Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Conference Call regarding the completion of the review of its corporate and financial structure. 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 December 15, 2015.
The playback number for today's call is 855 859-two thousand and fifty six. International callers, please dial 404-537-3406. The playback reservation number is 7198,663. I would now like to turn the call over to Warren Kneeshaw, Vice President of Investor Relations. Mr.
Kneeshaw, please go ahead.
Thank you, and good morning. I'd like to welcome you to conference call regarding the completion of the review of our corporate and financial structure. Today's call will include prepared remarks by Doctor. Paul Jacobs and Steve Mollenkopf. In addition, Derek Averley, George Davis and Don Rosenberg will join the question and answer session.
The purpose of today's call is to discuss the outcome of the structural review and we would ask that you focus your questions on this topic. We will provide further detail on our Q1 performance on our regularly scheduled earnings call in January. You can access our press release and an executive presentation that accompanies this call on our Investor Relations website. This call is also being webcast on qualcomm.com and a replay of the call will be available on the website later today. During this conference 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.
As well, we will make forward looking statements regarding future events or the future business or results of the company. Actual events or results could differ materially from those projected in the 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. I'd also like to highlight that our Analyst Day is scheduled on Thursday, February 11, and will be held at our headquarters in San Diego. To attend in person, you must be a financial analyst or institutional investor.
The analyst meeting will be webcast for those of you unable to attend in person. With that, I will now turn the call over to Qualcomm's Executive Chairman, Doctor. Paul Jacobs.
Thanks, Warren, and welcome, everyone. Thanks for joining us on such short notice. Hopefully, you've had a chance to see our press release announcing the results of our review of alternatives to our corporate and financial structure. We're going to focus the call today on our conclusions and the advantages that our one company model provides as we compete and take advantage of the many growth opportunities ahead. Over the years, we have periodically assessed our structure to ensure that we are best positioned capitalize on these significant opportunities for our business.
As one company, we've led the direction of the wireless communications industry through multiple transitions and delivered substantial stockholder value over time. In July, as part of the strategic realignment plan, the Board and management decided to take a complete and extensive review of alternatives to our corporate and financial structure. Our review was comprehensive and was driven by a special committee of the Board chaired by our Presiding Director, Tom Horton. I was a member of the committee along with independent directors, Donald Cruickshank, Jonathan Rubinstein and our 2 newest board members, Mark McLaughlin and Tony Vincicara. Each committee member brought skills and experience directly relevant to the process and I want to take a moment here to thank the committee members and the full board for the time and care that went into this diligent process and the many related meetings.
The Boston Consulting Group conducted a detailed analysis of our business structure and a number of potential alternatives. In addition to the financial work performed on the review by Goldman Sachs and Evercore as financial advisors to the company, the committee separately engaged CenterView Partners. We also had legal support from Jones Day, Cravast, Swain and Moore and DLA Piper. The committee analyzed a broad array of options, including a full and partial separation of our licensing and chipset businesses, tracking stocks, a subsidiary IPO and various changes to our capital structure. Our objective was to ensure we capture the substantial opportunities in front of us to create the most long term value for stockholders on a sustainable risk adjusted basis.
We analyze potential alternatives looking at both our current and long term business opportunities and challenges. We weighed the potential advantages of each alternative against potential adverse impacts on our businesses. We looked at our near term and long term strategic plan and roadmap under a variety of scenarios. We analyzed our competitive positioning and the regulatory landscape. We studied the cost and tax implications.
We looked at how best to use our balance sheet and the positive and negative impacts on our capital structure. Importantly, where we identified potential negative impacts to our business of various alternatives, we explored ways to avoid or mitigate those impacts. After this robust analysis, the Board and management unanimously concluded that our combined company structure best positions us to maximize value for stockholders and drive profitable growth. It remains clear to us that this is the best way to ensure our industry leadership in cutting edge technology, products and intellectual property will continue to drive benefits for our partners, consumers and the global wireless community. I'll now turn the call over to Steve.
Thank you, Paul, and good morning, everyone. I would like to spend a few minutes detailing the strategic benefits of the combined structure and our go forward strategy. We believe that our current structure best positions us to execute on our strategy to drive continued leadership in our core wireless business and extend our technologies into large new adjacent opportunities. There are a number of important reasons why this is the case. 1st, under the current structure, we are best able to create and expand high value leading edge technology roadmap and intellectual property portfolio through the combination of investments in the core cellular roadmap and our innovation in modem, RF, CPU, multimedia, graphics, sensor technologies and other important features developed within QCT.
QCT is a significant contributor to our robust patent portfolio. 2nd, the chipset business facilitates early and broad adoption of the company's new technology and intellectual property, encouraging adoption such technology across the global mobile ecosystem and new industries. As an example of this technology deployment scale, we sold more than 900,000,000 MSM chipsets in fiscal 2015. 3rd, our model affords us the ability to bring leading edge technologies and products to market early, supporting QCT's leading edge roadmap. LTEU is a recent example of this.
4th, QCT's chip business and global distribution scale, combined with our world class wireless R and D talent positions us as a leader in important standard setting bodies, working closely with our carrier and OEM partners. Over the history of the company, this has helped us gain support for our valuable innovations as cellular standards have evolved from 2 gs to 3 gs and now 4 gs. Looking forward, this will continue to be important as we drive provides a stronger capital structure to support both industry leading R and D investment and significant ongoing return of capital to stockholders. In fiscal 2015, we returned over 300% of free cash flow to our stockholders. This included share repurchases of $11,200,000,000 which reduced our share count by 9% and dividends of $2,900,000,000 For the last 3 fiscal years, our cumulative capital return was 140% of free cash flow, exceeding that of each of our proxy and semiconductor peers.
6th, the current structure is also meaningfully more cost The current structure is also meaningfully more cost and
tax efficient. Separation would require
substantial additional R and D costs and to a lesser extent SG and A expense in addition to tax dis synergies. The last point that I would add is that Qualcomm is an important enabler to the wireless industry, acting as a strong partner to carriers, OEMs and software and application providers and is a key supporter of the dynamic and competitive wireless industry. We are best able to play that role in our current structure. Looking ahead, we are very well positioned to continue to lead in smartphones and to benefit from the increasing relevance and importance of our smartphone related technologies across a wide range of large new growth opportunities. Our business model has enabled us to lead important technology transitions in the past.
We are well positioned for success as the industry goes through further transitions, including the convergence of wireless WAN and wireless LAN technologies as well as 5 gs. We are investing meaningfully to further the 4 gs roadmap, enhancing performance and reducing network costs. We expect our 5 investments in advanced receivers, massive MIMO, ultra low latency, 60 gigahertz and high reliability and high scalability networks to substantially broaden cellular to meet the ever growing traffic demands. Further, our investments will enable a broad array of global IoT segments, facilitating mission critical services in industries such as industrial automation and healthcare. With respect to smartphones in particular, there continues to be a significant opportunity for the company.
LTE penetration is only 12% of cellular connections globally and smartphone percent of cellular connections globally and smartphone unit shipments are forecast to be more than $8,500,000,000 between 2015 2019 according to the GSM Intelligence and Gartner. Within the smartphone opportunity, we expect to continue to grow our share of content within devices through the RF front end, security, fingerprint, connectivity and other emerging technologies. Further, numerous industries are aggressively pulling smartphone related competencies and we are making focused investments in the most promising of these adjacent areas, including automotive, IoT, networking and mobile compute. This is a significant opportunity for chip sales with the serviceable opportunity growing from more than $12,000,000,000 in fiscal 2015 to more than $25,000,000,000 in fiscal 2020. This is according to a compilation of third party estimates internal projections.
Specifically, our leadership position in core smartphone technologies combined with technologies and sales channels added from our Atheros and CSR acquisitions positions us very well for these trends. We are also making targeted investments to leverage our core competencies, including communications and compute to grow into new businesses like data center, small cells and certain IoT verticals such as healthcare. Turning to fiscal 2016, we are focused on execution to improve our financial trajectory exiting the fiscal year. Specifically, we continue to make progress on signing new licenses in China. With the addition of Xiaomi, which we announced earlier in the quarter, we have now signed agreements with 4 of the top 5 Chinese OEMs.
We are actively engaged with all of the remaining major Chinese OEMs. And although the timing is uncertain, we remain confident we will conclude additional agreements over time. We also continue to be encouraged by the support we are receiving from the Chinese government and the depth of our engagement and cooperation with China continues to increase. We will provide a further update during our earnings call in January. We are executing on the elements of the SRP, including meaningful cost reductions.
Our cost improvement plan is on track and we continue to expect to improve QCT operating margin to at least 16% in the fiscal 4th quarter. We are refreshing our product roadmap, including the impending launch of our Snapdragon 8 20, where we have strong design traction with more than 70 wins to date. We are implementing specific growth strategies in adjacent opportunities and have reorganized to best execute on those opportunities. We are continuing to invest in technology leadership that will drive growth in the core and new areas and execute on focused longer term initiatives. We are maintaining a constructive dialogue with regulatory bodies and we continue to return significant capital to stockholders.
We have a focused plan for fiscal 2016 and we are off to a good start. Our fiscal Q1 is mostly behind us and we are seeing a stronger quarter relative to guidance as 3 gs, 4 gs device ASPs and shipments are favorably impacting the licensing business and we continue to benefit from cost actions throughout the company. As a result of these factors, we now expect to be at or modestly above the high end of our prior earnings per share guidance range for the first fiscal quarter. With that, I will turn the call back to Warren.
Thank you, Steve. As a reminder, we'd ask that you please focus your questions on the process and outcome of the structural review as we will not be providing additional commentary regarding the 1st fiscal quarter. Operator, we are now ready for questions.
Your first question comes from the line of Simona Jankowski with Goldman Sachs. Please go ahead.
Hi, thank you very much for the update. I wanted to ask you to what extent you factored in M and A into the review of the strategy and the structure of the business. In particular, we've obviously seen a number of very large M and A deals in the semiconductor industry this year, a lot of them positioning into the next wave of technology, Do you feel like CSR and Athero sufficiently position you for that opportunity?
Simona, this is Steve. Yes, we did consider it. It was a very rigorous process as you could tell from Paul's remarks and I think the press release, we looked at everything. And the conclusion was that we feel we can balance 2, I think, important goals. 1 is to return significant capital to stockholders and we maintain that commitment.
We also retain strategic flexibility with the balance sheet to participate in the consolidation of the semiconductor industry if we feel that that's necessary. But I think it's been a good process. I think we
have a lot of
strategic flexibility to use to drive the areas that I talked about in the script. I think there's a good opportunity And I think we're well positioned both from a strategic perspective as well as from a financial perspective to participate as we need to.
Your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.
Thank you very much. Just a couple of quick questions. First, whether it be from Steve or Paul, can you give a little bit of color on how you thought about the potential separation or overall business structure on the current regulatory reviews in places like Korea, Taiwan and Europe? Just kind of would like to get a little color into how you thought about the puts and takes there as it relates to those reviews? And then also, now that we're kind of behind you're getting this review behind you, how should we think about your ability to collect royalties and on IP that falls outside of standard essential patents as that seems to be one of the issues in some
of these reviews? Thank you.
Paul, do you
want to take the regulatory one or you like me to do it?
It's fine either way. Certainly, we looked at that carefully. We thought that there wasn't a significant difference from sort of a legal standpoint with the separation. There's clearly some practical issues that would be worse off in the case of the separation. We definitely saw benefits of the 2 businesses being together while we were resolving the NDRC investigation.
So I think it's more a practical issue as opposed to a legal issue. And you've noted probably that some of the regulatory reviews that we're undergoing right now are targeted at both businesses. So some on the chip business and some on the licensing business.
Yes, this is Don. I'll just add to what Paul
said. On Paul's last point, regulators are investigating a couple of things. As you know, we've had some investigations of our licensing business in the EU. The current investigations are focused on a couple of the chip contracts. As Paul indicated, we looked at this very carefully.
The regulatory issues are for the most part related to individual issues associated with each business and would be there in any case whether we were separate or together. And we are as we've said often and we are continuing to go through those investigations, cooperate with the investigators and make our case of defense as strongly and effectively as we can.
James, this is Derek. On your second question, really if you think about it, outside of China, our agreements as they have historically tend to be broader than just essentials and cover both essentials and non essentials. And so probably really not an impact there. Within China, we do expect over time to get paid for companies that are using the non essential patents. And I think as we looked at it, don't believe that there is a significant difference kind of either way on the corporate structure in that regard.
And this is Don. I would just add that we have a significant portfolio of very significant patents, both on the standard essential patent side, which seems to get the most attention and the non essential essential patent side of things. So we will continue to grow that portfolio and follow the practices that we've done in the past.
Your next question comes from the line of Blayne Curtis with Barclays. Please go ahead.
Hey, good morning. Thanks for taking my question. Just when you think about the cycle of bringing the chip business, those products early to market given the license business. That clearly translated into 1st, the leadership position with LTE modems, but then that has since faded. Can you talk about what has happened there that you haven't been able to continue to transition that technology and win share?
You've seen several high end smartphones using internal modems. There's always talk about competitive landscape of competition at the high end. Are the carriers not moving fast enough? And can you just talk about if that model is still applicable or do you have to wait till 5 gs? And then I know you didn't want to talk about Q1, but if you could just clarify, was the market just stronger or did some of these agreements you have reached contribute to the higher guidance?
Thanks.
Blaine, this is Steve. On the first question, I think the models helped us out tremendously in the transition of 2, 3 gs and then to 4 gs. We still have a very strong position in the chip set business. And I think we're on the front side of, I think, 2 additional transitions, which will be good for us. 1 is the move toward carrier aggregation in China.
That will be good for us, another feature set that we're anxiously waiting for it to be deployed. You have the link up of the unlicensed license band, which will be important to us and then followed by 5 gs. So we see a good road map of feature enhancements to both 4 gs, our connectivity portfolio and ultimately 5 gs, which should help us maintain the model. I mean, I think the strength that we've had at the early days of 4 gs, it's difficult to sustain that level of strength and we don't plan for that in the business. But we continue to see a robust set of features that we will be able to drive the business with.
Good morning, Blayne. This is George. The upside that we're seeing in the Q1 outlook is really more driven by better than expected ASPs and somewhat higher units than we had forecasted. And in addition to that and so that's largely in the QTL area. And then across the company, we're also seeing lower spending as we are pursuing our cost savings programs.
Question comes from the line of Koolbinder Gharsha with Credit Suisse. Please go ahead.
Thanks. My question is for Steve, I guess. Steve, just going forward, should we expect Qualcomm to be more acquisitive just period? And the reason why I'm asking is that if you guys are paying 75%, say only, but 75% of your free cash flow back to shareholders, your $20,000,000,000 net cash power is going to keep building. And that kind of feels excessive versus the market cap you have?
Or are you planning to be more acquisitive and that's going to be lumpy obviously in nature? Or should we anticipate that now? And the other question that's linked to that is that on the whole area of adjacencies in this $25,000,000,000 opportunity, and I mean this with the greatest respect, but Corcam invested in many adjacencies over the years going back to Paul's era and even before. Very few of them are material in your business today. And so what's going to change on the execution of making those adjacencies meaningful for the business?
Many thanks.
Sure. Cool, Vinder. I think we're trying to balance the combination of returning capital to keeping our strategic flexibility with the balance sheet. We as you know, we have returned significant capital here in the last year and actually over the last several years. And that will continue to be an opportunities for us to de risk our strategy of growing into adjacent businesses.
And I think the Atheros and the CSR acquisitions have helped us build channels and new technology areas that have been helpful to the business. One of the maybe the subtleties in where we're headed is that we look at our the areas that we're growing into and they seem like natural extensions of our existing franchise, both from a technology perspective as well as from a customer and industry perspective. So you can think of it as something that we have we've looked at, we've looked at what we think our core competencies are and we're moving into what we think are large markets that are embracing that same technology portfolio. I will remind folks that as of the end of fiscal year fiscal 2015, 10% of our QCT revenues were actually in those areas. So we're not starting from scratch.
I think we have a good start there, and I think it's set up to be, I think, an interesting business for us.
And if I could just add in, in some defense of the adjacencies that we pursued, really when I took over as CEO, we weren't even known for much beyond CDMA 2000. So WCDMA was still we were working on that. LTE was clearly an adjacency, I guess, I would say, to what we were known for, although it was one that was fairly close to our hearts. But Snapdragon was a pretty significant thing to do when you think that we were a modem And clearly, a thing And clearly, a thing like MediaFlow was a little bit farther afield, but still somewhat close. And while it didn't succeed in its in the fashion that we had built it out, certainly led to things like LTE broadcast, supplemental downlink, certainly excellent returns on the spectrum that we bought for that.
So there have been and those are the large adjacencies and there have been a number of smaller ones that have also led to new technologies that now we just accept as being part of the chips and part of our smartphones. But they did start as I would call adjacencies. So we are more focused at this point. Of course, that's natural when your growth is slower than it was during the heyday of the pickup of wireless Internet and smartphones. But we still do look for areas to grow the capabilities of smartphones and the application of smartphones.
And I think as we move into Internet of Things, that will be increasingly important.
Your next question comes from the line of Rod Hall with JPMorgan. Please go ahead.
Yes, thanks for the question guys. I guess back to the M and A topic, I just wanted to see if you guys would comment a little bit on what you're thinking in terms of what is at least needed for the QCT business. Do you think you need scale there? Obviously, you're saying you think you need diversification. Just trying to get a little bit better color on where you want to take that business and maybe beyond M and A with regards to your investments and how you want to take the business forward.
And then I also on that same topic, I thought I asked George, how you're thinking about the balance sheet with respect of potential usage of debt? I mean, do you think that this low interest rate market you would be willing to go beyond the cash position and actually lever the company out? Thanks.
Rod, hi. Maybe I'll comment on both. I think, as Steve indicated, I think we do think it's And also as you look at the players that we compete with for opportunities, they come to that opportunity with very strong balance sheets. So that certainly factored into our thinking there. Also, we have returned a significant amount of capital over the last 3 years leading not only our semiconductor peers, but our proxy peers.
And in particular over the last year, returning over $14,000,000,000 So we feel like the actions that we've taken with respect to the balance sheet, which also by the way coupled with our commitment to continue to return 75% of free cash flow, which also stands well in comparison to our peers. So overall, I think we feel that the balance sheet's in the right place. We feel like our return of capital program is industry leading and yet allows us to keep the flexibility and scale that we need. Steve, do you want to?
Well, I would just remind folks that we I think we have tremendous scale today. I think we ship almost 1,000,000,000 chipsets and we have a very diverse technology portfolio as a result of our position in the smartphone industry. And leveraging that into adjacent markets, we think is something that we're well suited to do. As we see opportunities to derisk that or add businesses that are consistent with that theme, we want to have flexibility to participate in it, but we feel like we have a tremendous advantage because of our scale and technology breadth. So we feel like we have a good hand already, but we want to have the strategic flexibility to participate as we need to.
Your next question comes from the line of Mike Walkley with Canaccord Genuity. Please go ahead.
Great. Thank you. Just with keeping the businesses together, as you look at some of the adjacent opportunities for QCT such as automotive and IoT and networking, What's the pull through rate for your licensing business? And as you move into these adjacent opportunities more than mix, what's the long term maybe impact to your corporate structure in terms of gross and operating margins? Thank you.
Mike, Kate, this is Derek. I'll take the first part of that. Yes, I think as you look at the adjacencies, there's sort of a combination of areas where QTL will clearly participate, given the existing program that we have. Other areas where I think we have opportunity given the technology breadth that we've already developed at Qualcomm to probably generate some revenue in new areas. And then there's probably a 3rd bucket of areas where there'll be more of a chip opportunity and probably less of a licensing opportunity.
So I think there's really kind of a blend of different opportunities. But we actually are pretty encouraged with some of the uptake we're seeing in cellular in a number of these areas where we thought the connectivity solution may be something other than cellular that's looking more positive for us. And also as Steve mentioned, if you think about the progression of technology into the unlicensed band, that will also provide some opportunities over time.
Hey, Mike, this is George. On the operating margins, we certainly think the adjacencies will be additive to margin over time. We'll talk more about the longer term outlook obviously at the Analyst Meeting on February 11. Just want to make sure people saw that we have provided date for that meeting now. And we've also indicated really in terms of this call, we're focusing more on the structure outlook and we'll get into some of these other things in February.
Your next question comes from the line of Stacy Rasgon with Bernstein Research. Please go ahead.
Hi, guys. Thanks for taking my question. Can you give us a little color on what your proxy changed last week that seems to make it more difficult for new activist investors to build a mandate. What does that have to what does that imply for how your current activist investors might feel about this?
Actually, Stacy, this is Don. Actually, it's quite the opposite. We've included an indication that we are changing our bylaws to allow proxy access, not to make it more difficult, but actually to allow proxy access. And that's consistent with a number of other companies that have already done so. And so we think it's both consistent with the trend and a good thing for shareholders.
Your next question comes from the line of Mark Hsu with RBC Capital Markets. Please go ahead.
Thank you. Historically, combination of licensing and chipsets, some will say, hampered new market development, for example, what we've seen in tablets and sometimes created customer ill will and the subsequent multiple antitrust investigations and fines. So as Qualcomm, understanding that we'll keep your current structure, moves into these new markets, does the business model change? Or should we think of standard rules of applying standard rules of engagement as you look into these lateral markets?
Mark, this is Steve. Maybe I'll start and Derek you can jump in a little bit too. Our view is actually the model has been very good for establishing new markets. I think it's allowed us to invest early. It's allowed us to deploy technology with scale.
I think there are situations where there is tension at certain accounts with the business, as you said, business structure. But I think net net, when you look at the ability to deploy technologies and to resolve those issues, we believe that we're in a better position together. I would say that when you go into new market areas, the ability to deliver products and to adapt our licensing and business practices to those new markets has been something that we've been able to take advantage of. It will be something that we'll need to do more of as cellular fans out into a number of new end markets, which we're excited to participate in.
Mark, probably the only thing I would add is, today we already have a variety of different licensing structures depending on kind of the market And as Steve said, we've adapted to things like machine to machine. We actually had a different program for tablets that I think actually was an incentivized program. And really the market traction for tablets wasn't at all impacted by the licensing structure, which I think really been more of an end market dynamic in terms of total cost of ownership for the device when you factor in things like the data plans.
Question comes from the line of Timothy Arcuri with Cowen. Please go ahead.
Hi, thanks. I'm just wondering how much the convergence of WiFi and LTE sort of played into your decision to keep QCT and QTL together and sort of how important the IEEE as a standard setter and sort of the precedence as compared to 3GPP going forward, how important that is? Thank you so much.
Tim, this is Derek. I think as you noted or as you saw in the release that we put out, I think generally speaking, we believe there's a lot of synergy between the businesses in a number of different areas, including our ability to participate effectively in a variety of different standard setting organizations, partly because of the ability to invest early and partly because of the channel that we have to bring our technologies to market. I think the combination of those things really positions us well as a forward and I think probably we're the best positioned company to take advantage of that. But I wouldn't I would say that particular dynamic wasn't in and of itself a key driver in the overall decision for us.
Your next question comes from the line of Tavis McCourt with Raymond James. Please go ahead.
Hey, guys. Thanks for taking my question. First one, as it relates to Q1, I just wanted to confirm that the deal you struck with Xiaomi a few weeks ago would be included in Q1 revenues at this point? And then secondly, just wondering if the timing of
a potential split
would be more difficult given the timing of 5 gs standards. I imagine the next 2 to 3 years is pretty important in kind of getting technology into the standards bodies. Maybe discuss how that process works and how keeping QTL and QCT together should help in that regard?
Tavis, this is Derek. On the Xiaomi question, I think the way you should think about that is, we commented on the last call that by and large most of the licensees we were still negotiating with, were acting in good faith and continue to report and pay during that process prior to signing agreements. And there were just sort of a small number that were holding back payments. Xiaomi was not one of the ones that was withholding reports and payments. So they've been sort of pain as they go.
Beyond that, for 3 mode, which is a new set of licensed products, once this agreement was signed, really that's that to the extent there's catch up there, that's going to be something that is that falls outside of Q1.
And I would just add
on the second part of your question. Yes, if you look at the process the Board went through, obviously looked at everything. And if you look at the business model, it served us well in the past through some big transitions in the industry, 3 gs, 4 gs, smartphones, for example. We see 5 gs as another one of those big transitions upcoming. We want to be well positioned for that.
I think you are correct in the sense that a lot of the fundamental R and D for 5 gs is ongoing right now. We are obviously focused on that. We see that as a good opportunity for Qualcomm. The process, it is now the standards body process and the R and D work is ongoing across the industry and that will be deployed here over the next several years. And it's going through the same process that you've seen us do use for 3 gs and 4 gs and we see that as an attractive opportunity to grow the business.
So it's progressing and we're focused on it.
Your next question comes from the line of Brett Simpson with Arete. Please go ahead.
Yes, thanks very much. Steve, just with regards to the strategic review process, there's clearly been a big focus on turning around QCT in the high end. And when we look at the top 3 OEMs in the market, Apple, Samsung, Huawei, they've increasingly been using internal chip alternatives to Qualcomm over the last few years. And some would say moved ahead of QCT on new nodes like 14 FinFET or 16 FinFET. So my question is, how do you sustainably grow with these customers over the long haul?
And do you still see QCT returning to its target margins of 20% to 22% if these alternative if these OEMs continue to verticalize more and more?
And I've got a follow-up. Thanks.
Sure, Brett. Yes, we do see the business returning to growth. We had to make some changes to the cost structure to put ourselves in a better position to drive that and take it take really the things that we can control and deal with them, which as you've seen us discuss and we're in the process of doing right now. But I would say if I looked at the environment, the number of technologies that you need to put together into a chipset continue to grow. And we consider ourselves to be very well positioned.
We think the best positioned to drive those technologies. We did make a decision several years ago not to go into a particular node as quickly as one of our competitors. And that did cost us in 2015, but we have aggressively gone after the new nodes. And I think our forward looking roadmap, we're quite pleased with. So it continues to be a And I think we And, well,
I think we have our
cost structure in a much better place to desensitize the business from those individual design wins. So I think we're doing the right things execution wise to get that on track. And I think it'll be more difficult for people to stay up with us in the future as well. So continue to execute and I think that'll be the right thing for the business.
And just to drill in there, Steve, you're making more investments in OpEx than some of these alternative internal chip units. What are the areas that you think you have a clear performance advantage and perhaps we'll see that gap widen over the next few years that makes these internal efforts more and more difficult to sustain?
Well, I think the modem continues to be an area of strength. You've seen people deliver modems, but they tend to be more comparable to more comparable to modems that are several generations old from us. It enables you to go into some markets, but not worldwide scale. Our deployment scale continues to be a key differentiator for us at several accounts. And then our ability to combine connectivity, graphics, camera, all of the major AP subsystems and bring them together with the leading modem is something that is a significant advantage for us moving forward and we think it will continue to be.
We are also moving those feature sets down in tiers. So our general strategy of invest first, establish a leadership position, create an integrated product and then tier that down, we think we'll continue to bear fruit in the future as well.
Okay. Thank you very much. Thank you. This ends our allotted times for questions and answers. Mr.
Mollenkopf, do you have anything further to add before adjourning the call?
Thank you. In conclusion, we
believe that our current structure best positions us to execute on our strategy to drive continued leadership in our core wireless business and extend our technologies into large new adjacent opportunities, and it would not be possible to replicate this as 2 stand alone companies. Looking ahead, we have the scale, engineering talent, IP, product road map, feature sets and global reach to give us a strong base as we continue to develop 4 gs and invest to lead in 5 gs, while also further expanding into new opportunities. I look forward to providing further updates on our January earnings call and again at our Analyst Day on February 11 in San Diego. Thank you for joining the call today.