Mobile revenue is expected to see double-digit recovery (Qualcomm FY23Q4 conference call).

Qualcomm (QCOM.O) released its fourth fiscal year report for 2023 (ending in September 2023) after the US stock market on the morning of November 2, 2023. The key points of the conference call are as follows:

1. Incremental information from the Qualcomm conference call

1) Huawei situation: We have no plans to sell our 4G SoC to Huawei anymore. Huawei's contribution is very small.

2) 5G devices: This is indeed our target market, and we expect high single-digit to low double-digit growth from 2023 to 2024.

3) Next quarter expectations: We expect QTL revenue to be between $1.3 billion and $1.5 billion, with an EBT margin of 70% to 74%. The QoQ growth is driven by the growth in global smartphone sales during the holiday season. In QCT, we expect revenue to be between $7.7 billion and $8.3 billion, with an EBT margin of 26% to 28%. We expect double-digit percentage growth in QCT's mobile revenue MoM, and we expect IoT and automotive revenue to decline in line with last year.

2. Qualcomm conference call original text:

2.1 Management statement

"In the fourth fiscal quarter, we achieved non-GAAP revenue of $8.7 billion, exceeding the upper limit of our non-GAAP EPS guidance by $2.02. Our chip business revenue was $7.4 billion, reflecting a more stable Android phone environment.

"Revenue from licensing business was $1.3 billion. In this quarter, we also made significant progress in our leading technology and product roadmap while improving operational efficiency. We remain fully focused on future growth and diversification opportunities. Now let me discuss the key highlights of this business.

"As we enter the era of generative artificial intelligence, we are seeing unprecedented pace of innovation. Gen AI on devices and Gen AI in the cloud are developing in parallel, enabling new use cases. It has the potential to change the way we interact with devices, making user experience more natural, intuitive, relevant, and personalized, while enhancing real-time, privacy, and security. We have rapidly positioned Qualcomm as a leader in the Gen AI field for smartphones, next-generation laptops, XR, and automotive proprietary devices, and we are well prepared to benefit from this opportunity." We expect high-performance AI on the device side to be in demand in the coming years, driving content, units, or both. Our Snapdragon platform has a high degree of differentiation from its competitors. First, we have significantly improved the AI processing performance and efficiency of our top-notch NPU, CPU, and GPU. Second, we are collaborating with multiple partners and ecosystems to enable a large number of consumer and productivity-based AI models to run natively on our platform.

Third, we enable the continuous concurrent execution of Gen AI models with billions of parameters for multiple use cases, including multimodal ones. For example, in the latest Snapdragon 8 Gen 3 smartphone platform, state-of-the-art large-scale language models with up to 10 billion parameters can run at a speed of 20 tokens per second. In large vision models such as stable diffusion, text can be generated into images in less than a second with ultra-low power consumption. As Gen AI running on devices becomes more prevalent, we believe it will bring one of the most significant changes in user experience, similar to the transition from feature phones to smartphones and the introduction of PC graphical user interfaces.

Snapdragon will play a crucial role in this transformation. With the release of the Snapdragon X Elite platform, our expansion into the PC field has also reached an important milestone. It is the result of our relentless pursuit of creating the ultimate intelligent computing experience and establishes Snapdragon as an industry leader in performance and efficiency. Snapdragon X Elite includes our first-ever custom Orion CPU, which outperforms any x86 or ARM competitor in multi-threaded CPU performance.

It also matches the peak performance of a leading x86 CPU competitor's single-threaded CPU while reducing power consumption by 70%. Additionally, our premium integrated Adreno GPU performs twice as fast as competitors at ISO power or matches their peak PC performance (74%) with lower power consumption. Snapdragon X Elite is also equipped with our latest Hexagon NPU. The Hexagon-NPU boasts top-tier performance with 45 TOPS, capable of running Gen AI models with over 13 billion parameters on devices. The AI overall performance of Snapdragon X Elite across CPU, GPU, and NPU reaches 75, the highest in the industry.

Microsoft is redefining the entire Windows experience with AI Copilot, and Snapdragon X Elite has been rebuilt for this opportunity. We expect leading OEM manufacturers to launch PCs with Snapdragon X Elite starting from mid-2024. The convergence of physical and digital spaces remains a significant opportunity for Qualcomm's future, and we recently introduced the Snapdragon AR1 platform, our first dedicated platform for smart glasses. AR1 Gen 1 is developed in close collaboration with Meta to support the new Ray-Ban Meta smart glasses.

It is equipped with a dual ISP camera system for capturing high-quality photos and videos, as well as powerful on-device AI for image enhancement, real-time translation, visual search, and more. We are working with Meta to develop next-generation technologies that will shape the future of spatial computing. The strength of this long-term partnership is evident in the AR1 Gen 1 and the previously released Snapdragon XR Gen 2, making Snapdragon the preferred platform for leading VR, MR, and AR designs in the industry.

In the realm of networking, we continue to be the global leader in enterprise and home networking, as well as broadband gateways. Our WiFi 7 solutions have already won over 350 design victories across all categories and have garnered widespread attention. We have recently announced several new partnerships, including collaborations with Charter Communications in the United States and EE in the United Kingdom, both of which are preparing to launch next-generation WiFi 7 connectivity to residential and small-to-medium business customers.

We are excited about the launch of our fiber gateway platform, which adds 10 Gb passive optical networking capabilities to our product portfolio. In addition to 5G and WiFi 7, we are now the leader in next-generation broadband solutions with the power of fiber. Furthermore, our unique Service Defined WiFi technology is a hallmark feature introduced in our WiFi platform, providing a unified data flow management architecture from the cloud to the device. It offers orchestration, classification, scheduling, and insights for end-to-end management of home networks and real-time optimization across devices.

In the automotive field, the industry's digital transformation is bringing new levels of computing, intelligence, and cloud connectivity to vehicles. These trends are driving advancements in user experience, driver assistance, autonomy, and safety. With vehicles gaining the ability to evolve through wireless updates and digital services, they also present new revenue opportunities. Vehicles are becoming the software-defined center of this transformation, as defined by Snapdragon Digital Chassis.

We are pleased that our Digital Chassis solutions will bring advanced capabilities to the upcoming Cadillac Escalade IQ, which is planned for commercial production in 2024. The Cadillac Escalade IQ will feature Snapdragon Cockpit, Snapdragon Alto Connectivity, and Snapdragon Ride platforms. Additionally, we are proud of our partnership with BMW for all their vehicles and the upcoming Neue Klasse. We are also excited to see that starting with the 2024 E-Class sedan, Snapdragon Digital Cockpit and Connectivity solutions now support the all-new Mercedes-Benz user experience. We have recently expanded our digital chassis product and launched two new platforms for two-wheeled vehicles and other vehicle categories such as motorcycles, electric bicycles, scooters, and all-terrain vehicles. Our new platform design has gained support from companies like Gogoro, Harley-Davidson, and others, and the ecosystem has received positive feedback, proving their ability to drive technological development and bring new user experiences to these vehicles. Finally, we announced a new long-term partnership with Amazon Web Services, enabling automakers to integrate cloud technology into their vehicle development lifecycle. This product combines the Qualcomm Cloud AI 100 solution, our Snapdragon Ride platform, and AWS's extensive services and features.

This will drive the future of software-defined mobility and change the way vehicles are designed and developed. In the mobile field, we have released the latest high-end mobile platform - Snapdragon 8 Gen 3, which provides industry-leading performance and extraordinary experiences for consumers in the upcoming third generation of the AI era. Some key features include intelligent capture with the world's smartest AI camera, console-level gaming with ray tracing through global illumination, studio-quality audio, the world's first XPAN technology, and best-in-class connectivity for AI on-device processing on the world's fastest devices. We look forward to global OEM manufacturers and smartphone brands (including Xiaomi, Honor, OPPO, Vivo, OnePlus, Sony, etc.) launching flagship devices powered by Snapdragon 8 Gen 3.

In addition, we recently signed an agreement with Apple to provide Snapdragon 5G modem RF systems for smartphones to be launched in 2024, 2025, and 2026. And - this agreement solidifies our ongoing leadership in 5G technology and products. We are proud of our continued partnership with Apple. Looking ahead, our technology roadmap has never been stronger, and the fundamentals of Qualcomm's growth momentum remain unchanged, with significant opportunities in the coming years.

FY23Q4 Finance

We achieved non-GAAP revenue of $8.7 billion and earnings per share of $2.02, exceeding the upper end of our guidance. QTL revenue was $1.3 billion, with an EBT margin of 66%, in line with our expectations.

QCT achieved revenue of $7.4 billion, with an EBT margin of 26%, close to the upper end of our guidance for strength in mobile and automotive revenue. Mobile revenue reached $5.5 billion, a 4% increase from the previous quarter and higher than expected, benefiting from the early stages of Android demand recovery. IoT revenue was $1.4 billion, a 7% QoQ decline, with weak industrial IoT demand. Automotive revenue grew 23% QoQ to reach $535 million, achieving double-digit YoY growth for the 12th consecutive quarter. Non-GAAP operating expenses decreased 1% MoM to $2.2 billion. Before turning to guidance, I will summarize our performance for FY23. Despite the challenging macro environment, we achieved $36 billion in non-GAAP revenue and earnings per share of $8.43. We remain focused on expanding our technological leadership and driving strategic priorities for revenue diversification, while taking significant measures to improve operational efficiency.

We continue to maintain strong momentum in the automotive sector, achieving record-breaking revenue of $1.9 billion, a YoY growth of 24%, and moving towards our goal of exceeding $4 billion in revenue by 2026. We exceeded our cost action targets for FY23, with a 7% reduction in non-GAAP operating expenses compared to the exit rate of FY22, fulfilling our commitment to managing cost structures in the current operating environment. Our business continues to generate strong free cash flow, reaching a record-breaking $9.8 billion. Finally, our balance sheet remains strong with $11.3 billion in cash and marketable securities.

FY24Q1 Guidance

We are seeing early signs of stable global demand for 3G, 4G, and 5G smartphones. We now estimate that smartphone sales for FY23 will decline by a mid-to-high single-digit percentage compared to FY22, which is an improvement from our previous expectations. For the first quarter of 2024, we expect revenue to be between $9.1 billion and $9.9 billion, with non-GAAP earnings per share between $2.25 and $2.45.

Furthermore, we expect QTL revenue to be between $1.3 billion and $1.5 billion, with an EBT margin of 70% to 74%, driven by the growth in global smartphone sales during the holiday season. For QCT, we expect revenue to be between $7.7 billion and $8.3 billion, with an EBT margin of 26% to 28%. On a MoM basis, we anticipate double-digit percentage growth in QCT smartphone revenue, and we expect IoT and automotive revenue to decline in line with last year. The QCT smartphone revenue forecast includes the benefit of normalizing Android channel inventory and higher demand due to the accelerated launch of flagship products powered by our newly released Snapdragon 8 Gen 3 mobile platform.

It is worth noting that the QCT smartphone forecast includes a MoM revenue growth of over 35% from Chinese OEMs. Additionally, the QCT IoT revenue forecast reflects industry-wide cyclical factors discussed earlier, including declining demand and increased channel inventory. Finally, we expect non-GAAP operating expenses to remain flat for the fourth quarter. As we enter FY24, the early signs of stable smartphone demand and our strong competitive position in revenue streams are encouraging.

Key industry trends such as heterogeneous mobile computing and device-side generation provide a solid foundation for content growth and expansion into new device categories, presenting growth opportunities for Qualcomm. Lastly, I want to thank our employees for their hard work and dedication, as they continue to focus on execution and delivering industry-leading products.

2.2 Q&A

Q1: When looking ahead 12 to 18 months, what should investors focus on to further validate your expectations of success or revenue from the trend of monetization, and what can investors truly consider as milestones?

A1: At the technology summit, we announced the investment results in Gen AI. Gen AI on devices is developing in parallel with the cloud. It will have a significant impact on how you change the user experience.

Every text message you send, every test you write can be an input to the model, which can predict your behavior and bring other applications. We demonstrated many use cases. Many other original equipment manufacturers are developing them.

From large language models to large visual models, there are many different models. First, Qualcomm's unique position, we have many such models running natively on one platform. We are also creating a model for Snapdragon. You saw the announcement from Microsoft on Meta, what we are doing on Android, and what we are doing with our Chinese partners.

In the long run, we significantly improve the processing performance of artificial intelligence in devices or NPUs. It will have silicon content, which will have an impact on combinations and all units. With the development of use cases and the launch of flagship products in 24 years, it may start, but it may become very important when you look ahead two to three years.

Q2: When considering seasonal factors after the fourth quarter, how should we consider the progress of your market share with Samsung? How does this affect the typical seasonality from the fourth quarter to the first quarter of next year?

A2: I think the first data point we provided in our cautious commentary is from the fourth quarter of the fiscal year to our guidance, we saw total revenue from Chinese OEMs grow by 35%, both in China and outside of China. I think this indicates that our customers are in a favorable position, even in the face of new market entrants. This is also an advantage of our stable market roadmap. The second question is about Samsung. We are satisfied with our partnership with Samsung. GS 24 is about to be launched. We expect to occupy the majority of the market share. Our products are really great.

We may have one of the best product roadmaps in the company's history, especially in terms of Gen AI processing capabilities. And the products are getting better and better. We are excited to talk about what we are doing with the new Oryon CPU on PCs. The CPU will soon enter the mobile field.

Especially in 25 years, I think we have higher expectations for the development of Gen AI. Therefore, the roadmap will get better over time. Overall, we have a positive attitude towards our relationship with Samsung.

Q3: If you could talk about the situation with Huawei and how you view its impact on the Chinese market? A3: I believe that we have made it clear that we have no plans to sell our 4G SoC to Huawei. Looking ahead, we don't expect it to make any sense. I think Huawei's contribution is very small.

That's why I provided the 35% data point, because when Huawei launched this device, what we saw from our customers is that our Android business continued to grow. We saw an improvement in our customers' shift towards flagship products, which is reflected in our numbers. So I don't think this will change the trajectory of our development with Chinese Android customers. I think Huawei may be upgrading their existing customer base.

There is one data point that shows that there are about 100 million former Huawei customers who have been using Huawei phones for four to five years, which could have an impact on TAM growth.

Q4: Can you give us an update on the latest situation? What have you seen from the ISV ecosystem? And what parts of the PC market do you think your products have potential in?

A4: First of all, we are extremely proud of the achievements of our team. I think Snapdragon X Elite is leading the way in this field in any mobile computing device.

We are very satisfied with the performance of the new CPU, including single-threaded and multi-threaded performance. But not only that, I think it is important to emphasize the AI processing capabilities. If you compare the announcements of NPU or some other ARM competitors, we will find that we have 45 top-level performance on the NPU total performance of X Elite, reaching 75 million. This is consistent with Microsoft's shift towards Windows AI in the future, especially with the new service Copilot and everything we have done with Microsoft on device AI, both on the device and on the cloud and Azure endpoints.

We are excited about this. You should start thinking about the PC business, just like the automotive business. We are focused on the next generation of PCs, not the existing ones, and with the shift of these Windows towards Windows AI and the launch of our platform, it creates opportunities for us to scale up. Specifically to your question, Microsoft has been very proactive in working with us to localize many applications to this platform.

I think we have made significant progress in the consumer aspect of our business applications. You continue to see announcements in Windows 11 that can run every x86, 32-bit, and 64-bit Microsoft emulation. We have also made significant progress in emulation performance. So I think Snapdragon X Elite represents the result of Microsoft's collaboration with Qualcomm, and I will say at the end of the answer that if you look at the announcements of other computing companies about having ARM-based PC processors, you can verify that this is now our TAM. It will become part of Qualcomm's TAM expansion.

Q5: How should we consider the level of operating expenses planned for this year? Are there any more areas to cut? Or do you think it will remain flat after a good start this year?

A5: We are pleased that our target for fiscal year 23 is a 5% reduction compared to fiscal year 22, and our target is 7%. As we have continued to mention, we are committed to operating discipline, and we have indeed taken additional actions this quarter.

The way we manage our investment portfolio is actually about reducing costs while ensuring continued leadership in technology and diversification. This is the balance we are trying to achieve. Looking ahead for the remainder of this year, we are once again committed to maintaining operating discipline as we move forward. I think from the perspective of operating expenses, we are in a very good position, we are investing in the right areas, and we will focus on those that scale.

Q6: How should we view the increase in dollar content per device for Qualcomm or the growth in ASPs corresponding to the high-end Snapdragon you sell today?

A6: The way we think about this is not to provide specific dollar content, but it has a mix improvement. It will drive a richer portfolio of high-end devices. Its ASP has improved, particularly due to the acceleration of AI performance, and we also combine it with significant progress in CPU and GPU.

And it has the opportunity to drive units where there is a new upgrade cycle or share gain.

Another thing to keep in mind is outside of smartphones, when we talk about the opportunity in personal computers, of course, our AI leadership becomes extremely important there. Then, in the IoT space, we believe Gen AI will be a key technology of the future. It will expand our addressable market and increase the revenue per device in that space. So, it's a broader area for us, including cars with ADAS, IoT, and PCs.

Q7: Can you give us an overview of the seasonal put and call options for the third quarter? How should we expect and think about seasonality?

A7: We do expect the first and fourth quarters to be the strongest quarters of the year. As you know, the third quarter is typically a lower quarter for us as we do not release flagship phones in that quarter.

But when you take a step back and look at us entering fiscal year 24, we are very encouraged by the early signs of stability in the global smartphone market. So, with the stabilization and normalization of Android channel inventory, we are cautiously optimistic. We are on a strong growth trajectory for this year.

Q8: I would like to ask about the situation with the new Apple agreement. How should we think about the situation in 24 and the release situation in 24 and 25? Are we assuming that you have already secured close to 100% of the majority of units and then drop to 20% for modeling purposes when it is released in 26? A8: You should consider the new agreement without getting caught up in the specific details. This framework is very consistent with the previous agreement. It covers three releases: the 24-year release, the 25-year release, and the 26-year release. This framework is in line with our previous framework.

For financial planning purposes, we are taking the same approach as the previous agreement, which you mentioned last year as 20%. We are planning as if we will receive a 20% share. However, if we receive more than that, it will be advantageous for our plans.

Q9: I would like to delve deeper into the automotive and Internet of Things (IoT) aspects.

A9: The year-on-year trend in the automotive and IoT sectors from the third quarter to the fourth quarter will remain consistent with last year. So, if you look at last year, I believe the automotive industry declined by 1% or 2%. Therefore, we are actually guiding for a decline of 1% or 2% or flat in the automotive industry.

Clearly, our performance in the third quarter was very strong. Our business momentum continues to accelerate. The product roadmap is great. As outlined by Cristiano in his prepared remarks, our relationships with customers are also very solid.

Therefore, we remain optimistic and are successfully executing our long-term financial goals. From the perspective of the IoT, the same guidance remains consistent with last year, which is the trend we see between the third quarter and the fourth quarter. In fact, when you consider the IoT, we will see some factors similar to other industry participants, such as soft demand plus channel inventory. Looking ahead, we believe the first quarter will be the bottom for the IoT this year.

We expect to strengthen from there. Especially as we enter the second half of this fiscal year, as the environment normalizes and the attractiveness of our products increases, we believe our IoT performance will be strong.

Q10: I would like to inquire about the follow-up situation regarding gross margin. It seems to have opened up new TAM (Total Addressable Market) beyond the mobile device end, which may increase the TAM content for the mobile device end. Is the magnitude of the increase in gross margin roughly the same? What are the put options and call options when we translate all of these into profitability?

A10: In the short term, our performance in the third quarter was very good, and we are providing guidance for the fourth quarter. I think your question is more about the long-term opportunity to expand gross margin as we enter these new areas. We absolutely agree that there is an opportunity to expand profit margins as we expand into external areas beyond mobile devices, especially in the automotive and IoT sectors.

As we scale up in markets such as automotive and certain areas of the IoT (such as personal computers and XR), there is also an opportunity for operational profit efficiency because our R&D leverage is high, especially in the computing and connectivity segments.

Therefore, the larger our scale, the more our profit margins may continue to increase. I would like to make a brief comment on your IoT question. You should pay attention to the dynamics of RRT (Revenue Recognition Timing), as not all IoT is the same. I believe there are many things in our IoT. Therefore, the existing business will be affected by some inventory dynamics, but there are also new growth opportunities. One of them - I want to remind everyone that the PC is there, which may play an important role in the 25th fiscal year. If you consider the X Elite device launched in the second half of 24, you will find XR, which is still in the early stages of this opportunity. It has a network. We have fiber.

Therefore, I believe that our current positioning is to expand the network through fiber optics and 5G, and WiFi 7 is positive. Next, it still has the opportunity to transfer processing to the edge through the Internet of Things. Therefore, we will - these businesses are less affected by some cyclical dynamics that we currently see in existing businesses.

Q11: How do you view global smartphone sales in the next fiscal year? In addition, considering the new products you are launching here, how should we view Qualcomm's ASPs as we progress into our next fiscal year?

A11: We have seen early signs of stability in the smartphone market (including China). For 2023, we now expect mid to high single-digit growth compared to 2022, which is an improvement over our previous situation. Looking ahead to 2024, recent demand stability clearly provides positive preparation for us entering this year.

Therefore, we are cautiously optimistic about the results of 2024. But especially in terms of 5G devices, this is indeed our target market, and we expect high single-digit to low double-digit growth from 23 to 24. This is the market we are pursuing, and we believe there will be growth opportunities next year. From the perspective of ASP, due to all the factors we discussed in the previous conference call, the functionality of chips is becoming more and more powerful, especially Gen AI. We believe we are on a good track to continue expanding our ASP, consistent with the trend of the past three years.

Therefore, if you look at the trend of the past three years, we have been increasing by about 10% on any level of chipsets every year. We believe that looking ahead, we have the opportunity to do this.

Q12: The European Commission has proposed regulations around standard essential patents, which may reduce the value of these patents. How serious do you think the risk is? Are there any other significant developments in other regions?

A12: In fact, this proposed regulation has multiple parts, ranging from the desire to improve the transparency and ownership of standard essential patents, to other issues related to pre-litigation procedures and regulations that will affect licensing and resorting to court procedures. The European Union is currently in what they call a "trilogue" process. It will take some time for the Parliament to get it passed, and member states will express their opinions. The Commission will also express its opinion.

The European Patent Office is actually opposed to parts of this regulation. Of course, Ericsson and Nokia are also involved. Therefore, this will be a rather messy legislative process that will take several years to sort out. Other jurisdictions are also following suit. We are closely monitoring the situation in the United States. I believe that the United States Patent and Trademark Office has had a certain negative impact on this, and China is also paying attention to this situation. Therefore, this will take effect in the next few years.

It is not uncommon for different jurisdictions to implement various policies and measures related to standard essential patents.

Q13: With the growth you have seen in your business in China, how much of it do you think is related to inventory normalization rather than actual unit growth in the end market? And what does this mean for QTL as it has also been somewhat sluggish due to the decline in the smartphone market? As we enter next year, what should we expect?

A13: Our view on the smartphone market is that we have seen market stabilization and we are forecasting the future, especially the fourth quarter and QTL guidance, representing something stable in the market. Therefore, our midpoint guidance is $1.4 billion, an 11% QoQ growth.

As for the breakdown of QCT's revenue growth between inventory and the market, it is obviously a bit difficult to exceed one quarter. But we do believe that inventory is an important component and the market is indeed stabilizing. In addition to our market share position and the revenue growth brought by the increase in content with new chips, inventory has indeed driven most of the improvement.

Q14: My question is actually about the outlook for Android smartphones in fiscal year 24. Looking only at fiscal year 24, can you provide us with a framework to understand whether Qualcomm can increase Android smartphone sales in fiscal year 24?

A14: We do not currently provide full-year guidance. We have provided guidance for the first quarter and I have also provided an overview of how we expect the entire company to perform this year. I think these suggestions should give you an understanding of our outlook for the year.

Q15: As for your operating expense plan for fiscal year 24, we see a decline in sales in fiscal year 23 and a significant decline in operating profit in fiscal year 23. How do you view operating expenses for fiscal year 24? And considering the put options and income here, how should we view next year's expense plan?

A15: Throughout fiscal year 23, we have taken multiple actions to reduce costs. As I mentioned this quarter, we have taken additional actions. Therefore, our idea is how we can maintain operational discipline while continuing to invest in diversification initiatives that are critical to the company's future development.

Q16: Huawei has now announced a target of 100 million units, compared to the previous target of 60 million units. What is your view on the market share in the Chinese smartphone market? In which areas do you excel? And which areas do you think will see more competition?

A16: We have seen an increase in our sales share both globally and in China. We will continue to retain the majority of Samsung's share. We feel good about the development of this relationship.

We have seen the attractiveness of the high-end and premium markets for Chinese original equipment manufacturers. Despite the successful launch and initial sales of new products, I still think so. This is also reflected in the 35% QoQ growth. The current competitive environment is no different from what we have experienced in the past. In fact, if you take a look at our current products and look ahead to the future, we believe that our competitive differentiation is actually accelerating, whether it is our custom CPUs entering our smartphone product line or Gen AI and other factors that make us stand out. We are confident in moving forward and from a competitive positioning and content enhancement perspective, we are in a favorable position.

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