Cristiano Amon: So, I will start by saying that we really like that market, and we think the market is a long-term market. I think the — it’s clear to see now that home broadband, for the first time, you have a wireless solution that can augment fiber. And it’s really about fiber and 5G, you don’t find cable everywhere outside the United States. So, we think that’s an opportunity for both, developed and developing economies. And of course, if you look at the size of India, that’s why we’re very excited about it. We saw the auctions. The investments are being put into place by the operators and infrastructure. When we sell into that market, I think while I can’t really talk about the ASP, I tell you, it’s accretive in margins to our handset business, especially because we have a lot of content, in many cases, we also have the ability to do on Wi-Fi access point in addition of the 5G modem. And we are very well positioned with millimeter wave technology.
Brett Simpson: Okay. Did you say — sorry, Cristiano, did you say you booked that in mobile systems, or is that an IoT business?
Akash Palkhiwala: It’s within the IoT revenue stream.
Brett Simpson: Okay. Okay. Fantastic.
Akash Palkhiwala: Yes. What I mentioned is it’s compared to our handset business, the ASPs that we have for fixed wireless is really accretive to margins. That’s what I meant, but it’s in the IoT business.
Brett Simpson: Okay. Maybe just a follow-up. I wanted to ask about the recent U.S. restrictions around Huawei. Are you seeing any impact in this at all? I mean, it looks like Huawei has been shipping quite a lot of 4G devices recently. Have you been shipping components to Huawei? And if so, can you maybe just help with the impact of the latest restrictions on the business? Thank you.
Alex Rogers: Yes. So, this is Alex. I’ll start, and then maybe Akash can fill in if he has anything further. So, I don’t think it’s fair to characterize it as the latest restrictions on Huawei. What we’ve seen are news reports to the effect that Commerce is considering not issuing new licenses to Huawei. And we haven’t heard anything from Commerce itself. Qualcomm has a set of licenses that we’ve had for a while that basically allow us to ship 4G and other chipsets, including Wi-Fi to Huawei. Those licenses were she goes Commerce reached the determination that they don’t affect national security issues. Those will continue for some number of years. And so, within the scope of those licenses, we don’t see an impact. Akash, anything else?
Akash Palkhiwala: Nothing to add. Thank you.
Operator: The next question is from the line of Tal Liani with Bank of America.
Tal Liani: Two questions. Inventory days doubled and it has been going up every quarter in the last 4 quarters, 5 quarters. Can you talk about inventory days? And what is it composed of if there is any anything special we need to discuss just because of the high value? And second, more qualitatively, I want to understand what is the lag or what should be the lag on sales in China from inventory levels versus demand recovery as China reopens? Meaning, from the time that China reopens and there is demand for handsets, how should we think about the lag from that to being translated into demand from you?
Akash Palkhiwala: Yes. So Tal, it’s Akash. From our perspective, the way we’re about our inventory — and it’s really not necessarily inventory, it’s really wafer starts. What we would like to do is, given the lead time of 5 to 6 months, start wafers, 5 to 6 months in advance, plus some room on top for mix changes that might happen during the period. So, that’s the framework under which we operate. You’re right that our current inventory balance is higher than where we’d like it to be. And earlier in the call, I went through the rationale as to how we ended up there. So, we’re working with our suppliers, and we’ll kind of normalize it over time, and we feel confident we can do that. On your second question on the lag, I think that’s already embedded in the way we provided our view into the future, which is — as we expect inventory drawdowns to happen through the March quarter then going into the June quarter, but as we go into the second half of the calendar year, as demand comes back and normalizes, we have the ability to benefit from it.
Tal Liani: Got it. Last question. I’m getting a repeated question on your licensing part. I saw today the — what you said about Nokia and Ericsson. Can you discuss licensing portion in terms of any forthcoming discussions, negotiations or anything that we need to be aware of, or is it as stable as it was the previous year?
Alex Rogers: So, this is Alex. It really is just as stable as we’ve described previously. All the major OEMs are signed up long term. No other new renewals are coming up until fiscal year €˜25. The Nokia license basically split into a couple of parts, infrastructure to Nokia handset to Microsoft. Those licenses as they evolved, were not — no longer material to the QTL business. So, that’s pretty much where things stand.
Operator: Your next question comes from C.J. Muse with Evercore ISI.
C.J. Muse: Two if I may. The first one, if you look back three months ago, you talked about kind of a two-quarter correction. Now it’s at least three. And so just curious to level set kind of how things have transpired over the last three months. How much of the change statement here is just end demand declining versus your customers working down Qualcomm semiconductor inventory? And then, the second question, you kind of spoke to it earlier around building inventory, and would love to hear your thoughts around kind of wafer start volume commitments. How to think about the impact to QCT margins in calendar €˜23? And is there any risk of a onetime catch-up payment on reduced volumes? Thanks so much.
Akash Palkhiwala: So, on your first question, C.J., from an inventory perspective, there are a couple of drivers to it. So, first is the weaker market; second is inventory drawdown. And both are significant factors. And then the third, I’d say, is we’ve also seen IoT having the same sum of the characteristics. And so, you’re seeing a combination of those factors impacting the time period for which the drawdown lasts. Again, as we look at it, this is a shorter-term thing that when you step back, it doesn’t necessarily — the drawdown doesn’t impact the strength of the business. And so, as the recovery happens, we’ll be in a position to benefit from it. Can you repeat your second question? I’m not sure I understood it well.
C.J. Muse: Yes, sure. As it relates to your wafer commitments, particularly with TSMC, if you’re taking down the volume purchases, any risk to pricing and/or catch-up payments?
Akash Palkhiwala: Yes. So, a lot of our commitments were more in the form of prepayments rather than volume commitments. So, that just means you get the prepayment back over a longer period of time. But we’re navigating through those and nothing to report at this point.
Operator: That concludes today’s question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call?
Cristiano Amon: Yes. Maybe just to summarize, I think how we see the earnings call. I think beyond 2023 for Qualcomm, we see many of our growth initiatives, increasing scale, including auto, PCs, XR and 5G FWA, we’ll talk about it in industrial. When we look at the current environment, we remain very confident in our ability to navigate the economic downturn and the short-term challenges, given our strong balance sheet and consistent history of strong free cash flow generation. As you can see, we’re taking action where we can control, and we believe we’ll emerge even stronger as we continue to execute on our strategy. We’re focused on Qualcomm’s long-term success, and we’ll work diligently to continue to drive growth, especially auto and IoT, diversify the company and deliver value for stockholders.
I’d like to thank all the employees for the dedication and contributions to Qualcomm as well as our many partners and suppliers, and thank you all for attending the call. I know it was a popular earnings day today. Thank you.
Operator: Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.
