Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm fourth quarter and fiscal 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, press star then the number one on your telephone keypad. To withdraw your question, press the pound key. If you are using a speakerphone, please pick up your handset before pressing the numbers. As a reminder, this conference is being recorded November 1st, 2017. The playback number for today's call is 855-859-2056. International callers, please dial 404-537-3406. The playback reservation number is 394-66043. I would now like to turn the call over to John Sinnott, Vice President of Investor Relations. Mr. Sinnott, please go ahead.
Thank you. Good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and George Davis. 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 today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements.
Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. Now, to comments from Qualcomm's Chief Executive Officer, Steve Mollenkopf.
Thank you, John. Good afternoon, everyone. We are pleased to report better-than-expected results in our fourth fiscal quarter, completing a year where we saw strong performance across our chip businesses, healthy global demand growth for 3G/4G devices, and we expanded on Qualcomm's fundamental leadership in 5G technologies. I am particularly pleased with the actions our teams have taken this year to advance the strategic objectives we set for the company. Almost two years ago, we set an ambitious target to significantly grow our serviceable available market by 2020. This past year saw substantial progress in the most critical new opportunities for the company. First, the announced acquisition of NXP provides important capabilities to grow our footprint in automotive, IoT, and security. Second, we closed the RF front-end joint venture, providing us with the remaining products and capabilities to fully compete in this growing area.
Third, we announced a partnership with Microsoft to bring the advantages of low-power, high-performance computing to the mobile PC market. In QCT, product demand and mix trends continued to be favorable and profitability improved again this quarter. Now six quarters in a row of year-over-year growth in EBT and EBT margin expansion. For fiscal 2017, QCT EBT dollars grew more than 50% year-over-year, driven by our strong product portfolio, favorable product mix, and growth in China and adjacent areas. QCT revenues outside smartphones in adjacent areas were more than $3 billion in fiscal 2017, up more than 25% year-over-year, driven by better-than-expected growth in auto, networking, and IoT, as we continue to successfully execute on our strategy to extend our mobile technologies into these new growth areas. We continue to see good trends in our business in China.
We increased our share in fiscal 2017, with approximately 25% year-over-year growth in both QCT revenues and MSM chip shipments to Chinese OEMs. Looking ahead, we are pleased to see 5G momentum there, including our 5G NR trial with China Mobile. In QTL, the second half of fiscal 2017 results were impacted by disputes with Apple and its contract manufacturers, as well as one other licensee, and we remain focused on defending our business and the value of our patented inventions for the long term. 3G/4G trends around the world are very positive. We are pleased to see that global shipments of 3G/4G devices remain strong, and we continue to forecast calendar 2017 device shipments to grow 6% year-over-year at the midpoint.
Looking ahead to calendar 2018, we forecast stronger growth, with 3G/4G device shipments expected to grow approximately 8% year-over-year at the midpoint, reflecting continued handset shipment growth, as well as stronger year-over-year growth in non-handsets. In addition, estimated global 3G/4G device ASPs are trending better than expected, with ASPs in fiscal 2017 flat versus fiscal 2016. The favorable end market trends for 3G/4G, the accelerating commercial timing for 5G, as well as the adoption of wireless technologies into new industries continues to be very positive for us, and our global scale, combined with our technology and product roadmap, are leading the industry. We are very excited about the increased momentum in 5G around the world. We are leading the industry and are accelerating the commercial launch of 5G across millimeter wave and sub-6 gigahertz in early 2019.
We recently announced the world's first 5G data connection, achieved on the Snapdragon X50 modem chipset, and are leading 5G/3GPP standards development, ongoing prototype efforts, and are supporting global 5G new radio trials. In September, we announced our 5G new radio millimeter wave prototype that will be used for interoperability testing with our infrastructure vendor partners, along with our previously announced sub-6 gigahertz prototype. With 5G commercial devices shipping in 2019, we expect to further expand our product and technology leadership position in modems. Gigabit LTE is the first step in network operators' transition to 5G, and there are now 41 operators in 24 countries supporting Gigabit LTE. We have demonstrated download speeds of greater than one gigabits using our X20 LTE modem in the U.S. with both Ericsson and Verizon, as well as Nokia and T-Mobile. Most leading device makers are rapidly adopting Gigabit LTE into their device portfolios.
In the premium tier, our Gigabit-enabled Snapdragon 835 now has more than 120 designs launched and in development, including recent flagship devices like the Samsung Galaxy Note8, Pixel 2 and Pixel 2 XL, LG V30, and the Xiaomi Mi Mix 2. We have also introduced new high-tier and mid-tier Snapdragon products to further expand our competitive position in China across all tiers. Turning to our pending acquisition of NXP, we remain focused on the last few regulatory approvals. We believe this acquisition will provide us with greater scale in automotive, IoT security, and networking with their highly complementary products and world-class sales channel, serving a long tail of customers that are driving growth. Of the nine jurisdictions we're reviewing, we have approvals from five, including here in the U.S. and Taiwan, with China and the EU the largest remaining.
We are constructively working with each remaining regulator. While the clock is stopped in Europe, there is nothing unexpected or surprising in that process for an acquisition of this size. Significant effort was expended throughout the year on integration planning with NXP. Along with NXP, we continue to see this as an attractive deal for both our stockholders and NXP stockholders at $110 per share, as the combination brings together a comprehensive set of capabilities to address next-generation auto and IoT devices. We continue to focus on closing the acquisition by the end of calendar 2017, with the potential for the close to slip into 2018 based on the current status of approvals. On the regulatory matters, we are pursuing appeals and resolutions and are confident in the pro-competitive nature of our business.
We will continue to appeal the KFTC ruling and look forward to presenting our case in the U.S. FTC matter in early 2019. In Taiwan, we strongly disagree with the recently announced decision and have significant objections concerning the lack of due process that led to the decision. We will appeal and seek to stay the decision. TFTC ruling was not by consensus. We understand there was dissent among the commissioners, resulting in a split decision. We were also pleased to see the Taiwanese Ministry of Economic Affairs publicly question the TFTC process and decision. Finally, I would like to thank our employees for their hard work and focused execution throughout this past year. The team reported strong results in the product business, validating both our strategy and the strength of our product portfolio.
We will maintain our strong commitment to and focus on technology and product leadership as we drive innovation into new opportunities and toward the path of 5G. I would now like to turn the call over to George.
Thank you, Steve, and good afternoon, everyone. I will begin with comments on our fiscal fourth quarter and 2017 results, followed by our fiscal first quarter of 2018 guidance and some additional perspective on 2018 overall. In our fiscal fourth quarter, we delivered non-GAAP revenues of $6 billion and non-GAAP earnings per share of $0.92. Performance was strong in our operating businesses relative to expectations, particularly in QCT. Non-GAAP EPS results exceeded the high end of our prior guidance range by $0.07, with the majority of that outperformance coming from QCT, with the balance from QTL, and better than expected performance in our investment portfolio. QCT delivered strong results with revenues of $4.7 billion, reflecting MSM shipments above the midpoint of expectations. QCT EBT margin was 21%, above the high end of expectations on the higher unit volume, improved product mix, and product cost initiatives.
QCT earnings before tax was up 42% year-over-year in the quarter. In QTL, revenues were $1.2 billion, and EBT margin was 68%, both above the midpoint of expectations, driven primarily by better-than-expected 3G/4G device ASPs due to a favorable mix of premium tier devices as well as strong ASPs from Chinese OEMs in the quarter. Non-GAAP combined R&D and SG&A expenses were up 3% sequentially at the high end of expectations on increased 5G investment and litigation expenses as we continue to defend our business model on several fronts. Investment income in the quarter came in ahead of expectations due to market favorability as we nearly completed the liquidation of our risk portfolio in advance of the NXP deal close. Our non-GAAP tax rate was 18% in the quarter, and our GAAP rate at 61% reflected the impact of the non-deductible TFTC fine. Now turning to fiscal 2017.
Non-GAAP revenues for the year were $23.2 billion, and non-GAAP earnings per share were $4.28. Non-GAAP gross margin at 60% of revenues was a good story for the company in 2017, as strong gross margin performance in QCT nearly offset the impact of the licensing disputes. Non-GAAP free cash flow was approximately $6.1 billion, down 15% year-over-year. We returned $4.6 billion to shareholders in fiscal 2017, including approximately $3.3 billion of cash dividends paid, an increase of 9% year-over-year, and $1.3 billion in share repurchases. Turning to 3G, 4G devices, the trends were strong in fiscal 2017, with estimated global 3G, 4G device sales growing at a mid-single digit percentage year-over-year, consistent with prior expectations. Underpinning this growth was a flat ASP for global 3G, 4G devices versus fiscal 2016, despite some FX headwinds.
For calendar year 2017, we continue to forecast approximately 1.75 billion-1.85 billion 3G, 4G device shipments, which projects growth of approximately 6% year-over-year at the midpoint, consistent with our prior estimates. In QCT, we saw strong performance in fiscal 2017, with 52% year-over-year growth in earnings before tax dollars and EBT margin expansion of approximately 500 basis points to 17%. The business delivered these strong results despite the full year impact of a second source decision at Apple. Three elements were the key drivers of the strength in QCT. First, we had a strong year-over-year growth in MSM chip shipments to OEMs based in China. Second, QCT revenues from adjacent areas, which includes auto, IoT, networking, and mobile compute, grew more than 25% year-over-year and now provide revenues of just over $3 billion.
QCT results also benefited from seven months of our RF360 joint venture, which closed in February. A very strong year overall for QCT. In QTL, results in fiscal 2017 were impacted by the disputes with Apple and another licensee, primarily in the second half of the year, as well as by the increased cost of litigation and spending on brand defense. Absent these disputes, we believe revenue would have shown healthy year-over-year growth in line with the strength of the underlying markets. Let's now turn to our financial outlook for the first fiscal quarter of 2018. We estimate fiscal first quarter revenues to be in the range of approximately $5.5 billion-$6.3 billion, roughly flat sequentially at the midpoint. We estimate non-GAAP earnings per share to be approximately $0.85-$0.95 per share, down 2% sequentially at the midpoint.
We anticipate first quarter non-GAAP combined R&D and SG&A expenses to be down approximately 1%-3% sequentially on both seasonal and operating cost savings. In QTL, we expect revenues of $1.1 billion-$1.3 billion in the fiscal first quarter, approximately flat sequentially at the midpoint. We expect fiscal first quarter QTL EBT margin to be approximately 68%-72%, flat to slightly up sequentially. In QCT, we expect approximately 220 million-240 million MSM chip shipments for the fiscal first quarter, up 5% sequentially at the midpoint, reflecting typical seasonality trends and strength in our product portfolio. There's potential upside to these estimates on indications of a possible build ahead on a customer's flagship launch. We expect QCT's fiscal first quarter EBT margin to be approximately 18%-20%, down slightly sequentially on product mix.
As a reminder, the fiscal first quarter is the seasonally strong fourth quarter for QCT, and we expect the fiscal second quarter to reflect normal seasonal trends with lower demand for units impacting margins. We estimate our non-GAAP fiscal first quarter 2018 tax rate to be approximately 7%, reflecting the lower mix of licensing revenues in our business at this time. Net interest expense is expected to be approximately $60 million-$75 million in the fiscal first quarter. Net expense is up nearly $175 million on the effects of lower realized gains on sales of marketable securities and lower investment returns now that we have substantially completed the liquidation of our longer-term investment portfolio and are holding assets in short-term liquid investments. Turning to 2018, consistent with last year, we're providing selective guidance points for the year.
For calendar year 2018, 3G, 4G device shipments, we are estimating approximately 1.9 billion-2 billion units, up approximately 8% at the midpoint, reflecting strong growth of 3G, 4G handsets in India and other emerging regions, as well as above average growth in 3G, 4G non-handsets, primarily in IoT. In fiscal 2018, we expect mid-single digit percentage growth in global 3G, 4G device sales year-over-year and estimate that the global 3G, 4G device ASP will decline at a low single digit percentage year-over-year primarily from strong unit growth in the non-handset category at lower ASPs. This includes our estimate that global 3G, 4G handset ASPs will be roughly flat year-over-year, with continued ASP growth for Chinese OEMs and premium-tier handsets offset by increasing shipments into lower ASP emerging regions.
We estimate our full-year non-GAAP tax rate to be approximately 7%, lower versus fiscal 2016, reflecting a full-year assumed impact of lower licensing revenues resulting from the licensing disputes with Apple and the other licensee. That concludes my comments. I will now turn the call back to John.
Thank you, George. Operator, we are ready for questions.
To queue a question, press star, then the number one. To withdraw your question, press pound. If you are using a speakerphone, please pick up your handset before pressing the numbers. One moment please, for the first question. Tal Liani from Bank of America, please go ahead with your question. Tal Liani, your line is open. If you are on mute, please unmute your line. There was no response from that line. Mike Walkley with Canaccord Genuity, please go ahead with your question.
This is Matthew Ramsay on for the team and Mike. Steve, you might have seen there's been some sort of questions about the position of your chipset business with premium-tier OEMs going forward, and it occurred to us that with 5G trials coming online and lots of work being done both with carriers and with those premium OEMs as the industry moves toward 5G, you guys might be well-positioned to retain and maybe even expand some of those positions. Maybe you could talk a little bit about the competitive position of your QCT business for 5G and the engagements that you have on the OEM and with the carriers as we move forward in those trials. Thank you.
Hi Mike, it's Steve. I didn't hear the front part of that. Also, it's kind of hard for me to talk about rumors or any particular, let's say, media report. I will say that our roadmap and the positioning of our, in particular, our modem roadmap, we feel very good about. Not only the ones that are already launched, if you look at the upgrades that are going to occur to LTE upstream of 5G, then when you get to 5G, I think we feel very good about that positioning. We'll go into that in some detail. I would say the overall sense of the competitive dynamic, we feel quite good about.
Thank you.
James Faucette from Morgan Stanley, please go ahead with your question.
Great. Thank you very much. Wanted to ask quickly on the NXPI process. I think Steve indicated that you're making good progress with the regulators, even though that deal may slip into next year. How are you feeling about your part of the process, et cetera, if you feel like you're on the same page with regulators as to the things they may need to ask for? Then my second question is, in the past you've talked about a non-Apple licensee that there were some collection issues with. Can you give us an update on any progress there? Thank you.
James, this is Don Rosenberg. I'll take the first part of it. On the regulators, we are, as we've said before, working with the rest of the regulators that haven't yet cleared. As you recall, we have five regulators who have cleared already. We are deeply engaged with the others, and we are making progress. It's a little slower than we'd like to make, but that's more the process than anything else, and we are feeling good about our engagement and that we are going to get to the end as quickly as we can with them.
James, this is Alex. On the other part of your question regarding the non-Apple licensee, the short answer is we're still in negotiations with that licensee. Other than that, there's really no other news.
Stacy Rasgon with Bernstein Research, please go ahead with your question.
Hi, guys. Thanks for taking my questions. For my first question, I wanted to ask about the licensing results and the guidance. I know last quarter there had been some, I think you characterized it as substantial catch-up in the quarter, and that was the reason for the flat guide on revenues into Q4. Was there any catch-up or anything unusual or otherwise one time that impacted either the Q4 licensing results or the Q1 guidance, and if so, what was it?
Yeah, hey Stacy, this is George. The Q4 results had a very small amount of what I would call out-of-period or catch-up dollars in it. No material effect, really the improvement was driven by the strength of the market relative to our expectations in the guide. If you look at our Q1 guide, I would say we probably would be up a little bit more if we had out-of-period amounts similar to what we had in Q4. It's having a little bit of impact Q4 to Q1, but we're still showing the strong guide.
Got it. Thank you. For my second question, I wanted to ask a little bit about the linkages or lack thereof between the various disputes. I know, again, on the last earnings call, I think Derek had made some statements that have sort of essentially dismissed any linkage or contagion worries. Your attorneys in court told Judge Curiel the opposite, and I think the injunction was denied partially on the basis of that discrepancy. Can you give us a little more color, like which one of those statements is more valid in terms of the linkage between Apple and any of the other disagreements that seem to be developing at this point? How can investors get a little more comfort that going forward, the disputes that exist as they are today don't continue to give rise to more?
Stacy, I'll take the first part of it, Don. First of all, there is really no contradiction, to be clear, between our arguments in court and statements that, as you indicate, Derek and others made. I think we'll get into the second part of your question in a minute. What we argued in court under the court standard, which as we've said, is a very strict standard, which is very hard to meet in the context of a contract case. We thought we had a pretty strong argument, unfortunately, the judge didn't ultimately agree with that. The court arguments were not inconsistent with what we've said. If you're thinking about the notion of irreparable harm versus, as you describe it, kind of leakage to others, it's a different concept. I think we were pretty clear in how we argued that position.
Timothy Long with BMO Capital Markets, please go ahead with your question.
Thank you. Maybe just two, if I could, as well. I guess it seems like you didn't give out the standard. You gave the industry view of units and ASP. I am just curious if we can get any color on what was paying units ASPs implied royalty rate in the quarter, and is that going forward going to not be given, or is that just because of the disputes? Separately, be interested to hear on the chip business, obviously doing great with the Chinese OEMs and the adjacencies. Just any color you can give us on what those businesses, the mix of those businesses would mean to the margin profile of that business. Margins seem to be going up with them. Is that a trend that we should expect to continue? Thank you.
Hey, Tim, it's George. On the TRDS, we took a look at whether or not once we had the two disputes, whether the TRDS number that we used to give out really had any information in it. We felt it was actually just confusing, and we found ourselves reconciling a bunch of numbers. We went straight from point A to point B and just guided revenue, which we think gives a lot of visibility into what we think is happening in the business. We do think the underlying trends are actually quite strong, and you're seeing the benefit of that both in growth of the licensable market even if we're not fully participating in it.
We've seen good growth in device sales globally, and it's being driven by strong ASPs, which is also having a positive impact in the mix and the performance of the company, where we're very well positioned in the markets where we're seeing the largest impact, and in particular, China. I think we're sensitive to your concern, and if we can find a way to get out more information that is actually helpful and gives insight into the business on TRDS, we will. In the meantime, we feel like guiding revenue is perhaps the best alternative.
Okay.
Maybe Cristiano wants to start off on the adjacents, and I can jump in if you want.
Hi, Tim. This is Cristiano. You had a question on China and adjacencies. China's been a good story for us. I think China is the world's most competitive market, and our product roadmap has done well for us in China. We remain confident in maintaining our position there as a market leader. The trends have been very good. We saw in China, when we look at fiscal 2017, we saw 25% year-over-year growth in our China business. When we think about that market going forward, we saw good transitions on modern technology to 4G Plus, and I think a lot of the activity towards an early 5G in China as well is positive for us. One other comment to note, just a commentary on China. One of the data points in 2017 was consistent with the trends we have talked over the year.
We started to see an increase in exports of the Chinese OEMs as they become a larger percent of the global market. In the adjacent business, we saw growth across multiple segments, automotive, IoT, networking, and we can leverage mobile technology, so they have been providing a good margin story for QCT.
Thank you.
You bet.
Ross Seymore from Deutsche Bank, please go ahead with your question.
Hey, guys. Thanks for letting me ask a question. The first one is on the Apple litigation. It seems like whether it's in press reports mainly or otherwise, that it's escalating, not actually getting closer to resolution. Maybe, Don, if you could provide us a timeline in the upcoming court cases, if we're going to come to the conclusion that this probably will be decided in the courts or at least have to get a lot closer to those court cases before any resolution comes to pass.
Yeah. Well, it's Don. It's important to keep in mind that litigation of this size and magnitude takes a while, you can't focus on any particular event in the short term. As you know, there are multiple cases that have been brought by Apple and multiple cases that have been brought by us, we're going through the process. There'll be some motion practice, there'll be some discovery disputes. That process is going to proceed under the court's schedule. I would say that, as you know, we brought a couple of patent cases against Apple in the ITC, in district court here in the United States, in Germany, and in China. Those tend to move a little faster in the ITC, Germany, and China than litigation generally.
I would say that those will be on a somewhat faster track, including potentially Germany by sometime mid to end of 2018. China too, we expect to be on a fairly fast track, and as you know, the ITC action will move forward rather quickly. Until then, I don't think you're going to see much that's going to be of any particular consequence in terms of the ultimate outcome. It'll play out the way a lot of this kind of complex litigation plays out generally.
I guess a quick follow-up on that litigation side of things. The unnamed dispute that you have, seems like that's been going on for coming up on a year's time. I know you're still in negotiations, you're not really going to comment on the name of the party, et cetera. Is that duration typical for one year? What's the trigger point that changes it from an informal to a formal dispute where we can get more information?
This is Alex. It's a fairly lengthy discussion, but I don't think that that's atypical. There are a lot of issues involved to work the way through. I think, when it changes over to some form of litigation, obviously, that's when we'll go ahead and disclose that.
David Wong from Wells Fargo, please go ahead with your question.
Thanks very much. Following up on the earlier question, we can see what's happening between you and Apple publicly in terms of the filings and the counter filings. Can you give us any feel as to whether there's direct dialogue between you and Apple, outside what we can see publicly?
Hi, this is Steve. I would echo what Don said earlier. It's very difficult to look at any one particular data point, whether it's true or not, and come to a conclusion. I think it's also important for investors to understand, we really try to compartmentalize our engagement with Apple. We have a product engagement, and we have a dispute over really the price of IP. I think if you net that all together, we do have a lot of engagement with the company, and we do speak, and are engaged on a daily basis with them across multiple areas that I mentioned. We try to compartmentalize those two discussions. As I've said many times before, I think there are a lot of levers between the company to figure out things.
I just think we're not at a point where we're announcing anything different, and I think we want to be upfront that this could take some time to resolve. We're working very hard on the product side to make sure that we continue to be a good supplier and a good showcase for our innovation products.
Great. Thanks so much.
Vijay Rakesh from Mizuho, please go ahead with your question.
Yeah. Hi, guys. Just one thing on NXP. You still expect it to close in the year, in 2017?
Yeah. We've said that we're still working towards closing in the year. Clearly, we have some activities going on at regulators that are taking a bit longer than we thought. We could see it slip into early 2018. We're confident it's on track to close and are still working to close it in the year.
Got it. On the second IP litigation, I know you guys haven't given a lot of color there, but do you expect it to get resolved at the same time as the Apple IP, or do you think that's more of a mutual discussion that you're having outside court, and so that should see a faster resolution there? Thanks.
Yeah. The second licensee, the facts and circumstances around that actually started before the other dispute and have issues that are unique to that licensee, and that will go play at its own pace and will be unrelated to, unless it's coincidentally resolved at the same time as the Apple dispute.
Thanks.
Chris Caso with Citigroup, please go ahead with your question.
Hey, thanks, guys. I guess another question on NXP. Why not? If we get through all the approvals, but the tender doesn't go through or it's rejected, can you talk about what would cause you to walk away versus just raise the price? What would be the circumstances there?
Yeah. Right now, we're really just focused on the regulatory close. We think $110 is a very full price, and I think as you saw on NXP's earnings release, the management team there is also reinforcing that $110 is an attractive price for their stockholders as well. Right now, we'll stay focused on just getting this thing to the finish line.
Great. Thanks, guys.
Romit Shah from Nomura Instinet, please go ahead with your questions.
Hi, this is Krysten Sciacca for Romit. Thanks for taking my question. I apologize if this was asked earlier in the call. I'm juggling two concurrent calls right now, but for going to QCT operating margins, I know you did very well in this quarter on that. Can you give any directional, I guess, guidance as for the trajectory for fiscal 2018 for operating margins in QCT?
We're not putting out full year guidance, but we did give an indication of Q1, which again continues the strength in margins in QCT. 2017 was a very strong year. You saw EBT up over 50% and six straight quarters of margin expansion. We think that the fundamentals of strong markets, strong products, growth in the adjacencies are all factors that will continue into 2018 and help margins.
Brett Simpson with Arete Research, please go ahead with your question.
Yeah, thanks very much. Just a question on the business structure at Qualcomm. When you consider the antitrust that's underway with regulators and the litigation with Apple now that's impacting your chip market share and the issues with your other licensee, can you perhaps talk about the benefits that QTL being combined with QCT, particularly after you close NXP to become a much more diversified chip business? What's the real benefit, do you think, of having the combined businesses there together? Is there scope for a fresh review into a potential split between QTL and the enlarged QCT?
Brett, hi. It's Steve. I would say it's something that we look at all the time. We have, as you know, over the course of the company's history, looked at this in, I think, a formal way a number of times, but it's something that we always look at. However, I think I would just remind folks, if you look at what most people are working on in the company, we're trying to drive 5G. We're very excited about that. I think that's good for both businesses. It's something that we think is going to have a long-term payoff for the company. I think, as you can tell from our actions, we really view the ability to drive both innovation ahead of the market and have a channel to move that into the market is very important.
That continues to be something we think contributes to long-term growth, but it's also an area, or it's a topic that we look at all the time to make sure that we are driving shareholder value as best we can. Nothing really to talk about here other than, I would say the primary focus on driving 5G and what that means really to our business structure is very important at the moment for us.
Maybe just a quick follow-up for George. In the QTL business, you booked $95 million of additional revenue in non-GAAP for QTL for licensing that wasn't in GAAP sales. Can you perhaps just talk about that and give us a sense for why QCT margins are falling sequentially to 18% midpoint for December quarter? Thank you.
Yeah. We had a dispute settlement, because the dispute settlement was with a customer, it has to be taken as contra revenue. That was the difference between the GAAP and the non-GAAP revenue.
John Pitzer from Credit Suisse, please go ahead with your question.
Yeah, good afternoon, guys. Thanks for letting me ask the question. Steve, just on the 5G front, you've been perhaps a little bit more aggressive than some others in the ecosystem, talking about the timeline, clearly trials are coming up and you guys will have the integral part of those trials. I'm just kind of curious, how do you think about the timeline for 5G to be meaningful volume to the chipset business? I guess equally important, to the extent that that might be 2020 or beyond, what can you do around feature set and/or cost and 4G to kind of keep, maintain, or even widen touch sort of your dominant lead there?
Okay. I'll give you my perspective on it, which I think is, we're already in the position in the industry where the impact of 5G coming in 2019 is impacting the feature set, even in 4G. If you look at 4G, the push to Gigabit LTE, actually there's even another update before we get to 5G that you'll see roll out into the networks. I would say we're already in the early stages where it's very important to have that roadmap, not only to deliver products into 2019, but I think to be meaningful in the networks that lead up to that 2019 transition. If you're getting the sense that we are more aggressively pushing 5G and the higher tier feature set of 4G, I think that would be an accurate read. I would also say that it's not just us.
Our OEM customers in particular, I would say leading tier, high-tier Android OEMs are taking that modem feature set aggressively as well. We think that's a good strategic position to be in. We're driving it hard and I think we're all gonna be pleased with the initial ramps and the speed by which people are gonna go to 5G, and we're certainly gonna try to make that happen.
Thank you very much.
That concludes today's question and answer session. Mr. Mollenkopf, do you have anything further to add before adjourning the call?
Thank you. I just wanted to, again, thank the Qualcomm employees for a very strong year of execution, and in particular, I would say the broad-based delivery of products and earnings growth in QCT. Thanks a lot, folks. Appreciate it very much. Looking forward to driving 5G and a strong 2018. Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.