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Making Markets EP18: Qualcomm’s Unique Story and the Insights Behind Their Growth Strategy
by Daniel Newman | December 3, 2021

In this episode of Making Markets, host Daniel Newman sits down with Qualcomm President and CEO Cristiano Amon. They spend time diving into the company’s most recent earnings, investor day, this week’s Snapdragon Tech Summit, as well as discussing the company’s big bets on Automotive, AI, and why retail investors should be looking closely at Qualcomm now and in the future.

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Transcript:

Daniel Newman: I took a jaunt to Kona, Hawaii, and had the chance to sit down with Qualcomm’s CEO, Cristiano Amon, here at the Snapdragon Tech Summit. We talked about the company’s earnings, its Investor Day, its strategy, and why retail should be very excited about Qualcomm. All this and more on this week’s Making Markets.

Announcer: This is the Making Markets Podcast, brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies, bridging the gap between strategy, markets, innovation, and the companies featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, Principal Analyst and founding partner of Futurum Research, Daniel Newman.

Daniel Newman: Cristiano Amon, CEO, Qualcomm. Welcome to Making Markets.

Cristiano Amon: Very happy to be here. Good to see you, Dan.

Daniel Newman: It’s actually a real pleasure. You are a first. This is the first time, I started this series during the pandemic and every interview I’ve done has been over video. And what a place for us to kick off here in Hawaii, at the Snapdragon Summit, to get to sit down face to face and do the first in-person episode. So, thank you so much. I know you’ve got a ton going on here at the event.

Cristiano Amon: No, no, no. Look, I completely agree. It’s good to see people. And if the place to do that is Hawaii, there’s nothing wrong with that.

Daniel Newman: There’s something in the air here. I’m telling you, you just can’t help but feel good. I’ve actually been following you around the country, kind of on accident, but over the last few weeks you’ve had earnings, you had your big Investor Day in New York, so I was able to make it up for that. And so I’ve been hearing the story from you now and this timing of doing this interview is great because I heard it after earnings. I had a chance to opine a little bit myself. And then I heard it again at Investor Day and now we’re hearing it through a slightly different lens, and I’ll talk about that later. Just talk a little bit about coming out of earnings, coming out of Investor Day, the run up that the company saw. How are you feeling? How are you reacting to these recent events?

Cristiano Amon: Look, we were incredibly happy that finally, finally I think the Qualcomm story started to be understood. It’s being heard. I really thought a lot about what we’re going to do on Investor Day. Now, let’s say leading to Investor Day. We’re a large cap company. We had five quarters, consecutive quarters of 100% year-over-year growth in QCT. Those are metrics that you have on a startup company, not on a large cap company. We see demand for technology happen across every single industry. We see our one technology roadmap being the roadmap that many of the industries need to go to. And I felt that it was time at Investor Day to provide a comprehensive story that let investors understand this incredible opportunity we have with Qualcomm. And of course, I needed to go pull the Apple bandaid, which I did.

And I said many times, you’re making a mistake if you’re looking and trying to define Qualcomm as a company that is in a one end market and one customer relationship.

There’s an incredible opportunity for the company. And I think the key message I want folks to understand is there is a logic to everything we’re doing. In a way we have been defining the pace of innovation on phones, but now everything else is going to be connected. We designed actually 5G with that in mind, we have those billions of devices. And then what I wanted to tell investors is if you believe, and they do, if you believe in the valuation of the hyperscalers and the cloud companies it’s because you are assuming you have an exponential growth of data going to the cloud, while we’re just a company on the other side of the data center connecting all those devices.

And there’s no other company that actually can do what we do in making those devices connected with advanced processing and on-device artificial intelligence. And I think that was understood. And as part of that, that we now have many end markets and we just showed that we can expand our SAM by seven X to 700 billion from the company that started back down with a 15 billion SAM by just doing MSMs, MDMs, and license. And I was happy that the message was heard, was understood. And I think we’re in the beginning of something big.

Daniel Newman: Yeah, I think that is something really large. And by the way, for everyone out there, when he mentioned taking care of Apple, there’s been a lot of speculation out there about how big and the contribution that apple makes to Qualcomm. And the company was finally able to reveal at its Investor Day that it’s really a low single digit impact and that’s huge. And the market, by the way responded, it was actually really interesting to see. It was almost a parabolic kind of response that it went straight up and I think a lot of people had no idea and you kind of broke that mold.

And then of course, when you talk about the cloud and the edge, you on the other side, I think what you really are trying to say to everybody out there is the edge is almost infinite. In comparison, cloud is, you and I talked off the record, kind of finite. It’s going to grow and it’s going to scale. And the TAM’s going to certainly expand, but you think about vehicles and things and sensors and basically everything on the planet from our shoes to our watches, to our glasses, to our vehicles and homes all going to be connected. That opportunity’s massive.

Cristiano Amon: It is massive. So maybe if I elaborate a little bit on this conversation on mobile. So one thing that we have done, we basically model to investors. Here’s the Apple contribution assumptions we made. We said, “Look, by 2023 iPhone launching, we’re assuming that we have 20% and then it’s going to be low single digits on QCT going forward.” So it was good to change the conversation because now if it is not the case, that’s upside of the Qualcomm model. But the reality is we have a lot of growth opportunities in auto. We have a lot of growth opportunities in consumer IOT, the networking IOT, the industrial IOT. And that’s a much larger SAM, as you pointed out, because everything is going to be connected. If you look at a 35% CapEx growth of the cloud, you’re going to have to send data to the cloud and you’re going to have to connect everything.

Daniel Newman: Yeah. I think that’s really strong and I was going to dive into those adjacencies. I went on Yahoo Finance after your earnings. And of course, everybody wants to talk about mobile. Everybody likes talking about things like the licensing business. I’m like, good, but the story that’s being missed, I think so often, and you’re starting to tell it right here is you had, I think, three businesses, three segments in QCT, going on four now that are a billion dollar plus. One that’s, I think, over five billion, one that’s over four billion. You went from, I think, an unknown in the RF front end for mobile business to now the undisputed number one. So RF front end, IOT, and then you have automotive by the way, coming on extremely fast. Is that not the story that I think a lot of people are missing? These are massive secular trends.

Cristiano Amon: Absolutely. Which company you can find that it has the opportunity to grow not in one new market? I’m not here to say, oh, we have this one new market, we have plenty. We have plenty, like within this broad category, we identify a number of opportunities that are big for Qualcomm. And I want to come back to where we are right now, but just looking at the future, we have these devices for mixed reality and augmented reality. Whatever version of the metaverse you like, you’re going to find a Qualcomm device, connecting physical and digital spaces. We are the company that is doing that today. We have 10 years of fundamental R&D. We talked about this when it wasn’t popular. We have the opportunity to be the company that provides technology for the car companies as the car is being transformed. We are the preferred partner for building a digital chassis. No, that’s not a surprise that we’re now working with 25 of the 26 global brands.

Daniel Newman: $10 billion pipeline, right? No 13, right?

Cristiano Amon: It’s bigger now. Yes. Yes. Then number three, we have the full conversions of mobile [NBC] that is happening. We have the industry 4.0, that’s driving a lot of the industrial IOT as devices get connected for the digital transformation. We have 5G becoming the fastest growing broadband technology for wireless fiber. And all of those businesses exceed a billion dollars. And now I’ll go back to the question. I remember having conversations and I would say, “Look, we’re diversifying.” We have all those end markets and people want to say, “Okay, let’s talk about companies. They’re doing their own modems.” And I said, “Great, we can talk about that. And have you looked at our diversification?” Then all of a sudden people realize, wow, this is a 10 billion revenue already, already. It’s 38% of our QCT. So I said, “If 10 billion doesn’t do it, I don’t know what does it.” But it is a reality. Those are fast growing businesses. We have incredible growth rates. And I think we’re just at the beginning, just at the beginning.

Daniel Newman: Well, if you can keep these growth rates, your metaphor about startups really starts to be true. It’s a startup within a mega cap or a large cap. I think my market watch piece, I said, you guys would be one of the next mega caps in tech. You were about 160 billion on the day I wrote it. And it was literally within the earnings. The Investor Day catapulted you and I took a big picture of it, circled it on my phone when you hit 203. It hit 203 and I’m like, sometimes you just get it right. But I want to talk about automotive for a minute. Okay. That’s the smallest in terms of actual revenue now, but you heard me mention that pipeline, I think 13 billion or so was what was reported most recently.

And the reason I want to mention this is you talk about a secular trend that the investor community, retail, and institutions are getting behind. You’ve seen the valuation of Tesla. You’ve seen the valuation of Lucid come up. Most recently, Rivian becoming worth more than GM. And this is momentarily, all on the speculation of what the future of connectivity looks like. It’s not about cars. It’s about mobility, connectivity, technology. And these companies are seen as the future. How does Qualcomm not become one of the first names that people are going to think about when they’re figuring out how to invest in the technology that’s going to be the underpinnings of that?

Cristiano Amon: It’s inevitable and I’ll tell you the reason why. And why, two things. Why we’re super excited about this and why we’re becoming successful in a very short period of time. So the car is being completely transformed. The car is becoming a connected computer on wheels. If you look of the valuation of companies like Tesla, and you put in contrast with all of the other car companies, what you realize is they’re valuing it because Tesla is a technology company is making the car a platform for innovation, a platform for service distribution. In addition to taking you anywhere you want it. When you connect the car to the cloud, you change the car business model forever. Your car can distribute media, can distribute games, can provide insights for you as a driver and have a personalized experience for you.

You can have advertisement if you are a ride share. You can have the car inserted into the enterprise that it belongs to, connected all the way to the enterprise management systems. And you can even see a future that some of the car companies will make more money on this service revenue of the car than the profit of selling the car in the first place. It changes everything. But the other thing that’s happening is autonomy assisted driving is going to be as pervasive even if the driver’s behind the wheel. People talk about, “Let’s go do level five. Let’s go do level four.” But at the end of the day, there’s a big market for you who is still behind the wheel and the car will drive itself in the highway. Or the car will drive itself in the town, and you’re going to have this ADAS. It’s going to be as pervasive as airbags, ABS, seat belts.

Then the other thing that happens, you connect a car to what is now intelligent transportation. This is not about a company thinking about, can I sell a component to the car? No. Can we look at the whole transportation and take an approach like system, like we do for example, with seller? Let’s connect the car to the pedestrian, the car to the bike, the car to the traffic lights with technology like C-V2X. All of a sudden you have a matrix and you’re now managing intelligent transportation, and the car now is part of a network. This is all of those technologies. We’re the only company, when you look at everybody else that has the technology to help the car companies become tech companies, it’s Qualcomm. And we actually have a horizontal model.

We’re open, all of the platforms we provide. The car companies can innovate. So as a result, here’s what we did. We looked at the traditional automotive suppliers and they’ll have a component. Somebody will design a car and they’ll say, “I wanted to add this capability to the car. Can you please provide a component?” But when you look at how the car company’s thinking about the car, they think, okay, the drive train, I’m going to have a platform. The drive chain, I’m going to put across different cars. I’m going to build the chassis. I’m going to put different cars. I’m going to have a unibody. So we took a different approach. You are going to be a technology company. We’re going to build a digital chassis that is going to have all of the elements that you need.

You’re going to have the high performance computation for on-device AI, and all the decisions you have to do in the car in real time. And guess what? You cannot put a server in a trunk of a car. You will consume the power that you need for your range. So you have to have efficient computing coming from the mobile heritage. Connect the car to the cloud, build the service platform, and provide all of the ability to connect all of this information from the network in the car and build the most competitive and open ADAS. And that’s what we’re doing. And that’s the reason I think it’s one of the fastest growing, I think, pipelines for Qualcomm.

Daniel Newman: Yeah, it’s kind of hard not to feel your excitement when you’re talking. You’re just like, “Go!” I get it. So I want to pivot real quick. We are in Hawaii. We started off the show talking about that. And by the way, don’t be jealous. It’s awesome. But you were here for Snapdragon Summit. This is moving a little bit from the investor to the tech, but that tech is ultimately what circles back and feeds the passion and the people that are going to get behind this and invest in this thing.

One thing about this that I would like to zero in on is the Snapdragon brand. There’s a pretty big story here about this and the relationship it’s going to create with consumers. Qualcomm has a huge enterprise name, well known in enterprise. But obviously, as you’re trying to build broader appeal, a wider swath of investors, create that affinity and sentiment in the market, get more retail support. Snapdragon seems to be a vehicle to do that. Talk a little bit about how you’re thinking about that and how you obviously build Snapdragon without in any way tarnishing the reputation built by Qualcomm.

Cristiano Amon: No, absolutely. Look, this is a great question. And we decided in this tech summit, and the tech summit is where we come back to what we’re doing in mobile. There’s still a lot of exciting things for Qualcomm and mobile. What are we doing in mobile? What’s our latest generation Snapdragon? And we thought was the unveiling of the next generation Snapdragon that’s going to be in all the flagships later this year and starting 22, will be the right time to provide this simplified, clear brand strategy for Qualcomm. So what we’re doing, it’s something actually very simple. We’re just embracing what already is a reality today. The reality is, Snapdragon is a consumer brand. A lot of the enterprises know Qualcomm. The enterprises that are not traditionally working with Qualcomm and now need to go to a process of digital transformation, they know Qualcomm.

If they care about the edge, they know about Qualcomm. Qualcomm has always been this trusted, reliable enterprise brand that has been partnered with everybody building ecosystems. That’s never going to change. And I think Qualcomm’s always going to be known within the B2B community. The company that is founded in technology, has as one of the largest R&D budgets among our peers. Has been focused on everything wireless, high performance computing, low power, and working with a lot of stakeholders building ecosystems. However, consumers know Snapdragon more than they know Qualcomm. You get a market like China, 80% brand awareness. Consumers now love their smartphone. They depend on that, every life. They’re now more educated about the capabilities of their phone. They want to know what’s the engine driving all of this. What’s behind the glass, and that’s Snapdragon. So what we’ve actually done, we’ve simplified and we have the consumer brand for mobile experiences, it’s just Snapdragon.

And as Snapdragon becomes synonymous with premium flagship Android, and everyone knows about Snapdragon 800. We just simplify that it’s about Snapdragon eight. It’s always going to be the definition of what an Android flagship is. Incredible support from our customers from this brand proposition, because they know their customers want to know what is the mobile processor in their phone. It also came at a time then that with the shifts in the OEM market share, companies like Vivo, Oppo, Xiaomi, Honor have been climbing up to the premium tier. And it became an incredible ingredient brand for them to describe to the users that they can do a premium flagship device. And right now it’s a virtual cycle. I think there’s incredible value in the Snapdragon brand. It’s another thing that I think investors probably start to understand there is consumer preference. We built an insider’s program. I think we’re just on the insider’s lounge right now. And in record time, we got to in excess of four million insiders. So consumers like Snapdragon, they care about Snapdragon, they want Snapdragon.

Daniel Newman: And we know the power of brand. And while it’s maybe not the most popular to bring up other names. You’ve seen how it’s worked with the AMDs, the NVIDIAs, the Intels to have that brand that’s associated with the consumer, where the consumer knew when they were buying for years. Now, you’re doing this on the PCs and you’re going to be entering all kinds of markets. But I think that’s really been an important thing where Qualcomm has been doing the magic for many years behind these devices. That by the way, have become the most paramount item in our lives. At times more than the people around us. You just see it by our behavior and you guys have been powering this, and it’s kind of time. I’ve always thought, time for the company to finally get the recognition for that work that’s been done. That’s changed the lives and the way so many of us connect and communicate every day.

Cristiano Amon: Absolutely. And by the way, as mobile expands and the experience expands, Snapdragon expanded. So we are going to start to see the evolution of the Snapdragon brand. As part of owning a smartphone, you bring other devices around you: your watch and your earbuds. You start to see the Snapdragon Wear, Snapdragon Sound as you go now from the phone to your personal computer. And we see this convergence, you start to see Windows on Snapdragon. And then when you get behind a wheel, it’s Snapdragon Ride. So it’s in Snapdragon digital cockpit. So it’s all about bringing the mobile experience with you everywhere, and that’s evolving with the Snapdragon brand.

Daniel Newman: Yeah, absolutely. Creating a name that people see it, they want it, and they associate that with quality. And like I said, I think it’s a huge opportunity to be something that retail should really appreciate and be thinking about. And I got one and a half questions for you, because I know I’m taking up a little more time than I told you. So thanks for bearing with me. You and I had a little chance off the record to talk about AI.

Cristiano Amon: Yes.

Daniel Newman: Now when I watch the tech summit and I listen to the keynote and I listen to some of the deeper dives technically, your company is doing so many things that I would say is changing the game for AI fundamentally, especially, or at this massive edge, right?

Whether that’s on our devices, our smart sensors, communities, vehicles, all these things. But Qualcomm doesn’t necessarily get the reputation that some companies get for being the AI company. How big of an opportunity do you see that as?

Cristiano Amon: Significant. And what the market’s going to understand is that AI will actually get scale at the edge. So look, AI is incredible technology. The ability for you to tap on computing resources in availability of data, you’ll be able to train. And you have a lot of the applications. We’re starting to see that every day and it’s growing exponentially. That’s an incredible technology. But what I think investors did not yet realize, the way AI works today, you have all this data that goes to the data center, and then you go to that data and you process this in the data center and you make recommendations. You make decisions, all of this, but the reality is everything else that is part of this story, that in the edge, everything will be intelligent, will be connected. You have processing, you also have tons of data and you can make decisions in real time.

And what’s going to happen is when you do AI at the edge, there are a couple different attributes. You have to do high computational, low power. You can’t afford not to have a server on your phone, a server on your computer. You’re going to have to do this with low power. The other thing you need to do, you have the benefit of having contextual information in real time. I’ll give you an example. Look, I can talk about this all day, but I’ll give an example. Your phone is doing certain behavior that the phone doesn’t expect you to do. I’ll give you a simple example. You send an SMS, you didn’t touch your SMS keyboard. The phone in real time says, this is not an acceptable behavior. We need to take action from a security standpoint. Or you take a photo and the photo is in dark, but I know what that is and I am going to use AI to fix that.

Or you could shift it to a car. I am making a decisioning in a split second, is this pedestrian moving towards the car or he’s stationary or he’s moving forward? Do I need to alert you, the driver? Do I need to check the camera to say, are you looking where you’re supposed to be looking? Do I need to alert the driver? Go all the way to what is happening on retail. For example, we have a partnership that we have with one of the largest retail companies in the world, and you have a camera.

It’s taking a look of a shelf and makes a decision that something needs to get replaced in the shelf because somebody just came and took it and I need to send a message to somebody to replace it. AI scale at the edge is going to be an order of magnitude bigger than we’ll see in the data center. And we’re actually the company that has the assets to do it. And we’re doing that already. So eventually, people are going to realize, wow, this company also is one of the leading AI companies in the world. And we’re going to get there.

Daniel Newman: Yeah, I think that’s something that you probably can’t voice enough. And as an analyst, there’s my advice. But no, I think that, that’s something that needs to catch on. And by the way, the word intelligent in itself has some assumptions and connectivity is one of them. It can’t be intelligent if it’s not connected. So those things have to coexist and to be connected there’s only a few companies in the world that really are developing the technology to do that, especially at the scale you mentioned. So, I always like to ask a question that provides the guests to this show, an opportunity to communicate with the markets. I say, one of the reasons I started Making Markets was all about having a format that talks to what the business media tends to miss. What the short, punchy three minute interviews don’t get to.

And in this case, in my researching Qualcomm, you’re very well supported by the institutions. They seem to understand very well that if you’re interested in mobile and 5G, and some of these emerging trends that we just talked about, that Qualcomm is one of the names you want to be behind. We’ve talked a little bit throughout the show of about the retail investor though. And that seemingly has picked up, but the affinity that some companies and some of the support that they’ve been able to get by having that massive wave of retail support and retail excitement, you seem to be in all the right areas. Why should retail really fall in love with Qualcomm?

Cristiano Amon: Look, they absolutely should. I think, well, besides how I think about it, I am biased. I think we’re an incredible investment opportunity, if you look at the number of end markets that we have right now. But the most important is, if you look off the multiple transformation that is happening in the industry, whether you now work from anywhere, you have the enterprise. The enterprise transformation, your home becomes the office. You look at how you go back to the workplace and you are going to be doing collaboration in video, all of this. The laptop that you’re going to need is not the existing one. It’s going to be the next generation laptop, and that’s what Qualcomm’s going to do. If you buy that the metaverse is going to be something big, and you are going to overlay your digital world to our physical world.

You’re going to have a digital twin. You’re going to need a device, and that’s what we are. We are the ticket to the metaverse, because you’re going to need a Qualcomm device to do that. Your phone will continue to evolve with 5G. With higher speeds, we talk about 3.5 gigabit up link. Nobody ever thought was possible to do this with cellular. You’re going to need Qualcomm to do that. So at the end of the day, we’re probably one of the companies in the tech that has one of the vastest portfolio of technology and R&D. We’re doing what is difficult, and Qualcomm’s going to be everywhere.

Daniel Newman: Well, there you have it. Thanks everybody. What a great set of answers. Cristiano Amon, CEO, Qualcomm. Thanks for joining Making Markets.

Cristiano Amon: Happy to be here, Dan. Thank you.

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About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio