Good afternoon, ladies and gentlemen.
[audio distortion]
Glad to have you here. I'm Paul Jacobs. I'm Chairman of the Board of Directors of Qualcomm Incorporated, and I want to welcome you to Qualcomm's 2015 Annual Meeting of Stockholders. Before I call the meeting to order, I'd like to introduce the other members of our Board of Directors who are with us this afternoon. Barbara Alexander. Sir Donald Cruickshank. Raymond Dittamore. Dr. Susan Hockfield. Thomas Horton. Harish Manwani. Steve Mollenkopf. Duane Nelles. Ambassador Clark T. Randt Jr. Dr. Francisco Ros. Jonathan Rubinstein. General Brent Scowcroft. Marc Stern. Also here are Co-Founder and Director Emeritus, Adelia Coffman. Founding Chairman and CEO Emeritus, Dr. Irwin Jacobs. Sherry Lansing, our Presiding Director, was unfortunately not able to attend today. I'd also like to introduce our executives who are present today. Once again, Steve Mollenkopf, Chief Executive Officer. Derek Aberle, President. Cristiano Amon, Executive Vice President, Qualcomm Technologies, Inc., or QTI.
I still got more. Co-President of QCT. Long title. George Davis, Executive Vice President and Chief Financial Officer. Matt Grob, Executive Vice President, QTI, and Chief Technology Officer. Murthy Renduchintala, Executive Vice President, QTI, and Co-President of QCT. Don Rosenberg, Executive Vice President, General Counsel, and Corporate Secretary. Dr. Dan Sullivan, Executive Vice President, Human Resources. Dr. James Thompson, Executive Vice President, Engineering, QTI. Also present are Jay Reins of the law firm of DLA Piper, the company's outside corporate legal counsel. Mr. Michael Brandmeier of the accounting firm of PricewaterhouseCoopers LLP, the company's independent public accountant. Mr. Brandmeier will be available to answer any questions concerning PricewaterhouseCoopers and its services to the company. Okay. Qualcomm's 2015 Annual Meeting of Stockholders will now come to order. I will act as chairman of this meeting, and Don Rosenberg will act as secretary.
Will the secretary please report with respect to the stockholders' list and the distribution of the notice of the meeting?
I have at this meeting a complete list of stockholders of record of the company's common stock on January 12th, 2015, the record date for this meeting. I also have with me an affidavit certifying that on January 22nd, 2015, a notice of the 2015 Annual Meeting of Stockholders was distributed to each stockholder of record as of the close of business on the record date. The affidavit of distribution will be attached to the minutes of this meeting.
Stockholders who have voted by mail or by proxy need not cast ballots today unless they wish to change their vote. Prior to opening the polls for voting, we'd like to distribute ballots to anyone that did not pick one up at the registration table and would like one. Please note that any shares held with your stockbroker cannot be voted at this meeting without a legal proxy. A legal proxy is an authorization issued in your name from your broker. Please raise your hand if you'd like a ballot. At this time, I appoint Mr. Peter Deskovich to act as Inspector of Election at this meeting. Mr. Deskovich has taken and subscribed to the customary oath of office to execute his duties with strict impartiality. This oath will be attached to the minutes of this meeting.
Mr. Deskovich's function is to decide upon the qualification of voters, accept their votes, and when balloting is complete, to tally the final votes. Will the secretary please report with respect to the existence of a quorum?
I have been informed by the Inspector of Election that proxies have been received for approximately 1.42 billion shares of the approximately 1.65 billion shares of the company's common stock outstanding on the record date. This represents approximately 85.91% of such outstanding shares. This constitutes a quorum for the transaction of business
The requirements for calling this meeting have been duly observed and there are represented here more than the necessary number of shares of the outstanding common stock of the company to constitute a quorum, I hereby declare this meeting to be duly constituted for the transaction of all business. The formal business of this meeting is listed in the notice of annual meeting and proxy statement that was provided to stockholders. There are several proposals to be considered by stockholders at this meeting. We will now place each of the proposals set forth in the notice before the meeting. Following the formal business of the meeting, we will adjourn. Steve Mollenkopf will make a few remarks on company developments over the past year. We'll take questions.
The time is now 2:10 P.M., my talk watch. The polls are now open for voting on all matters to be presented. The meeting will now proceed to the election of 15 directors to serve until next year's annual meeting of stockholders. The board has nominated the following persons for election as directors of the company: Barbara Alexander, Sir Donald Cruickshank, Raymond Dittamore, Dr. Susan Hockfield, Thomas Horton, Dr. Paul Jacobs, Sherry Lansing, Harish Manwani, Steve Mollenkopf, Duane Nelles, Clark Randt Jr., Dr. Francisco Ros, Jonathan Rubinstein, General Brent Scowcroft, and Marc Stern. These nominations need no second. Since no other director nominations were received prior to the deadline specified in our bylaws and stated in last year's proxy materials, the nominations are closed. Is there any discussion?
The next item of business is the ratification of the selection of PricewaterhouseCoopers LLP as the independent public accountants of the company for our fiscal year ending September 27th, 2015. Is there any discussion? The next item of business is the approval of an amendment to the 2001 Employee Stock Purchase Plan to increase the share reserve by 25 million shares. Is there any discussion? The final item of business is the advisory vote on the company's executive compensation. Is there any discussion? This concludes the proposals for today's meeting. If you wish to vote by ballot on these matters, please hold up your ballot so that an usher may collect it. Okay. I know you all wanted to listen to that music some more. We are ready to continue. Have all ballots been executed and delivered?
Yes, Mr. Chairman.
The time is now 2:13 P.M., and I declare the polls closed. Has the Inspector of Election completed the tally?
Yes, Mr. Chairman.
Please report on the results of the voting.
Mr. Chairman, based on the proxies and ballots received, I can report that all nominees for director have been elected to serve until next year's annual meeting of stockholders. The selection of PricewaterhouseCoopers LLP as the company's independent public accountants for the fiscal year ending September 27, 2015, has been ratified. The amendment to the 2001 Employee Stock Purchase Plan to increase the share reserve by 25 million shares has been approved. The advisory vote on executive compensation did pass.
The full voting results will be published on our website and reported within four business days on a Form 8-K, which will be filed with the Securities and Exchange Commission. This concludes the formal business of our meeting. Is there a motion to adjourn the meeting?
I move.
Is there a second?
Second.
It has been moved and seconded that this meeting be adjourned. Hearing no objection, this meeting is adjourned. I'd now like to turn the meeting over to Steve Mollenkopf for the business and financial review. Thanks very much, everyone.
Well, good afternoon, everyone. Welcome. I'm going to spend a few minutes here, talk a little bit about the business, what's going on, and then I'll bring my colleagues up, and we'll have a little Q&A session. First, let me talk a little bit about safe harbor. We'll make some statements, and I would just refer you to the safe harbor statement on our website as well. With that, let me talk a little bit about Qualcomm. If you look at Qualcomm, the thing that we've been able to do is we've been able to anticipate the big changes in the industry, invest in them upstream, and really create tremendous value for our customers and for our partners and hopefully for shareholders. The first range of that was really in the digital communication area.
We were the first company to really realize that digital communications was going to be something that every human on Earth was going to be needing and we invested early in that and were successful in producing a significant business out of it. The second wave was really in redefining computing. We understood that the computer was going to be something that not just was going to exist on your desktop, it was going to be something that comes to your phone. We, I think, did a good job in investing in the technologies that were important in that transition, and then it turned into a very good business for us. We worked on things like the first gigahertz CPU. We worked on leading new modems that would allow smartphones to exist, and I think it created a great business for us.
The third one, and the thing that's coming next, is the internet itself is going to be transformed and every device, not just the smartphone, will be connected to the internet. That provides a tremendous opportunity for the company that can anticipate the technology that's required, invest in it, and then produce it at scale. Well, that's what Qualcomm does and we're happy to be continuing to do that as a company. Let me talk about being positioned in the future. If we talk about our three business areas, QCT, which is our chipset business, it's about technology leadership delivering to a number of partners. We've been focusing not only on driving LTE, but also driving performance and our partnerships in China. Last year, fiscal year 2014 was a strong year in China, and we think we're well positioned in QCT to continue to grow.
We have some things we need to work on here in the near term, we look at the long-term trends of the industry and we think the business is well positioned. Likewise, QTL, which is our IP licensing business, is also well positioned, particularly given the events that we've had in China. Really, QTL is the means by which we share and monetize our early investments in technology that allow the industry to actually grow. We're quite pleased now, given the decision by the NDRC in China, that we have more certainty in that business. Likewise, in the new business areas, these are businesses that are in the incubation phase. We're continuing to invest in new technologies, new businesses to grow the area that the company is involved in just beyond phones and our traditional semiconductor and IP business.
Over the last year, we've worked really on a couple of themes. One, we think there's a tremendous opportunity ahead of us in new technologies that leverage our core capability. We've also been focusing those investments in areas that we think have higher impact. You've seen us over the last year move capital around and actually try to focus our investments in a smaller number of opportunities which we think will lead to growth in the future. This is the area of the business which is the farthest looking out in terms of new areas. On top of that, the last year and last two years, we've been really recognizing that the business in many respects is operating at scale and we're trying to manage our operating expenses and our opportunity so that we can reflect the fact that we need to keep those in balance.
We've been spending time, particularly in the chip business, figuring out how we do that, I think that'll continue to be something that's important to driving the business in addition to technology leadership. Let's talk a little bit about fiscal year 2014. Fiscal year 2014 was actually a strong year. We had record revenue, strong execution. We actually had a record with MSMs. We shipped over 861 million MSMs. Those of you who have been around as shareholders for a long time, you may remember when we would ship less than 10 million MSMs in a quarter. Now we're at 861 million for the year. It's tremendous execution by the team over a long period of time. It was a flat year overall for QTL, it was a strong year from the overall market dynamics.
Where we sit today, we're in a position where we think we can take advantage of that much more easily than we did last year because of some of the issues that you saw in China. EPS was up 17% year-over-year and was led really by strong performance in the chip group because they were participating in the largest growing opportunity, which was the ramp of LTE in China. Let me talk a little bit more about the chip group. As I said, a strong year. It was a year of technology migration. We had invested in rapidly moving toward 64-bit in the lower tiers and growing our tiered roadmap in LTE-Advanced, things like carrier aggregation and such. Modem leadership really contributed to the growth of the business in fiscal year 2014. We also increased the content in devices.
Our previous investments in the RF front end, our wireless LAN investments, and actually even areas like audio were strong points for the business in fiscal year 2014. We have been continuing to invest in the capability and the business structure to allow us to grow in these adjacent market opportunities, which I'll talk a bit more about in a few slides. A little bit more on QCT. We passed some really interesting milestones last year. The first one was we shipped over 1 billion Android devices in calendar year, or we shipped our 1 billionth Android device in fiscal year 2014. You may remember in 2008, I think that's when we had our first device from Android, and now we have over 1 billion total. It's been a good run in the case of the Android smartphones.
We also passed our LTE, or excuse me, our Wi-Fi leadership was something where we got to the number 1 position in the second quarter of 2014. You may remember, if you go back several years, we actually did not have any Wi-Fi shipments at all. Now we're number 1 in the industry based really on the strength of the smartphone and our ability to deliver products at scale into the smartphone space. A good year in fiscal year 2014. Let me talk a little bit about QTL. QTL was a strong year in a very difficult environment because of the regulatory environment. We had strong market growth, end market growth, but we weren't able to fully participate in that market growth because of our challenges in China, which are well known.
That being said, it was still a very strong year for QTL and a lot of effort spent by the management team trying to figure out how we can participate in that end market growth because we looked at the opportunity as being something which we thought was quite good. We were pleased to announce over the last month the resolution with China. It was a lot of hard work by the management team, in particular the legal teams, and of course, Derek Aberle, as the president, was really the point person on that. We're very pleased to have what we think is a balanced resolution. It enables us to more fully participate in the growth of the end market, and it's pretty significant to us, and we're pleased to have that behind us. Let me talk a little bit more about the market in China.
If you look at China, before the resolution with the NDRC, we were really not participating in the growth of what is the largest operator in the world. If you look at China Mobile, for example, I think it has somewhere in the neighborhood of about 900 million subscribers. To put that in perspective, I think Verizon is somewhere a little bit north of 100 million, if I remember correctly. A very significant market, and it's starting to absorb technologies like LTE for the first time. We're very pleased now to be able to participate in that. Why is that significant? It's significant because if you look out in time, if you look at by the year 2018, 1 out of every 4 global LTE connections will be from China Mobile.
When we talk about we're pleased to remove the uncertainty in the business, we feel that was a significant move, and we were very pleased to be able to announce it. It was also something that we were able to do because we have a broad portfolio of technologies as a company, and we tend to engage with a local market area in a broad way. We engage with it in the research side, we engage with it on the chip side, we engage with it as partners to deploy their technologies. Those things help us when we need to be able to resolve situations like we had in fiscal year 2014. Good work by the team. We're happy to have that behind us. It opens up a great opportunity for us. Let me talk a little bit about shareholder return.
We've had tremendous growth in the business over the last really three decades, and we're happy to be able to have the strong partnerships that we have. We also want to make sure that as shareholders and stockholders, that we are delivering value. There are really three things that we're focused on. The first one is we need to make sure we continue to lead in technology. Obviously, a hallmark of the company. We think there's a lot of opportunity left for our set of skills. I'll talk about that. Key thing, we're continuing to invest in technology. The second thing is that we're returning more money to the shareholders directly in the form of capital return. I'll give some of the history on that, we know that is well received.
It's a component of the way in which we want to deliver value to our shareholders. The third one is really expense management, which you could think of as now we are an at-scale company. We want to continue to invest in new technology, we also know that it's important to deliver results to the bottom line. It's a hallmark of what we want to make sure that we're doing well at as we move forward. Those three things will continue to be something that we talk to you about and talk to our employees about and drive the business as it moves forward. With that, I'm sure you saw today we announced actually our 14th increase in our quarterly dividend. We increased it by 14%. We talked to you last year about growing the dividend in excess of the earnings growth.
We are driving that 14% increase. It's now a record $0.48 per share. We plan also to introduce, or we've authorized another increase of $15 billion in share repurchase. We hope that that is well-received. We're pleased to be able to do that because we feel much more confident about the business post-China. It's something that we think we can do and still retain our strategic flexibility, and we hope it's well received by our shareholder base. Oh, thank you. It was actually me fumbling for the design here. With that, I think you can see the history of our cumulative return. It's an important part of the business moving forward. We stepped it up over the last several years.
It is something that's the important part as I mentioned. At this point, I think we've given $14 billion in dividends since 2003, and $23 billion in stock repurchases. A good day today, I think in that regard. Let me talk a little bit about the market. Smartphones today are really expanding into almost every consumer electronics device that you can think of. When we look at the companies that come and talk to Qualcomm today, it's now very different than what it would have been 10 years ago or even five years ago. That's because all of the markets that are looking at the cellphone industry and trying to figure out how can I pull some of that technology into my business. Automobiles. Automotive industry is very interested in doing that.
Healthcare industry, the consumer electronics industry, the innovation on technology has moved from being standalone focused on consumer electronics in and of themselves and trying to figure out how can I borrow technology? How can I borrow the ecosystems of cellular and have it grow my business? That's a great opportunity for Qualcomm. We look at that and that's a big area that we're organizing ourselves to deliver on. By the way, we're not starting from scratch. These businesses are already over $1 billion in Qualcomm, and now we're trying to figure out how to drive them moving forward. I'll talk a little bit about them in the next several slides. The first thing I want to make very clear, the smartphone is not over. There's tremendous growth in the smartphone.
If you look over the next five years, the smartphones, there'll be 8 billion new smartphones that will come on to the Earth. There are less than 8 billion people on the Earth. This is a unique market where you don't find markets like this too often. We're pleased to be in a leadership position, and we know that there's a lot of opportunity left. You also should recognize that in many parts of the world, people are getting cellphones for the first time, and although they may be getting lower-tiered cellphones at the beginning, we've shown and the studies have shown that they actually tend to move up to more expensive devices over time. We think that's a good trend for the business, and we want to make sure that we can drive that.
The smartphone business will continue to be a strong part of the business. It has growth, and it still continues to be a big focus of ours. Interesting note, if you look at what type of smartphones are coming out there, everyone in the U.S. thinks that LTE is everywhere, but if you look at it from a global perspective, very little of the Earth is actually covered by LTE, or at least in terms of the subscriber base. This chart shows that really only about 7% of the current subscriber base or cellular connections are actually using LTE. Not only will they get new devices, but devices that are already in place will be upgraded to LTE and technologies that play toward Qualcomm's strength, both on the licensing side as well as the product side.
A lot of opportunity left in terms of migrations and feature upgrades left in the core cellphone space. In addition to the cellphone, there are a number of industries, as I mentioned, that are pulling in new technology from the cellphone. If you were to look at the Internet of Everything, automobile, what's happening with tablets, what's happening with smart cities, where people are trying to figure out how can I instrument up the infrastructure of cities to have them be more efficient? If I look at healthcare, as I said, wearables, smart homes, and networking, and you look at the total number of devices that will be shipped in 2018 that are not cellphones, there'll be 5 billion new devices. All of these type of devices are looking to figure out how can I leverage the scale of mobile?
How can I figure out how to grow my business and leverage what's happening? What's lucky for us is many of them come to us and say, "Who should my partner be?" For Qualcomm, that's a great opportunity for us. It's also something that we have to figure out how we grow our business in new areas and not just in the continuing growth of smartphones. That's what the company is spending time figuring out how to do. One of the greatest examples of that is actually the car. I would encourage you, if you haven't already, to go outside. I think we have a demonstration of one of the connected cars. The car is going through a tremendous change in the way in which the ownership experience happens and the way in which people bring out cars.
Behind it is about the connected car. The car being connected to the internet, the car being connected to each other, the car having many of the consumer electronics capabilities that are coming from the phone space is really revolutionizing the car industry. With that, I think I'm going to show a quick video and give you a sense of that. Unlock doors. Start car. Okay. Thank you. If you look at what sort of characterizes all of those experiences, they're all technologies that the car industry is trying to pull over into the user experience of the car.
Every one of those things, from the camera to the video to just the raw connectivity and all of the gesture technology, those are all technologies that we have been investing in for the last 10 years, and now we have a position to apply them into a new opportunity for Qualcomm and for Qualcomm shareholders. It goes beyond that. Actually, if you think about, that's the first step, which is get the internet and get the smartphone experience into the car.
The second step is really if I get cars talking to each other, and I envision a world where cars are autonomous or semi-autonomous or being connected together and managed in a more efficient way, that drives not only things to happen in the car, but it also requires that the state of the networks and the quality and security of the networks and the cellular system itself need to evolve. We're working on that as well. The car talking to the car and security so that you would feel comfortable putting your family in a car, that's what Qualcomm's working on next as well.
By the way, if you go out there and you take a look at the car, one interesting thing to ask yourself, the car, when you come in, your phone actually is interacting with the car, and it's actually sharing experience back and forth. It's very difficult to be a supplier of technology into the car without having a strong position in the phone. That's because the car and the use of the car actually requires the use of the phone in many different ways. You can see that outside when you go through the demo, and I encourage you to do that if you have the opportunity. Another opportunity that we added last year was the data center opportunity.
For many years, Qualcomm's worked on infrastructure to drive cellular technology, and we've spent a lot of our focus on figuring out how to get the end device working. That's something that turned into be working in smartphones and smartphone technology and a lot of the technology that allows the high-level OS or the software providers to be successful. We haven't been participating in one of the biggest trends in the industry, which is the cloud. The growth of the cloud, the growth of cloud infrastructure, is something that we haven't participated in really until we announced this initiative. What we're doing is we're now starting to work on technologies and products that will go into the data center. The data center is a large market.
It's about $15 billion in terms of opportunity in the year 2020 that we don't participate in today, but we use similar technologies to what we produce in the smartphone space. It's an interesting time. There will be some disruptions that occur in the data center, and we want to be positioned to take advantage of that. It's a new opportunity. You'll start to hear more and more about that from us. I talked in November about how we were actively engaged with customers, and that's now something that we're pushing forward as well. Hopefully, that'll turn out to be a good product as well for our shareholders. Okay. I talked in the first slide about how Qualcomm tries to anticipate technologies that will be important, get an early position in those technologies, and figure out how to deliver that at scale across multiple partners.
It's been why the company has been successful. What are we working on next? I'll highlight three areas. The first one is 1000x, which is really about solving the 1000x data challenge. Think about it like this. We have a grand vision for what's going to happen with networks and when everything gets connected, the network itself needs to keep up with the amount of infrastructure and capacity that needs to be delivered. What we're doing is investing in very cheap, very small, and very sophisticated base stations and base station technology that enables infrastructure or operators to deliver on more and more, cheaper capacity. I think long term, that's something that we need to do, not only as a good business, it continues to grow the opportunity for the existing businesses that we have.
The second one is really transforming the role of wireless. We continually innovate in the wireless area to enable new use cases. What do I mean by that? Today, we have the capability that every device that's on the network can talk to each other over a half a kilometer radius without talking to the network, peer-to-peer. We're working on that. We're working with smartphone providers to enable really new business models that allow that to occur. We're continuing to invest in that. We're continuing to invest in evolutions of the Wi-Fi standard and evolutions of the LTE standard so that those two things work together much more seamlessly. We're continuing to invest a lot of effort and a lot of intellectual capacity in transforming how we use wireless, we think that's going to position us well in the future.
The third and last one is, we have all this capability, what can we do with it? We're working on things like computer vision. We're working on things like augmented reality and the capability for the device to not only run programs but to think more like a human. We came out actually with our first product based on that series of investments last week in Mobile World Congress. Those three elements are things that our CTO and our research group are working on to set up the next wave of growth beyond smartphones and the application of all the things that will be derived from smartphones. That's actually led to a tremendous IP position. If you look at our patent filings over time, it continues to grow. I know a lot of people ask us these questions.
When we look at the data, we see that our patent portfolio continues to not only grow in numbers, quality, probably more importantly, it actually grows across multiple areas. If I look at the growth of our IP portfolio, it's grown not just in the core cellular standards, across the board. Our investments across the company in QCT, in corporate R&D, and in our new business areas contribute to that richness of our portfolio. Let me finish up here by saying that Qualcomm has a unique role, actually. We view our job as being the R&D engine for the mobile ecosystem. We invest in things early. We figure out ways to solve some of the fundamental problems, we share it with the industry through our patent portfolio and also with our product portfolio.
We think there's a lot of room left for us to do it. Collaboration continues to be a key component of what we do. We're investing in a lot of the new technologies that we think will be important for the next wave of growth, not only for the industry but also for Qualcomm. With that, I'd like to thank you for coming. I would also like to highlight that this year Qualcomm turns 30. It's actually fitting that we have at least two of our founders here. I didn't scan, anyway on behalf of the team that's here on the 30th birthday, we're very happy that you decided to have the first birthday, actually. Thank you. We're very pleased to be in a position to continue to grow the company.
The things that made us successful for the first 30 years, we think will continue to be something that will make us successful for the next 30 years. I think we're going to have a small celebration. I think we have cupcakes or something, don't we? We have cupcakes on the outside. You can't have a birthday without cupcakes. We're very pleased to be able to celebrate our 30th year and also pleased to have such a great foundation that was provided to us. We look forward to continuing to grow it for you and for our partners. With that, thank you very much for your attention. I think my colleagues will join me up here on the stage. Thank you.
Well, got up here too quickly, huh?
Kind of. Want to chase it?
You want to chase it? Yeah. All right. It's fine. Okay.
We will now take questions from the audience. Please move to the closest microphone to speak and limit yourself to one question only. Thank you.
This is going to be a quick Q&A session.
Did we just start?
Not usually a sure thing.
I have a question.
It's the cupcakes.
Hi. I'm very proud to be a Qualcomm owner because I am a social justice and environmental investor, and it's great to be able to make money doing that too. I want to thank you for that. My big issue, though, is the environment, and I would like you to comment on Qualcomm's environmental policies and how they affect and are expected to continue to affect Qualcomm's bottom line.
Do you want me to take that? I'll take it real quick. First of all, thank you for your question. It's actually something that's important not only to Qualcomm, it's important to our customers. We've had a number of customer requests to bring our products into compliance with things like conflict minerals and some of the things, particularly in Europe, about what type of materials we should have, as well as our opportunity to really be a much greener company in terms of our products. It's something that we've worked on. It's a very difficult problem, as you know. Certain portions of the supply chain, it's harder to do it, but it is something that we focus on as a company. It's something that we think is important the same way that you do, but it's also good business, and we're proud to be doing it.
You want me to give an update? I'd just add here in San Diego, and others can talk with greater detail, but we're doing a lot to find ways to use sustainable tools to continually save a lot of energy. I think it contributes dramatically to both the environment and to sustainability throughout San Diego and the world, actually.
In the past years, coming to the annual meetings, you've given us quite a detailed financial report of history and profit and loss and sales and so forth, and some general forecasts for the future. I haven't seen that today, so I'm hoping we get that before the meeting is over.
Well, I'll be happy to do that. Good afternoon.
Thank you.
Typically, we'll do more of an update as part of our analyst meeting and in the quarterly meetings. What we've said is that we expect to have continued strong growth in both the chip and the licensing business this year. We said that we expect revenue growth to be up about 3% at the midpoint. A little more challenging on the EPS front this year because of some of the issues in the back half of the year for the chip business. Again, overall, very strong cash flow. It's part of why we're blessed with two very strong businesses that generate about 30%-35% cash flow on revenue, which is an extraordinary statistic in and of itself. That allows us to confidently return capital and still fund the programs that we have as a company.
How significant is Qualcomm's investment in Xiaomi? Did that have anything to do you think, with Samsung dropping the Snapdragon chip?
Do you want to do that?
Do you want me to? Yeah. We were in early so one of the early rounds, I think round B, but it's a very small percentage overall, so not material. We don't disclose it, but it's a small percentage overall. It's been an attractive investment, though.
We don't think connected to the Samsung.
No, not at all connected to the Samsung. Yeah.
Hi. I just want to ask a question. When you did your presentation about the cars and the fact that it requires a phone to go with it, what happens to the operation of the car when the phone is no longer around or lost or malfunctioning?
Well, I think what you're going to see over time is that the car itself tends to have its own connectivity, and it has its own secure and robust communication path to handle that opportunity, and that you have additional features if you have the phone with you. You don't have to have the phone with you in order to operate the car. I do think over time, a number of infrastructure improvements occur so that as if you get to a place in an industry or in the world where you have 30 million people all living in the same place, the opportunity to leverage connectivity to optimize the flow of people and goods is pretty high, actually. I think you're going to see a number of new services and new opportunities for people to figure out how to do that.
That would be, I think, a bigger pull for having more connectivity directly in the end device, and we think that's something that we want to make happen.
For example, having a car show up at your house when you need it instead of owning your own car. Obviously, you need the connectivity of that. You need the car to be able to drive itself. It needs to have lots of sensors and interface with both local processing and processing in the cloud. It's a lot of really exciting things that are going to come in the automotive space. They don't all just have to have a phone. That's a new opportunity for us. In addition, you'll have a phone and a car with wireless built in.
Hello. My name is Robert Poon in San Diego, current stockholder. In the truck industry, typically 16 year for the patent, but geographically each area is different. Like India, I think they only let them to be generic in about three years. That's what I heard. How is the policy on this fast-moving technology? Each individual geographic is different. Of course, the licensing, I'm just guessing you don't disclose where each geographic. The same chip, you probably charge more in USA than in India or China. Could you elaborate on that? How much money you're going to spend on enforcing and monitoring to see whether other people is copycat your technology. I haven't heard much on the like in the past, you sue somebody else, try to recover the money. Lately, I haven't heard that much, probably because they're so fast-moving.
Some people even tell me that Xiaomi, I don't know whether it's a copycat of the iPhone or something like that. I don't know. Could you address on that? Thank you.
You want to just take the question about the patent duration, and then I'll cover the other part?
Yeah, I think the question was patent duration.
Yeah, the geographic area is, how do you let them, the cost of doing business in each geographic location, how much you charge to India or China and in other part of the country compared to U.S. or North America?
Well, Derek will expand on how we license our patents. We license our patents generally at portfolio worldwide licensing. Whether you're doing business in China or the U.S. or doing business in all places, generally speaking, the terms are very similar. In terms of patent duration and technology and suing people, we've actually been quite fortunate having developed what is very core technology and continuing to enhance and develop new core technology, that our licensing business has actually not had to spend a lot of time pursuing lawsuits. It's quite clear to the people that we interact with, the OEMs, that our technology is so core and they need a license to our technology. As Steve pointed out in the slide, it's our way of sharing the technology. We've invested enormous amounts of money in R&D over the years.
We've actually saved a lot of OEMs from investing similar amounts of R&D, and they've been able to capitalize on that which we've invented through the protection of our intellectual property and then our sharing it through a licensing program. We've been fortunate that we haven't had to pursue many companies, but we will if we have to. With respect to copying, that's always a question. Again, we're in an area where I think it's not that easy to copy our technology and our chips. Just as you say, it's a fast-moving technological industry. It advances very quickly. One of the things we constantly do is stay ahead of that curve and others-
No, no. My thing is the licensing, the royalty connected per unit in here is probably different compared to China and India. You didn't address that.
Yeah.
Yeah, to Don's point, I think the way that we've historically licensed our portfolio is most of the players are suppliers worldwide, they've tended to negotiate and sign agreements that cover their activities around the world, it's generally at similar financial terms. We just agreed to something different in China for a subset of our portfolio, which is different than we've done in the past with others. Generally, I would think of it as the same. Similar in the chip business, obviously a particular part in the roadmap will be different price, it's not going to be impacted by where it's sold and-
Yeah, it's kind of a package deal, something like that, right?
Yeah.
Thank you.
Yeah.
Thank you.
First, I'd like to thank the Jacobs family for all you've done for the city of San Diego. Make a wonderful place even more wonderful possible. My question, did the royalty reset resulting from the China litigation, do you anticipate that spreading to other non-U.S. markets?
Yeah, we don't anticipate really an impact outside of China. If you look at the way that the resolution was structured, it's limited to sales that are for use in China. It's also limited to a subset of our Chinese patent portfolio. Although we very much respect the NDRC, which is the China anti-monopoly regulator and the anti-monopoly laws in China and their ability to enforce those, they are very different than the antitrust laws and precedents that have evolved in the rest of the world. Although we do have some other investigations pending and certainly that we'll have some questions to answer, we feel comfortable that the result in China is really unique to China.
Thank you.
Intel has always been months, if not years, ahead of everyone else in the fabrication area. Is it reasonable for Qualcomm to consider? They've also recently announced that they were willing to do fabrication for others besides themselves. Is there any reason to consider Qualcomm actually getting the fabrication done by Intel?
Sure. If you look at the structure of the fabless industry, there are a number of different partners that are available to Qualcomm to deal with. In fact, earlier in the history of the chip group, we actually did fabricate with Intel. I think in our case, we
We have no preconceived notions either way as to which way we do it. I think large companies tend to have a very complicated and diverse and varied relationship amongst them. For example, our relationship with Samsung is a good example of that. I would assume that if there was a good opportunity to do that, we would be very focused on whatever way we could to make the best chips that we can. In some cases that may be engaging in a relationship like you outlined. We have no preconceived notions either way, and nothing to announce either, by the way. We're very open in terms of looking at new technology.
Yeah. Thank you. In continuation to Intel question, Intel recently announced that they are planning to invest into LTE modems and as well as in wearables. How do you see that Intel will have impact on Qualcomm's future business?
I think they're one of many competitors that we deal with every day and have dealt with for some time. The thing about the chipset business is there's never been a shortage of people that want to get into the market, part of the reason is it's such an attractive market from size and technology scale. I think we tend to compete with them every day. One of the things that we do, which helps us, is we think we have a leadership position in the modems, not only in the features, but also our ability to deploy those modems worldwide. I talked about having 861 million MSMs last year. There are really very few companies that can deploy that level of modem scale worldwide. Remember, each operator has a different set of requirements, or at least there are many sets of requirements.
It's a significant machine that we've built in terms of being able to provide worldwide scale. That being the case, there are a lot of people that want to enter into this market. By the way, I should let you know that I think the handset market or the PC market is about a third the size of that. It's about a 300 million unit, a little bit more than that, market. The scale in which you deploy things in cellular is actually quite large relative to almost any other electronics market of that complexity.
Understood.
There's a whole alphabet soup of new technologies coming in 4G. We're the ones who really started with the idea of those things, then worked with the industry to sort of develop them, put them through the standards process. Because we're the ones that start, whether it's LTE Broadcast or carrier aggregation or using different kinds of downlinks or combining it with Wi-Fi or running it in the unlicensed band or running it peer-to-peer, I mean, I can go on and on of things that we've done that move the standard forward. Because we're there, it makes it hard for the other ones to catch up, and we continue to drive that technology roadmap very hard. It answers the previous question as well about the patent portfolio.
All right. Thank you.
Having participated on the outside with Qualcomm from its embryo of a few people, no question about what you've done. If you can do anything to help humanity get along with each other? End of questions.
I'll give you two examples I think that come to mind. First, I think the delivery of healthcare. If you look at one of the things, and actually, I would say in many respects, there's an equality aspect associated with that as well. Delivering healthcare worldwide at a cost that's required to make it so pervasive is something that I think cellular provides a great technology to do. If you look at what would happen worldwide, if we could deliver healthcare to everyone, I think leveraging what happens in cellular and the cellular industry is an important one.
The other one that I would highlight is that security and the ability to use all of these great inventions, if we could figure out a way to do that and really be a leader in cybersecurity in a way that people trusted, I think there's an opportunity for some good things to happen in humanity. By the way, I would argue that we've already done a lot of things to make it easier for people to connect with each other, to make families stay in a much more safe environment for people to run things. I think there's a long way to go in that continuum of innovation.
I guess it's me. I'm a long-term shareholder. Since before IS-95, the first digital standard that you pioneered, thank you very much. I've watched 3G and 4G as we get OFDM and things, and 5G hasn't happened yet. We're all waiting for the array of players to converge on some 5G. Today it's a lot different than when IS-95 came out. There were very few players that were interested in GSM and some other things, but we prevailed with IS-95. In today's world and forward to whatever becomes 5G, there are a lot more players in 5G. How much intellectual property do you envision Qualcomm owning, if you will, through intellectual property in 5G? How much will that become the mix of simply Qualcomm becoming a manufacturer of a commodity product?
MSMs are good products, but less and less intellectual, so less IP in the free cash flow business.
I'll take that.
Sure.
Let me just start by saying, I think we actually see exactly the opposite. There's fewer players investing today in cellular than there were 10 years ago, for instance. If you look at the number of companies that we're investing in 3G, I think we're quite a bit larger. Many of those companies are not around anymore. Others have significantly less investment. The industry's kind of moved apart, where the companies that are generating profits from cellular are actually not the ones investing in it in many cases. As we look ahead, we look at our influence and actually our responsibility in places like 3GPP, where the cellular standards are evolving and being developed. We're basically carrying a lot more of the water now than we did five years ago. I think as you move forward into 5G, that's not going to change.
Some of the players have shifted. You had some go out, some new ones go in. Obviously, you have more companies from China that are participating more heavily than five years ago. Many of the European players have dropped down pretty significantly. We expect that we'll continue to be in a very strong leadership position, and as Steve mentioned in his presentation, we invest early and we solve the difficult problems, and that leads to a very strong intellectual property position covering the core technologies. Although 5G is early days, we got a lot of things going on here which have been happening for a while and feel very good. We're going to be in a strong position there as well.
Perhaps I should have biased a little bit towards Asian ascension in the market, MediaTek-
Yeah
Other companies like that.
Can I just add one thing to that, too?
Yeah.
I don't think we also don't see the emergence of a brand-new technique, like a CDMA coming in and disrupting the industry. What you tend to see is more of, there's a point where you can add almost the same thing to LTE for a long period of time, actually beyond this decade, so into the 2020 timeframe and beyond. There's some point that you want to stop, and you want to take a bigger step and do things. In all of those new steps, you don't see this big new technique that's happening.
What you tend to see is more of an extension of techniques that we have already worked on, but maybe across different bands or designed in a way that allows the innovation to occur more at the service layer, or something that allows you to move services in and away and around different frequency bands. We don't see this huge either new player arriving or a new set of techniques. We do see that it's important for us to invest in it because we want the industry to continue to grow because that's good for our business and good for the industry.
Although we do see it moving to much higher frequencies. That's one of the areas that people are looking at because at the much higher frequencies, there's a lot of bandwidth. As the network moves more towards what we call small cells or a much more dense deployment of the network, actually going to a higher frequency is good. It gives you more isolation between cells, which gives you more overall capacity. We're getting started in those areas with some of the things that happen in the unlicensed bands with WiGig, which is a 60 gigahertz radio. You're going to see this coming out over the next couple of years, where you'll actually get multiple gigabits per second between your phone and, say, a set-top box or a computer where you're trying to download content and upload content.
That's going to move to a more broad-based cellular network, as opposed to just being in the room with you. This is all work in progress right now. People are excited about those opportunities. As Steve said, it's kind of an evolution. We'll get more speed, lower latency, all those kinds of things that you've sort of seen us do over time. The question is, what other things can you do? Some of the areas that we're looking at are whether we can actually influence the way the internet itself works to make it more secure, protect your privacy better, give you a little bit more control over user data, all these kinds of things that are because the internet wasn't really architected to do all the things that it's doing now. Can we build something slightly different?
Because the cellular industry ships so many devices per year, the endpoints turn over so quickly that we actually believe there is some opportunity to do that. Now, we'll see whether the industry can actually coalesce around some of these ideas and actually make it happen. There are new areas besides just the radio where things can happen in 5G.
[audio distortion]
Just a brief comment about my last question on the finance and kind of a finance presentation. The general answer I got was very nice and so forth, I guess what I'm saying is I would request next year at the annual meeting, you give us a nice breakdown of the bar charts that you've given in the past.
Sure.
I'd like something that when I watch the year unfold, I can say, "Well, yeah, they got to 2%, they got to 4%, they got to 32%," and just get an idea. I follow the executive sales of stock and so forth, I always wonder, "Gee, they're selling, but the promises are really good. Why are they selling?" Maybe I could glean some ideas if I had better financial information. Next year, I'd really like to see that information available to us here at the annual meeting.
A lot of those sales go through on automatic plans because it's done so that we aren't actually making a judgment about the business when you see those sales.
Yeah.
You shouldn't read it too much into those.
Run out of time, you got to execute them and so forth.
Yeah. it's done on an automatic basis. It's no judgment on our part to do those things.
I understand that.
Yeah.
Some of us do have options if we're going to sell or not sell. That information will help us decide that, I would appreciate it.
That's a fair point. Thank you.
Thank you.
All right.
Yeah.
I think we are going to close. You want to make some closing remarks?
Go ahead, if you'd like.
Well-
It's your privilege.
Okay. Well, I just wanted to say thank you very much for everyone. Oh, we had one more question?
Looks like we have one more question, ma'am.
All right, one more question.
Can you come to the aisle, please?
Mic.
Not very technical. I did not see Qualcomm on the Fortune 100 list. I'm wondering, do you plan on applying for next year? It's something that your stockholders might appreciate seeing. I would think the employees would like to see it also.
Are you talking about the best places to work?
Yes.
Yeah. We decided not to participate because it's very much U.S.-focused. The company is such a global company now. It wasn't necessarily reflective of our overall workforce. That was why.
Okay. Thank you.
That's good input. The head of HR is over there. Thank you. Anyways, I just wanted to say thanks again to everybody for all the support for Qualcomm. We're very excited by what the future holds, and we're really proud that we can continue to invest in all of these new opportunities and growth areas and return a substantial amount of capital to our shareholders in the form of dividends and a much larger stock buyback. Hopefully you feel like we are looking out for your interests. We're also shareholders ourselves, and we're very aligned with you, and we're very excited by the opportunities ahead. Thanks, everybody.
Thank you.