom and Germany. In China, all three mobile operators commercially launched 5 gs services last week, bringing 5 gs to the largest smartphone subscriber base in the world. We now estimate that by the end of this year, the 3 operators will deploy a total of approximately 130,000 5 gs base stations. We further estimate that by the end of 2020, 5 gs base station deployments will increase to approximately $1,000,000 which to put in context is 10 times the scale of the entire network of a large U.
S. Operator. Lastly, TSMC recently attributed the significant increase in demand for their leading technology nodes to a stronger outlook for 5 gs deployment next year. This is yet another significant indicator of the 5 gs ramp into 2020. 2nd priority, to expand our technology platform into adjacent industry segments.
In automotive, we are very encouraged with the engagement and design win traction design win traction we are experiencing from automakers and Tier 1 customers with our telematics and 3rd generation Snapdragon Automotive Cockpit solutions. Our design win pipeline has now increased to almost $6,500,000,000 up from $5,000,000,000 at the start of the fiscal year, giving us great visibility into strong growth in auto over the next several years. Over time, as the technology roadmap in auto converges with the cellular roadmap, we expect to see an increased opportunity to lead in new product categories, notably ADAS. In Compute, we continue to build traction in the Windows on Snapdragon always on, always connected PC category. In August, Samsung announced the Galaxy Book S based on the Snapdragon 8cx.
This is Samsung's 2nd Windows on Snapdragon device and the 1st announced Snapdragon 8cx always connected PC. In October, Microsoft launched the Surface Pro X, our first design with Microsoft in this premium tier, powered by a Snapdragon 8cx variant that is designed for the always on compute environment, the Microsoft SQ1, developed in partnership with Microsoft. This is the thinnest Surface ever and has 3 times the performance per watt as the Surface Pro 6. Priority 3, drive revenue growth, operating leverage and earnings per share. Consistent with our comments last quarter, we continue to expect a positive inflection point as 5 gs ramps beginning in our fiscal Q2.
With the conclusion of our cost plan and significant share repurchases over the last year, we are poised to deliver margin expansion and outsized growth in earnings and earnings per share as revenue growth accelerates. We are pleased with the progress we have made over the course of 2019 and believe the business is very well positioned for sustained long term growth as we benefit from the decisions and investments made over the last several years, including 5 gs, the return of Apple licensing and product revenues, growth in RF front end and growth in adjacent businesses. Before I turn the call over to Akash, I'd like to congratulate him on becoming Qualcomm's Chief Financial Officer. As QCT Finance Lead for the past 4 years, Akash brings a deep knowledge base of our company, both operationally and strategically. I'm looking forward to working closely with Akash as we enter this next chapter of our history.
I would now like to turn the call over to Akash.
Thank you, Steve, and good afternoon, everyone. It is a very exciting time to become Chief Financial Officer of Qualcomm, and I'm looking forward to engaging with our shareholders and analysts. I will begin with a discussion of our fiscal 4th quarter earnings. We delivered strong results with non GAAP EPS of $0.78 $0.03 above the high end of our guidance range and revenues of $4,800,000,000 above the midpoint of our guidance range. The outperformance in the quarter was primarily driven by QTL on higher units and stronger mix, resulting in QTL revenues of $1,160,000,000 and EBT margin of 68%.
As a reminder, we did not record any royalty revenues from Huawei in our fiscal Q4 results. QCT delivered revenues of $3,600,000,000 $152,000,000 MSM chip shipments, in line with our expectations for the quarter. QCT's EBT margin was approximately 14%, flat sequentially and at the midpoint of our guidance range. Turning to fiscal 2019, We recorded $19,400,000,000 in non GAAP revenues and $3.54 in non GAAP earnings per share. During the year, we achieved several key milestones that position us favorably for fiscal 2020 beyond.
First, our early investments in 5 gs played a key role in accelerating 5 gs deployments and we have secured over 230 chipset design wins. 2nd, we completed the acquisition of the remaining interest in RF360 Holdings and established a strong design win pipeline for RF front end products across 5 gs sub-six and millimeter wave devices. 3rd, we signed global patent license and multiyear chipset supply agreements with Apple. 4th, we concluded our cost reduction plan announced in January 2018. And lastly, since our July 2018 announcement, we have completed approximately $23,000,000,000 in stock repurchase through fiscal 2019 at an average price of $65 per share, resulting in a 22% reduction of our shares outstanding.
Turning to our outlook, we are maintaining our estimate of 1,700,000,000 to 1,800,000,000 units for calendar 2019 for global 3 gs, 4 gs, 5 gs device forecast. For calendar 2020, we are estimating 1.75 to 1,850,000,000 units, up approximately 3% at the midpoint, reflecting flat handsets and low double digit growth in non handsets. We are estimating 175,000,000 to 225,000,000 5 gs handset units in calendar 2020. Consistent with our comments on our previous earnings call, our business outlook is impacted by several factors, including weaker demand in China and certain developed regions, Huawei share gain in China and OEMs managing 4 gs inventory ahead of the transition to 5 gs. Turning to our Q1 guidance for fiscal 2020.
We expect revenues to be in the range of 4.4 $1,000,000,000 to $5,200,000,000 and non GAAP earnings per share of $0.80 to 0 point 9 0 dollars dollars We estimate fiscal QTL revenues to be in the range of $1,300,000,000 to $1,500,000,000 and EBT margin of 70% to 74%. We expect QTL revenues to be up 21% sequentially at the midpoint in our fiscal Q1 due to normal holiday seasonality driven by timing of flagship phone launches. Our fiscal Q1 forecast does not include any royalty revenues from Huawei, while we continue to pursue a negotiated resolution the licensing dispute. With the completion of the global patent license agreement with Apple earlier this year, QTL revenues will begin to reflect a seasonally high fiscal Q1. Following this seasonal uplift, we expect QTL revenues to return to a range of $1,000,000,000 to $1,200,000,000 in our fiscal second quarter.
In QCT, we estimate fiscal first quarter MSM shipments of 145,000,000 to 165,000,000 units and EBT margin in the range of 10% to 12%. QCT's EBT margin guidance reflects lower volume in the premium and high tiers, driven by a pause ahead of the transition to 5 gs in early calendar 2020 and the normal timing of handset launches by our customers in these tiers. As we look beyond our fiscal Q1, we see a significant inflection point for QCT as we expect to realize the benefits from the ramp of 5 gs handset launches. In the fiscal Q2, we anticipate QCT revenues to grow in the mid teens sequentially and QCT EBT margin to return to the mid teens. In our fiscal Q1, we expect non GAAP combined R and D and SG and A expenses to be flat to down 2% sequentially.
As a reminder, expenses are typically higher in our fiscal second quarter as it includes the normal calendar resets for certain employee related costs. Interest expense, net of investment and other income in the fiscal Q1 is expected to be approximately $100,000,000 and is a reasonable estimate for each of the remaining quarters in fiscal 2020. For our fiscal Q1, we also estimate approximately 1,160,000,000 weighted average shares outstanding and a tax rate of 14%. Looking forward, 2020 is an exciting year for Qualcomm as we expect the financial upside of our 5 gs strategy to begin to play out with multiple drivers of non GAAP revenue and earnings growth, including the launch of 5 gs devices, RF front end design win traction, growth in adjacencies, combined with operating leverage and a substantially reduced share count. We look forward to seeing you in New York at our Analyst Day on November 19, where we will be providing additional details about our long term growth strategy.
Thank you. And I will now turn the call back over to Mauricio.
Thank you, Kas. Operator, we are ready for questions.
Thank Our first question comes from Chris Caso with Raymond James. Please proceed with your question.
Yes. Thank you. Good evening. I guess first question would be on the pace of the 5 gs ramp as you proceed through the fiscal year. You've given some indications on where you expect overall revenue to be.
If you could talk about that in percentage terms of 5 gs as a percentage of the mix as it goes through the year even on revenue terms or MSM terms, whatever you could do to give us some sense of how 5 gs penetrates as the year goes on?
Hi. Thanks, Chris. This is Cristiano. Consistent, I think, what we just said in the earnings call, I think timing or fiscal Q2 is that we started to see the inflection point as the devices have started to show up in volumes. And overall, I think mix, we expect that to be ramping in the high and the premium tier in some of the markets that we're seeing launching 5 gs.
Within that, we provide a metric before that we will see probably 1.5 times the ASP as we look at higher content for both the modem as well as the RF front end.
Okay. Thank you. And as a follow on for that, maybe you could give us some commentary on how that impacts QCT margins as the transition now. What should we expect as Yes. Hi,
Chris. This
Yes. Hi, Chris. This is Akash. The way you should think about the year playing out for QCT with 5 gs is really there is going to be 2 inflection points in the chip business. The first inflection point will be flagship launches in early 2020 by both our global and Chinese OEMs and you should think of it as RMB 3,000 and above handsets will start adopting 5 gs.
The second inflection point will be in the fall timeframe when another set of flagship devices will adopt 5 gs. So that should be kind of the shape of 5 gs adoption through the year. And how this translates into margin is we gave guidance for our 2nd quarter margin. We are expecting from 1st to 2nd quarter revenue will go up mid teens and operating margins will also be in the mid teens range in the Q2. We are not guiding longer term margins at this point, but we will talk about it at Analyst Day as well.
Thank you. Our next question will come from James Faucette with Morgan Stanley. Please proceed with your question.
Thank you very much. I wanted to ask kind of a follow-up to that and maybe Cristiano you can talk about where you see Qualcomm where it's particularly strong positioned in terms of like if we look at flagships down through the different tiers of phones, where you've talked a lot about design wins, but where should we expect you to show up most strongly versus where might there be a bit more variety of suppliers?
Thanks for the question, James. We updated our design pipeline. The design pipeline is about now 230 plus 5 gs devices across now multiple tiers. It's up substantially since 6 months ago. And I'll answer your question 2 ways.
First, I think it's been very clear that our early investments in millimeter wave has provided Qualcomm with a significant technology advantage in having the technology to maturity and we're optimistic about millimeter wave going from the United States initial launches into Korea, in Japan and other markets, including being licensed already in Europe. Telecom Italia was the first one, happening throughout 2020. That's a very good thing for Qualcomm. Having said that, I would probably say that every single launch of a flagship OEM today, with exception of Huawei, they use their home silicon, every other launch of every other OEM has been a Qualcomm Snapdragon platform. And that position us very well about partnering with OEMs for 5 gs ramp, including Samsung, which we have not only launched with the traditional markets, but also I point you to the A Series, which is the 2nd tier below the flagship that being launching with Qualcomm globally in addition to the Galaxy Fold.
So those are positive things as we think 5G transition for Qualcomm.
Great. And then a follow-up question maybe for Steve and Don. You mentioned that you're in ongoing negotiations with
Huawei, but haven't reached any agreement
as of yet. And are And are we going to I guess I'm wondering how China U. S. Trade relations and potential resolution or at least a trade agreement may factor into those negotiations and conversations with Huawei?
James, it's Steve. So we continue to talk to Huawei. I would characterize the discussions as ongoing, but really nothing to report on. Obviously, we don't have the numbers. We don't have any revenue in the numbers right now for licensing revenue.
In terms of how the trade discussions between the two countries impact the probability or chance that we can get a resolution. I think it's too early to tell. I think it's pretty opaque at the moment. It's good that we're talking, but there's really nothing to report on right now. And you know that the product business for us is actually quite small.
We tend to be a little bit more insulated, I think, from the trade talks compared to maybe other companies. But too early to tell in terms of what it will mean to the licensing discussions.
Thank you. Our next question comes from Samik Chatterjee with JPMorgan. Please proceed with your question.
Hi. Thanks for taking the question. I just wanted to start off firstly on the by focusing a bit on the RF front end opportunity. You mentioned that most of the design wins you're seeing kind of both the modem and the RF front end go together. So just wanted to kind of get your thoughts about how you're related to some of the incumbents in the space?
And then how should we think about sustaining that market share in kind of the 2nd generation, 3rd generation 5 gs phones? And then I have a follow-up.
Thanks for the question. So we look at 5 gs as the key entry point for our F1N business. And we're very satisfied with the ability as we started to look into the designs with the 5 gs content, which are specifically sub-six spectrum as well as millimeter wave spectrum, we actually have seen a very high percentage, virtually all of the 2 30 plus designs now for 5 gs content have Qualcomm modem 2 antenna design. We have seen in those devices some of our existing Cummins continue to support and provide content for 4 gs, but the 5 gs position of Qualcomm is very strong. What we what we're very happy, especially at this time, as we head into the Q2 ramp of 5 gs, we see now as we go into 2nd generation designs for the 2nd generation devices as well as lower tiers, we have maintained that pattern.
So we're now going into design number 2 and design number 3 that maintain the 5 gs on the RF front end and we're very happy with that development.
Got it. And if I can just follow-up, you've talked extensively about the opportunity on 5 gs handsets. If you can help me quantify the revenue opportunity outside of handsets, be it like small cells or IoT that is also tied to a 5 gs opportunity, but outside handsets? Just looking for some color there.
Yes. So let me give you the first part of the answer and I'll ask Akash to add. Devices and smartphones are definitely going to be the vast majority of the earnings specialists we had in 2020 as how 5 gs is going to ramp. However, we are happy about the 5 gs traction in all of our adjacencies from upgrade of telematics in automotive to 5 gs. We've seen a lot of industrial IoT applications and even our small cell business is getting traction including with traditional infrastructure vendors.
So we expect that to be a growth story in as we head into 2021 2022. In 2020, the one that I want to single out is CPE for mobile broadband and that's part of a lot of the carriers deployment of 5 gs and fixed wireless.
Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Please proceed with your question.
Hi, guys. Congrats on the strong results and 5 gs color. I just wanted to see about the seasonality in the QCT side, Steve or QTL side, Steve, you mentioned that you were happy it was returning to a seasonal pattern. You talked a little bit, I think, Akash, about what it was going to do in the fiscal Q2. Can you just talk about the seasonality of that?
Is the ranges that you've given in the past of kind of the $1,100,000,000 to $1,200,000,000 Is that the new range in kind of the weak quarters and the stronger quarters to be closer to the $1,400,000,000 you just did or how should we think about that as the year progresses?
Yes. Hi, Ross. This is Akash. I think that's a fair way of thinking about it. We just reported actuals for the September quarter at $1,160,000,000 and we're guiding the December quarter at a midpoint of $1,400,000,000 dollars and the March quarter at 1,100,000,000.
So that kind of gives you a sense of the seasonality in the business and those are fair numbers to use to project the business
going forward.
Thanks for that. And as my follow-up, perhaps one for Cristiano on the revenue per MSM side of things. Just would hope to get a little more color on why is that going down sequentially in your fiscal Q1 guide? And perhaps more importantly, it seems like it's up very nicely almost 12% year over year in fiscal 2019 and still despite that sequential decline in your fiscal Q1 still up the better part of 10 percent there. I was wondering what's driving the sequential decline, the year over year increases?
And then if that's all pre-five gs, how should we think about the lift off of this level?
All right, Ross. So our ASP per MSM has a very high sensitivity to high
last earnings call that we're going to see the dynamic throughout the calendar year.
And that and that combined with Huawei gaining share in domestic China as well. That's one dynamic. The other dynamic is OEMs cancels some of the 4 gs flagships and move their portfolio towards 5 gs getting ahead of the launch. So that create basically a change in the composition of the MSM because of the high and premium tier units as we go to that transition. However, the inflection point for Q2 is where you started to see the effect when we talk about it at 1.5x.
If anything, the guide that we provide in Q2, it contemplates the current market environment, the typical seasonality of our business, no significant changes in OEM share and does not include yet the ramp of the Apple business, you'll see that change just with the 1.5, which in average has higher ASP content on the modem plus the RF front end.
Thank you. Our next question comes from Matt Ramsay with Cowen. Please proceed with your question.
Thank you very much. Good afternoon. Congratulations Akash. I guess, Steve, my first question is around the 5 gs unit numbers that you gave for calendar 'twenty. I guess the midpoint that you guys have laid out is 200,000,000 units.
Maybe you could give a little color on what you're assuming the geographic mix of those units is in particular, what percentage might be China versus rest of world? And then I have a follow-up. Thanks.
Yes. Hi, Matt. This is Akash. So the way we thought about the 5 gs forecast for 2020 is a couple of ways. We looked at the tops down of how transitions have typically happened in previous generations.
And the 2 things that are different with 5 gs versus transition from 3 gs to 4 gs is China is adopting 5 gs at the same time as the other geographies versus in 4 gs, they were a couple of years late. And then also within 5 gs, we are seeing multiple tiers of products being launched simultaneously, which we did not have for 4 gs. So that's why we think the intensity of the 5 gs rollout is actually faster and you have China as a big portion of it happening early in the lifecycle. Of course, in addition to that, we are obviously talking to all of our OEM customers and we have a very good sense of how many devices they are planning to launch over the next several months with 5 gs and at what price points and that also allows us to inform our tops down forecast.
Got it. That's really helpful. As my follow-up, a quick one for Alex on the licensing agreements and obviously we're all encouraged to see the progress you've made on 5 gs. There's also been this dynamic of SEP only licenses become a bigger piece of the mix and some implications for the implied royalty rate. I know that moves around a bit, but I think you guys talked about in an answer to an earlier question about how to model the QTL business going forward.
I wonder if we're now at relative steady state for implied royalty rates as we go forward? Any comments there would be helpful. Thank you.
So I think that may be a fair way to look at it, but I think what the way you should look at it for guidance is we're guiding revenue. And so as we noted, we're going to see seasonality and we're going to see the remaining quarters at the range that we identified and of course, that's without the Huawei numbers. But we have made really good progress with signing up 5 gs agreements. We have over 75 agreements now in place since we started our 5 gs licensing program. So, I think that reflects a very strong IP position.
But I think, again, if you look to our guidance on revenue, that's probably the easiest way to think about it.
And Matt, this is Akash. Just a quick reminder that our revenue guidance numbers does not include Huawei. So as that gets resolved, that would be incremental to the range.
Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.
Hi, guys. Thanks for taking my questions. Around the March quarter QCT guide, so units in March quarter for MSM units are typically down seasonally. You're obviously guiding revenues up mid teens on the 5 gs ramp. So is that all or even maybe more than 100% due to increases in revenue per MSM?
Like is it that the 5 gs ramp itself in content is enough to offset the normal seasonal decline in unit shipments? Or are you seeing kind of like an ending of the flush that we've been and maybe a reversal with some fill as some of the new products get in. How do we think about that unit versus ASP trend in that embedded in that March quarter revenue guide for chipsets?
Yes. Hi, Stacy. So there are a couple of factors this is Akash by the way. There are a couple of factors that affect our 2nd quarter numbers for units in ASP. You're correct about the seasonally lower quarter, but that is also offset by a stronger mix because we launched our new premium tier chip and new high tier chip during that quarter as well.
So there is a mix implication before we get to the 5 gs benefit. And then the third factor is our what we have disclosed previously, which is with 5 gs devices on a like for like device basis, we expect 1.5x monetization as a combination of the chipset and the RF front end revenue on top of it. So those are kind of the three factors that impact the volume and price revenue per MSM mix in that quarter.
Thanks. And maybe just to follow-up on that. So you mentioned 1.5x content increase, but at the same time you also mentioned multiple tiers launching simultaneously, which is something that we didn't really see in 4 gs. So how do we think about that, I guess, that differential of those drivers on content increase overall versus the general mix of peers that are launching? And do you think that is enough to keep revenue per MSM rising through 2020, through fiscal 2020 as 5 gs becomes more mainstream?
Yes. So the way we think about the 1.5x is really for a given tier device. So comparing a premium tier to a premium tier device when you go from 5 gs 4 gs to 5 gs, the revenue opportunity increases by 1.5x. And then this would also apply to the tiers as it penetrates further down. And so you should think of that as a mechanism of modeling our business as the mix improves from 4 gs to 5 gs.
Thank you. Our next question comes from Mitch Steves with RBC Capital Markets. Please proceed with your question.
Hey, guys. Thanks for taking my question. I actually just wanted to focus a little bit back just on the pricing you guys are getting. So I realize it's going to be down a little bit in December quarter, but so two really clarifications. If Huawei does come back, would you get an implied ASP that goes up or down?
And then secondly, how do we think about that kind of ramping over the 12 months? I mean, I think most models have it going up a few dollars, but is that right still? Do you guys think that needs to be changed after seeing the mix come through?
So, this is Alex. You are asking about on the licensing side? Yes. Okay. Look, again, the way we think about it is that, well, Akash, maybe we will weigh in here.
The way we think about is that Huawei is incremental and I'm not sure what more to say to that other than what we've already provided by way of guide.
Okay. I guess maybe we just return to the Huawei piece then if that comes back, is that are you going to be increasing ASPs or you think that the ASPs will be flattish or similar?
Yes. The way this is Akashmaj. The way you should think about Huawei is we don't have Huawei units or revenue contemplated in the QTL guide at this point. So when Huawei gets included into the guide, it would be based on what their device ASP is and our licensing deal with them. So it will just fall out of the agreement that we end up having with Huawei.
Thank you. Our next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.
Yes. Hi, guys. Thanks for
the question. I wanted to just go back to the progress of 5 gs and particularly millimeter wave attached. And I wonder, Cristiano, if you could talk a little bit about of the 2 30 wins or maybe Steve, you want to address this, how many of those have millimeter waves attached to them or at least some version of them? And then as we get to the flagship launch at the beginning of next year, kind of proportionally, how does it look? And then as we get to the end of next year, how does that look?
Do we get to most phones by the end of next year having millimeter wave attached or some smaller proportion? Could you just walk us through that? And then I
have a
follow-up. Hi, Rod. Thanks for the question. So the way to think about it, it's pretty much at this point by market. For example, the United States market, all of the devices they have launched, There is a requirement for millimeter wave that's expected utilized by all of the 3 of the 4 carriers right now.
And that's where we have seen the initial launches of millimeter wave. Going into 2020, the current planning assumption is you're going to start to see millimeter wave also coming in the Korea market, is going to come into the Japan market and in the later part of 2020 beginning 2021, you start to see that in Europe. And that's how it's going to change the mix. Right now, you should look at some of the China launches that we're going to see in 2020. They are going to be sub-six and the Europe in 2020, the first half will be sub 6.
Japan, Korea and the United States are going to have millimeter wave. That's how to think about it.
And is it your Christiano, just to follow that up, is it your assumption that or our assumption should be that every market that has millimeter wave deployed in the wireless network, you would expect to see millimeter wave attached to most phones in that market. Is that correct?
That's correct. And especially because you have in the wireless industry today, you have probably a single SKU launched by an operator within their entire geography, even if you're going to have some markets of millimeter wave, some market with sub-six. That has been the requirement on millimeter wave capability in many of those 5 gs devices.
Thank you. Our next question comes from C. J. Muse with Evercore. Please proceed with your question.
J. Muse:] Yes, good afternoon.
Thank you for taking the question.
I guess to follow-up on the last question, As you think about the 200,000,000 5 gs unit market, plus or minus in 2020, what percentage do you believe will have millimeter wave? And then as part of that question, can you kind of talk through the attach rate that you're seeing on RF front end for you guys at sub-six versus millimeter wave? I would assume a much higher rate there on millimeter.
Hi. Let me answer in reverse order. So on the Snapdragon platform today, the attach rate on millimeter wave and sub-six is the same. I think we have modem to antenna designs, including our front end in all of the Snapdragon. There are very few exceptions and sometimes the exception is just one or another band in very small quantities.
I'll say the absolute majority of the devices we've been winning our front end across millimeter wave and sub-six is not unique to millimeter wave. However, millimeter wave drives a lot more content because unlike sub-six, you need multiple antenna modules and multiple RF chains of millimeter wave. So the content is disproportionately higher on the millimeter wave side.
CJ, on the mix of sub-six versus millimeter wave within the $200,000,000 At this point, we're not disclosing a mix really, but the way to best think about it is what as Kushana mentioned earlier is by market. And so there are certain markets, U. S. And then Japan and Korea next year, where millimeter wave would be required from an operator perspective. And so those markets would have millimeter wave.
So the best way to think about it is a mix of markets.
Our next question comes from Timothy Arcuri with UBS. Please proceed with your question.
Hi, thanks. I wanted to just clarify the answer that you had to a prior question on the March guidance for QCT. So are you basically implying that units are going to maybe be seasonal plus just a smidge and most of the increase in QCT revenue in March is ASP, is that right?
Yes. I think the units will have kind of the regular cadence of seasonality, maybe with some increase that's driven by 5 gs launches, but primarily it will be a mix of the tier mix within the chips we have and then also the 4 gs versus 5 gs Max.
Okay. And then I guess just following on to that then, if you're not getting much of the unit benefit yet in March, obviously, you're going to eventually have to see that unit benefit. So how sustainable is the growth in QCT revenue into fiscal Q3 when you would, I would think, see much more of the unit growth in that quarter? Thanks.
So from a market perspective, the way we are planning our business going forward is we are assuming the current market dynamics hold. And within that, our benefit is as the transition happens to 5 gs. And then so that should be the basis for the assumptions for next year. Now as we have both kind of initial set of 5 gs launch has happened and then additional 5 gs launches happen across flagship's models later in the year, we'll see our operating margin ramp in addition to revenue per MSM as we see the benefit of 5 gs going through our portfolio.
Thank you. Our next question comes from Brett Simpson with Arete Research. Please proceed with your question.
Yes. Thanks very much. Cristiano, I just have a couple of questions. Maybe first up on the 5 gs outlook for calendar 2020. You're talking about 200,000,000 units at the midpoint.
And I know other chipmakers have reported in the last week or so, are talking more like 300,000,000 units globally for 5 gs next year. I just wanted to sort of delve in a little bit into your assumptions. Are you expecting the large flagship launches next year to be only 5 gs? Or do you expect global flagships to also be 4 gs in that outlook? And anything you can tell us about what your assumptions are for China within that 5 gs outlook you've given would be very helpful.
Thanks.
Excellent question. So let me break that down. As we said earlier in the Cerny's call, I think Akash also mentioned this, we are assuming existing market dynamics and I think that's why you probably see us on a more conservative estimate. If you believe that there is a pent up demand for 5 gs devices and it's kind of consistent with other transitions, you could have a change in replacement rates and that's going to drive a bigger market. Bigger market is even better news for Qualcomm.
So we're just assuming existing market dynamics in our projections. Now going back to the outlook on 2020, we talk a lot about the dynamics on Q2, but maybe to add to the prior question, you should expect as we get into the second half of 2020, then we're going to see the addition of Apple volumes. And so that's you should think about really a 5 gs ramp for Qualcomm in 2020. Your last question is about China. The order of magnitude of deployment in China is significant.
And we said during the script that it's now the projection is 1,000,000 Ino B or base stations by 2020. That's going to drive a very aggressive migration. So China could also be upside if the market dynamics don't hold and you have higher replacement rates. And also, if you assume that the current Huawei share gains in China, which we're assuming as our going assumption, that changes and get to some more normal levels, that's upside as well.
And maybe if I can just ask a quick follow-up here, just to clarify on the RF front end side. When you talk about modem to antenna in 5 gs, are you also including 4 gs modules 4 gs RF modules, like low band, mid high band, etcetera? Or are we really talking about ultra high band RF? And also just on millimeter wave because I know there's a lot of investors that are questioning the viability of millimeter wave at the moment. What are you doing in your 2nd generation millimeter wave platforms to improve things like battery life or how do we think performance is going to pick up here?
Thank you.
Okay. Maybe I'll two questions. Let me try to go quickly to them. So the first one is we have been very focused in 5 gs as the entry point. So we have been winning our front end in the 5 gs mid bands, in the 3.5 bands, in some cases, in some of the re farm bands as well at the lowest frequencies as well as millimeter wave, it's both.
We continue to see the incumbents providing the 4 gs, but I pointed to what we're going to see in 2020, especially with dynamic spectrum sharing. It's going to be the refarming of existing 4 gs bands and we expect that to be an expansion of our existing 5 gs RF front end solution. So that was the first question. Can you remind me of the second question? On the millimeter wave performance.
Yes. So as we launch a new technology, there's a lot of features that come across the device and the infrastructure and they don't come all day 1. So some of the initial, I think battery life or even thermal that was experienced by millimeter wave in the 1st generation chip sets, they already been addressed with softer updates and we've seen a full day of battery life on existing 1st generation chipset. As we go to the 2nd generation Snapdragon, we see with across process node and the evolution of our modem technology also significant improvements in battery life area for the millimeter wave footprint as well as terminals.
Thank you. Our next question comes from Srini Pajjuri with SMBC.
A couple of follow ups actually. I guess first on the 5 gs ASP boost, there has been a lot of talk about the chipset ASP boost. But I'm just curious, I mean, do you see any benefit on the QTL side? I know I think most of the 4 gs premium phones are probably already hitting your cap, but as we transition to 5 gs, what sort of benefit, if any, do you see on the QTL
side? Srini, this is Akash. When again, kind of going back to history, what has happened from 3 gs to 4 gs and previous generations, we have seen typically an increase in replacement rates and an increase in ASPs when we go to a new generation. So that is certainly something that is possible and maybe even likely with 5 gs. For our business planning purposes, we are as we said earlier, we are planning based on a market being consistent and then within that having a transition to 5 gs.
So that could be an upside opportunity for us. That's not included. And then you could also see users with low and mid tier devices upgrade and buy higher tier devices because of the increased capability that 5 gs brings. And that could help QTL ASPs as well. But again, that is not modeled into our business at this point.
And one quick point, with our early R and D and IP leadership, it's just a really good context for driving new agreements.
Got it. And then Akash, on the margin front, at QCT, I know you said the margins will improve over the next few quarters. But my question is, on a like for like basis, does 5 gs give you better margins? Meaning if I go back to the second half of twenty seventeen, I think you hit your 20%, 21% EBIT margin for QCT. At that time, your revenue run rate was close to $1,000,000,000 So when we get back to that kind of revenue run rate, do you expect the margins to be higher than that 20%, 21%?
Yes. So Srini, at this point, we're not disclosing kind of separate margins for our 4 gs versus our 5 gs business or a specific target for long term margins. But this is something we'll address at Analyst Day. So if you can stay tuned for a couple of weeks and we'll plan to address it there.
Thank you. Our next question comes from Vijay Rakesh with Mizuho. Please proceed with your question.
Yes. Hi. I was just wondering, just looking at the RF front end wins that you're seeing into next year, If you could give us exiting calendar 2020, what you see would be the mix of RFFE within your QCT or give us some dollar number on what you think your RFFE would be? Thanks.
Thanks for the question. We're not really breaking that down, but we did provide that metric of 1.5x. That includes both the ASP increase in a 5 gs modem as well as our front end content in average per tier.
Got it. And on the QCD side, I know you guys talked about a nice pickup with the mix going to 5 gs. What kind of ASP assumptions are you assuming on that as you go through 2020, especially as you might have some other merchant suppliers entering the market? Thanks.
Look, we the way to think about it is, we also have competition and there's nothing that we see in the market on the competitive side that is different than we expected and that is factored in our projections.
Thank you. Our next question comes from the line of Patrick Walsh with Oppenheimer. Please proceed with your question. Mr. Walsh, your line is live.
You may proceed with your question.
Sorry about that. I had it on mute. I just had 2 quick questions. So the first question on the RF side, when you hear the traditional RF players, Qorvo, Skyworks talk, they talk about a change in RF content from either 'eighteen to 'twenty going to 'twenty 5. And so my question for you, it seems like initially you guys are focused more on that incremental $5 to $7 Is that a fair assessment?
And is the majority of that $5 to $7 made up by millimeter wave? And then if we think about that core 18 to 20 that's been historically there, are you really aiming for these kind of re farmed bands?
That particular area.
And then I guess within the bands, can you do you have I know you have bought capacity beat via TDK. I wouldn't imagine it's too much just given that Avago and Qorvo have probably I think 80% of the capacity out there. So would you be targeting more like low band pads?
Patrick, in terms of kind of the ASP question you asked, I think the examples you're quoting was for a premium tier device. Really, as you look at different regions and you look at different frequency bands in a given region and tier of device, those numbers could be vastly different. So I think it's very difficult to generalize in terms of ASP advantages. The way you should think about it is, there is a certain market for our front end that exists with 5 gs coming in that is going to expand and that's going to create an opportunity for us to significantly improve our share in the market. And then on top of that, as Cristiano mentioned, as DSS happens, dynamic spectrum sharing and bands get re farmed to 5 gs, we'll be able to participate and further expand our revenue opportunity.
So that's kind of the framework you should use.
Thank you. That concludes today's question and answer session. Mr. Mollenkopf, do you have anything further to add before adjourning the call?
Yes. Thank you. Just I just want to thank the team, the Qualcomm team for their hard work and the great execution through 2019. 2020 is the year of 5 gs. I want to thank everybody for their hard work.
We're on the cusp of it and I'm very excited about it. But thanks everybody. See you next time.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.