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Qualcomm (QCOM.US) Q3 earnings conference call summary: 5G construction acceleration financial situation will reach the turning point in 20Q1

On July 31, 2019, at 4:45 pm ET, Qualcomm (QCOM.US) held a third-quarter earnings conference call in 2019. The following are the highlights of this conference call:

About 5G construction

In the first quarter of 2020, our financial situation may reach an inflection point, mainly due to our tremendous efforts to bring 5G to the global market for many years.

Compared with 4G, the promotion of 5G networks is much faster. We expect more than 20 operators to launch 5G services, and more than 20 original equipment manufacturers will launch 5G equipment in the first 12 months after the first commercial launch.

In China, 5G commercial services were officially approved in early June. Our current estimate is that by the end of this year, three operators in China will deploy about 100,000 5G base stations, which is equivalent to the scale of the entire network of large US wireless carriers.

In the United States, 5G is deploying Sub-6 and millimeter waves nationwide. Verizon pointed out that they expect that three-quarters of the phones launched next year will be 5G.

AT&T (T.US) announced that they will achieve nationwide 5G coverage by mid-2020. We expect that the proposed merger of T-Mobile and Sprint will accelerate the nationwide launch of 5G.

Dynamic spectrum sharing also helps drive this accelerated transition to 5G, enabling operators to dynamically repurpose the 4G spectrum for 5G use. DSS is the operator's game rule changer and will lead to a rapid spread of 5G, which is much faster than what we saw in the previous G conversion.

Before I talk about our products, I would like to remind you of our contributions to the development of the basic elements of 5G, including the ability to achieve massive MIMO, millimeter wave, security innovation, and the deployment of 5G technology in a broad spectrum distribution network. .

This early work has produced a valuable intellectual property portfolio and enabled us to understand early on the need for large-scale development and commercialization of products.

Currently, we are the only chipset supplier with a 5G system-level solution with Sub-6, Gigahertz and Millimeter bands. This is the key to global deployment. Our 5G system-level solutions cover baseband, transceiver, RF front-end and antenna components because these components are tightly coupled to achieve optimal performance across multiple key performance metrics, including power zones and modem references.

Now introduce the latest developments in our original equipment manufacturer (OEM) traction. All major Android original equipment manufacturers announced the launch of 5G equipment this year. With the increase in sales in early 2020, equipment products will be extended beyond high-end equipment.

For example, China Mobile plans to push the price of 5G equipment to less than $300 by the end of 2020, which is about 40% of the Chinese smartphone market by price range. The recent product mix decisions made by our Chinese customers are consistent with the carrier's goals to drive 5G into lower price ranges.

On the product side, we are now launching or developing more than 150 5G designs using our 5G chipset. In addition to the core chipset, all of our 5G designs are actually provided by our complete RF front-end solution for 5GSub-6 and millimeter wave.

We are the only company currently offering an end-to-end integrated modem to antenna solution. The complexity of 5G and the value of innovative solutions have enabled us to significantly extend our ASP from 4G.

In short, as the entire market and industry transition to 5G, the recent trend of weak demand is not surprising, but with the growth of 5G, especially in 2020, we are very excited about the growth of our design and equipment content. Simply put, our central position in developing this incredible technology provides a huge opportunity for our shareholders.

Impact of the export ban

We expect to have an adverse impact in the next two fiscal quarters.

Due to the export ban, Huawei has shifted its focus to establishing market share in China's domestic market. We do not see corresponding revenues on product or license revenue.

In addition, our customers in the Chinese market are working through existing 4G inventory and shifting priorities to 5G releases in early 2020, reducing the speed of 4G releases in the second half of 2019. Therefore, given this unique market dynamics, we do not expect to receive typical seasonal benefits.

Qualcomm CDMA Technology (OCT)

Speaking of QCT, on July 15, we announced our Qualcomm Snapdragon, 855Plus mobile platform, offering approximately 1 billion mobile gamers, the leading flagship choice for professional gaming devices.

In expanding our relationship in China, we are pleased to announce a strategic partnership with Tencent (00700) to provide quality 5G and gaming experiences to consumers and developers in China and beyond. The partnership includes a joint effort on Snapdragon-based mobile gaming devices, Snapdragon Elite games, cloud games, AR, VR and always-on PCs. We continue to grow opportunities in automotive, AR/VR, connectivity and networking, and the Internet of Things. In terms of computing, we are expected to launch the first Snapdragon8cx-based design in the second half of 2019.