Qualcomm Inc (QCOM) — Q3 2023 Earnings Call Transcript

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon.

Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In our fiscal Q3, we delivered results consistent with our guidance with non-GAAP earnings of $1.87 per share, above the midpoint of our guidance. We recorded fiscal Q3 non-GAAP revenues of $8.4 billion, including $7.2 billion from our chipset business and $1.2 billion from our licensing business. This quarter also marked our 11th straight quarter of year-over-year double-digit percentage growth in QCT Automotive revenues. We are pleased with our technology, product and design win execution, positioning us well for continued leadership enhancements and future growth and diversification in automotive and IoT. I will now share some highlights from across the business. Our Snapdragon Series mobile platforms continue to set the benchmark for premium tier mobile experiences. Smartphones powered by our Snapdragon 8 Gen 2 represent the top devices according to Antutu benchmarks in Android Authority. We are also pleased that the Snapdragon 8 Gen 2 for Galaxy will again power Samsung's newest flagship device lineup globally. The Galaxy Z Flip, Galaxy Z Fold 5, and the Galaxy Tab S9 series. Our fastest Snapdragon ever for Samsung defines a new standard in smartphone computing capabilities AI experiences, desktop-level gaming features, professional-grade photography, enhanced mobile productivity, and more. This launch underscores Qualcomm and Samsung's mutual commitment to delivering premium consumer experiences for flagship Galaxy devices. We are extremely proud of our successful partnership with Samsung Mobile. We are also pleased to extend Snapdragon experiences to mass-market 5G smartphones. The redesigned Snapdragon for Gen 2 mobile platform will bring premium experiences at reduced prices to help drive 4G to 5G migration, especially in new 5G deployments worldwide. We're looking forward to device announcements in the second half of 2023. In automotive, we hosted our first Automotive Summit in Suzhou, China, with more than 1,000 automotive OEMs, Tier 1s, ecosystem partners, media, analysts, and government officials in attendance. The broad participation at the event demonstrates Qualcomm's strong position as a technology partner to the growing automotive ecosystem worldwide, especially EVs as well as Snapdragon digital chassis technology and product leadership. We also won more than 10 new designs with leading automakers across the globe for next-generation digital cockpit and telematics systems. In Consumer IoT, the recently announced Meta Quest 3 is the first virtual and mixed reality headset to be powered by a next-generation Snapdragon XR platform developed in collaboration with Meta. The Quest 3 features 2x the graphical performance, higher resolution, and a slimmer, more comfortable form factor than the Quest 2. We're also helping to drive the growing ecosystem of VR and MR developers in China. Oppo recently announced their Oppo MR Glass Developer Edition, powered by Snapdragon XR2. And in compute, our next-generation PC platform with integrated custom Orion CPUs in a significantly upgraded AI engine remains on track for commercial readiness. We look forward to sharing more information at our Snapdragon Summit in October. In networking IoT, we continue to gain momentum with WiFi 7 customer design wins. As an example, TP Link expanded its retail small and medium business lines by launching 5 new routers spanning indoor and outdoor deployment scenarios, all based on Qualcomm networking Pro WiFi 7 platforms. Lastly, we're very pleased to share that we have begun shipping our fixed wireless access solutions in support of Reliance's upcoming 5G FWA service in India. In industrial IoT, we launched a video collaboration platform suite, which provides OEMs choice and flexibility for the design and deployment of immersive video conference devices across conference rooms, healthcare settings, and at-home video calling with friends and family, enabling Windows, Android, and Linux on our platforms offers the ability to customize and deploy videoconferencing products across diverse environments. Additionally, our platforms offer industry-leading AI-based noise suppression and dynamic framing. We also launched the QCS 8550 and QCS 4490, our first software-defined IoT solutions at Hannover Messe. These solutions enable next-gen smart cameras, drones, robotics, cloud gaming, industrial handhelds, panels, point-of-sale devices, and more. Lastly, together with Arrow Electronics, we announced a strategic collaboration to accelerate edge and AI adoption to form Edge Labs, an Arrow center of excellence designed to help customers alleviate IoT development challenges while increasing adoption of edge AI across a variety. We have an update on our progress in Generative AI since the last call. We're very pleased and encouraged by the rapid acceleration of Gen AI at the edge. This presents a significant opportunity for Qualcomm across our end markets. Use cases at the edge are evolving differently than the cloud given the inherent context, immediacy, privacy, security, application reliability, and personalization capabilities available on-device. For example, in handsets, models such as Stable Diffusion and Control Net are changing user experiences for content creation and photography. Large language models embedded in the user interface can also enable enhanced virtual assistance. In personal computing, real-time copilots can bring significant enhancements to productivity and creativity, the benefits of which are well understood and very compelling for enterprises across industries. We believe the automotive industry will use some of the most advanced edge AI capabilities from large language models for personalized and curated content and services, driver and occupant monitoring, and AI virtual assistance for contextual search. ADAS and autonomy applications can be enhanced by the fusion of data from cameras and other sensors for combined real-world perception, drive path prediction, and more. We're helping enable these capabilities and expect Gen AI use cases to extend to XR, edge networking, and industrial IoT. Within the quarter, we expanded our collaborations across the ecosystem, and we are engaged with multiple hyperscalers, OEMs, and ISVs. Notably, we recently announced a collaboration with Meta on Llama 2-based AI implementations on flagship smartphones and PCs that will enable developers to create new and exciting Gen AI applications using the AI capabilities of Snapdragon platforms beginning in 2024. Together with Meta, we're working to optimize the execution of Meta's Llama 2 large language models directly on-device. We also announced a focused collaboration with Microsoft to scale AI capabilities and bring best-in-class AI experience to users across consumer, enterprise, and industrial devices. At the Microsoft Build Developer Conference, our own device, Stable Diffusion, was showcased on a Windows on Snapdragon-powered laptop. We're also working with them to enable a host of productivity-based applications with multiple large models running on the device. As part of this collaboration, our AI engine direct SDK is now available to Windows developers to easily accelerate their AI apps on Snapdragon compute platforms. This marks a significant milestone. In summary, we are uniquely positioned to help shape and capitalize on the upcoming on-device Gen AI opportunity. Our AI technology is highly differentiated with best-in-class high-performance, low-power heterogeneous computing across our CPU, GPU, and NPU. And a multibillion parameter Gen AI models run pervasively and continuously on-device; we believe our NPU's unparalleled AI processing performance and power efficiency will become a requirement. We look forward to sharing more about our Gen AI capable products at Snapdragon Summit in October. Before I turn the call over to Akash, I would like to provide an update on how we are managing our business in the current macroeconomic environment. We remain focused on executing our strategy and prioritizing capital and resource allocation on our future growth and diversification opportunities. Simultaneously, we are focused on long-term operating margin targets, all while maintaining technology leadership across wireless connectivity, high performance, low power processing, and artificial intelligence. To that end, we're taking a conservative view of the market, and we'll be proactively taking additional cost actions to ensure Qualcomm is well positioned to deliver maximum value for stockholders in an uncertain environment. I would now like to turn the call over to Akash.

Thank you, Cristiano, and good afternoon, everyone. I'll start with our third fiscal quarter results. We delivered non-GAAP revenues of $8.4 billion and EPS of $1.87, which was above the midpoint of our guidance. QTL recorded revenues of $1.2 billion and EBT margin of 66% reflecting slightly lower-than-expected global devices. QCT revenues of $7.2 billion and EBIT margin of 24% were consistent with the midpoint of our guidance. Handset revenues of $5.3 billion reflected the industry landscape we have previously outlined. IoT revenues increased 7% sequentially to $1.5 billion, driven by consumer and industrial IoT customers. We saw continued momentum in automotive for our Snapdragon digital chassis products with revenues of $434 million, a growth of 13% year-over-year. Non-GAAP operating expenses were flat sequentially at $2.2 billion. We have successfully executed on our fiscal '23 cost actions and are on track to exceed our commitment of a 5% reduction relative to fiscal '22 exit rate. During the quarter, the sale of Veoneer's active safety business to Magna was completed for net cash proceeds of $1.5 billion. Before turning to the fourth fiscal quarter guidance, I'll update you on global 3G, 4G, 5G handset units and channel inventory. We continue to estimate that calendar 23 handset units will be down at least a high single-digit percentage relative to calendar '22, reflecting the macro environment and a slower recovery in China. This forecast contemplates growth in handset units going into the holiday season. In IoT, channel inventory remains elevated due to weaker demand driven by the broader macroeconomic conditions. Since it remains difficult to predict the timing of a sustained recovery and customers remain cautious with purchases, we continue to operate under the assumption that inventory drawdown dynamics will be a factor through the end of the calendar year. Turning to guidance for the fourth fiscal quarter. We are forecasting revenues of $8.1 billion to $8.9 billion and non-GAAP EPS of $1.80 to $2. In QTL, we estimate revenues of $1.15 billion to $1.35 billion and EBT margins of 64% to 68%, driven by a slight sequential increase in global handset units. In QCT, we expect revenues of $6.9 billion to $7.5 billion and EBT margins of 24% to 26%. This forecast is consistent with our prior guidance of muted seasonality in QCT revenues primarily due to the timing of purchases by a modem-only handset customer. On a sequential basis, we are forecasting Android handset revenues to be roughly flat with mid-single-digit declines in IoT and low double-digit growth in automotive. Lastly, we expect non-GAAP operating expenses to be approximately flat relative to the third quarter. As we approach fiscal '24, our revenue growth will largely depend on macroeconomic environment, global handset units, and the China recovery. In the first fiscal quarter, we expect 2 drivers of sequential revenue growth: QTL seasonality and handset launch by a modem-only customer. In addition, we expect a sequential decline in IoT and automotive revenues, consistent with the seasonal trend we've seen in the last couple of years. As you will recall, we had previously communicated we would evaluate additional cost actions as the environment continues to evolve. Until we see sustained signs of improving fundamentals, our operating framework does not assume an immediate recovery. Given our commitment to operating discipline, we will proactively implement additional cost actions in the first half of fiscal '24. This will be incremental to the reductions we have successfully completed in fiscal '23. Despite these actions, we will preserve investments in our strategic priorities and position ourselves to emerge stronger as the recovery from the broader industry begins to take hold. In closing, we remain focused on executing on our vision to bring connectivity, high-performance, low-power computing, and on-device generative AI to the edge. Our guiding principles remain the same: prioritize technology leadership, accelerate diversification, and drive earnings growth to create value for our stockholders. This concludes our prepared remarks. Back to you, Mauricio.

Thank you, Akash. Operator, we are now ready for questions.

Akash, I guess for my first question, you were kind enough to give us a little bit of color in your prepared script just now on December and went through a few things there pretty quickly. So I wanted to double-click on a few. Maybe you could recap for us just the trends you expect in handsets versus IoT and auto that you gave. And in particular, you talked about some seasonality being better in the fourth calendar quarter in the handset market, but that inventory burn was still going to be part of the dynamic. So if you could talk through that in a little bit more detail, what kind of magnitude are you expecting for the industry in the fourth quarter? What's built into your estimates? And is the inventory burn just an Android dynamic? Or do you think that the pre-purchases from Cupertino are still an effect in the December quarter?

Sure, Matt. So there was a lot in there. I'll try to unpack it. Let me divide it into parts. So first, starting with the market. Our forecast does assume sequential growth into the December quarter as we go into the holiday season. From a financial perspective, consistent with historical years, we typically have 2 significant drivers of growth going into December from September. First is QTL, and we expect to see that growth as the market grows as well. And then second is handset launched by a modem-only customer. Off of the base we have in September, we expect to see that growth as well. So those would be the 2 significant growth drivers into the quarter. From an IoT and automotive perspective, if you look at the last couple of years, we've seen a trend of a slight decline in both areas quarter-over-quarter from September to December. So we just think the same seasonality will play out; not something that goes beyond that. It's just a normal timing that we've seen in the market in the past. Maybe the last comment I'll say is our forecast for the September and December quarter does assume no material revenues from Huawei. As you are aware, we have a 4G license for shipping into Huawei. We do not have a 5G license, and we are not assuming any material revenue going forward. So hopefully, that covers all the different parts.

I have a couple of questions, but maybe Akash, we can begin with your comment on the calendar fourth quarter. Looking back at the seasonality from previous years, there seems to be a wide range, possibly around 10% or even higher in the double digits. Could you elaborate on your smartphone outlook, specifically regarding the expected recovery in volume for the December quarter? How does that compare to the typical seasonality observed in the past?

Yes. So Samik, maybe no additional comments to what I just said. I think if you look at our history, with the growth in the smartphone market, we see QTL grow with it. And so we expect a similar gain this year. And then I'd probably say similar to on the modem customer side as well, we'd see something similar to what we've seen in the past. So I think using historical trend as a way to model it going forward is a reasonable way of doing it for those 2 factors.

Okay. And for my follow-up, I mean, obviously, the inventory on the balance sheet did come down a bit, but how are you thinking about the opportunity here to sort of discount to clear some inventory of the balance sheet or even sort of from an investor's perspective or how should we think about the risk about inventory write-down if the recovery is sluggish for a period of time? How should we think about those drivers given that the inventory drawdown has continued for a longer-than-expected duration?

Yes. So Samik, obviously, our analysis is reflected in our results. We think you will understand the drivers that got us to the industry, the inventory balance. It's the overall industry being weaker. And with 6 months lead time, you're planning for a different market. And what we're comfortable with is that we have the inventory on the right parts. There is a long lifetime on it, and there's demand for it. So our latest analysis on the topic is reflected in our results.

Great. Cristiano, I just want to talk about the Snapdragon for Gen 2 that you talked about. How is the initial uptick in terms of Android demand from your customers looking at that? And do you think, given the supply-demand imbalance that you'll be able to now make gain share in 2024 as you move downstream on Android?

Mike, thanks for the question. So let me just start with the Snapdragon 4 Gen 2. What we like about it is it insource, the market needs to drive now the next wave of 4G to 5G migration. Just as an example, Xiaomi just recently launched the Redmi 12 5G smartphone yesterday in India at an ASP at USD 135. So we're very encouraged with now the ability to create this 4G to 5G migration. I think there are a number of markets now that are deploying 5G and developing economies. And as you pointed out, now we don't have supply constraint anymore at the last year. And our new product roadmap, we're encouraged about the ability to drive that 4G to 5G migration at those price points.

Just a quick follow-up, just on the IoT business. Can you give us just an update on the 3 segments or any of the segments doing better than others in terms of the inventory believe or the outlook that you provided?

Sure, Mike. This is Akash. I'll begin, and Cristiano may add some thoughts. In the short term, the IoT business is experiencing similar demand dynamics as seen with our peers, which is affecting channel inventory. We initially noticed weakness in the consumer sector, but it has also impacted other areas of IoT, particularly in China. However, we were pleased with our results for the June quarter, reporting an approximate 7% increase in revenue, driven by growth in both industrial and consumer sectors. It is challenging to predict the timing for recovery and the inventory adjustment, and we have mentioned it will be a consideration through the end of the calendar year. This sets the context for the short-term outlook on the IoT side.

Maybe the only thing I was going to add, Mike, as we indicated multiple times, there's a lot of things in our IoT segment. And there are some of those things that they have yet to materialize. I think we talk about our PC space, which we're excited about the new products we have been developing with our custom CPUs. We're still in the beginning of virtual reality. We're encouraged by now other players entering the market, which will ignite developer ecosystem. And I think lastly, on networking. We like the WiFi 7 design win pipeline that could materialize in a new cycle into the future. So as we outlined, there's a number of different things within that segment.

Hello. Sorry about that. I wanted to ask about gross margins. They seemed reasonably strong in the quarter even with revenues down. They seemed like maybe they were implied up a bit sequentially; the guide seems pretty stable into September. Can you give us any feeling for drivers of the margin pricing mix? You talked about some additional cost dynamics. I don't know if there's anything in there on the cost of goods side. Some of the dynamics there? And how should we expect that to evolve? Is it just mix that drives it going forward? Are there other things that we should think about?

Sure, Stacy. It's Akash. Yes, we did come in a little bit better than forecasted for the September quarter, and it was really primarily driven by a mix of products. We're guiding approximately flat margins going into September from June. And that's a reasonable way of forecasting our margins going forward as well. So we expect to be in the range as we go forward.

If I could ask one more briefly. Cristiano, you're talking a lot about AI and how that's going to contribute. How does AI actually contribute to the model going forward? Like are you anticipating that venture drives an upgrade cycle? Or is it more content? Or are ASPs for the chips fall less than they would otherwise? Like how do we think about how that actually drives the model as adoption happens?

Very good. Thanks for the question, Stacy. Look, I think I will unpack the answer to the question. And first of all, we're very confident of what we see happening at the edge. On-device, I think there's a number of reasons AI is developing on devices, a little bit different in the cloud. Everything that is real-time AI, always-on AI, context, latency, reliability, personalization. And I think that can apply to products across all of our end markets. When it will happen, we are going to announce a new set of products at the Snapdragon Tech Summit that are all going to be Gen AI-capable products that will be on phones, on computing products, and on all of the other segments in auto and IoT. We think the monetization will happen 2 ways, right? The easiest way to think about it is if our customers and our partners that are working with us. We mentioned a few in the prepared remarks, come up with the new use cases and you have an AI-capable smartphone, that changes the size of the phone market. It could create an upgrade cycle between 5G and 6G and change the size of the market, also improve the mix towards our product lines and ASP increases. For you to do device, Gen AI on device, you need a different computing platform. And that's what we have been doing with our NPU. I think it's probably unmatched by any of our peers in the ability to do high-performance AI pervasively and continuously at low power. And we look, those things could create an inflection point as hard to predict the timing, but we can see how it changes the mix and improves the ASP in our products.

I just have one question, one follow-up. On the December quarter soft guide that you gave, Akash, you talked about your modem-only customer having its typical seasonality in the fourth quarter, calendar fourth quarter. What is typical seasonality and/or your expectations for the Android side of things in that quarter?

Yes. So from an Android perspective, we expect the quarterly trend to be consistent with history. If you look at what typically happens for us in Android as we launch our new chips in the March quarter, and that's when the new premium tier chip comes out, and that's typically the stronger quarter for us. So it's really driven by timing of product launches. But fundamentally, when you look at our position within Android, even within '23, we've actually grown share of sell-through from '22 to '23. So we continue to be in a very strong position, and it's just the market dynamics that's kind of driving the cyclicality in the business.

And I guess as my follow-up, sticking with you, Akash, on the OpEx side of things, you talked about macro still being uncertain, and so you were going to take actions in the first half of year fiscal '24 on the cost side of the equation. Could you give us any more color on that? I assume it's largely on the OpEx side. You guys have been successful in hitting your 5% reduction, if not beating it exiting this year versus last. Any sort of quantification you can provide on what your expectations are for OpEx in that new cost-cutting plan?

Sure. Let me outline our current thinking. While I don't have specific numbers at this moment, we exceeded our targets in 2023. As we've mentioned previously, we will be continuously seeking further reductions as the situation develops. Therefore, we plan to take proactive measures in the first half of 2024. Our approach is to maintain our strategic priorities, make reductions in certain areas, and still have the flexibility to invest in new technologies, particularly in AI, while also continuing our diversification efforts. Ultimately, we are focused on aligning our investment portfolio with the company's future priorities.

Yes, as a first question, if perhaps you could talk a bit about mix, where is your mix sitting as compared to where it was last year? And obviously, the mix has skewed higher during times of supply constraints and now there's greater availability. So how is that affecting margins and revenue? And as things go forward, how do you expect that to change as well? I guess there's some concern that mix shifts down to perhaps some lower end of the portfolio as the 5G cycle matures and emerging markets tend to become a bigger part of the 5G mix.

Yes, Chris. It's Akash. If you look at the mix change, it's really happened through the year where we expanded our position in the lower tiers a bit, and it's already reflected in the comments I made earlier to Stacy's question on gross margin. So really no incremental comments to what I said earlier. As we look forward, one of the key opportunities for us is really how do we expand the ASP as just we're continuing to see incremental demand across all tiers for more capability in the chipset. And to Cristiano's earlier point with generative AI becoming so critical in edge devices going forward, it's going to drive an inflection point in terms of our presence there and our ability to expand content.

That's helpful. Just a follow-up question about geographic revenue in particular to the handset business. And we’ve been hearing about perhaps greater macro concerns in China as compared to elsewhere. In terms of normalizing the business and getting the global handset market back to where it once was. Is this mainly a situation where we need to see China come back and normalize? Or is it more of a global trend? What needs to improve in other words to get back to what used to be normal?

Yes, I’d say a couple of parts. So we’ve seen weakness across China and other emerging markets. Those are definitely the 2 areas. In developed markets, it has largely held. There is some smaller impact but not as much. I think the opportunity is really across the board. I think 1 is just from an overall replacement rate perspective, you could see that increase going forward driven by new technology cycles, but also within the emerging markets in China, you could see some normalization of return and demand as things stabilize. So those would be the opportunities. Just to be clear, in the guidance that we’re giving at this point, we are not including those, and that would be upside to our plan.

Akash, I have a quick question about smartphones. Some of your competitors are showing stronger fundamentals recently. For instance, MediaTek reported a 6% increase in smartphone sales in the June quarter and is predicting mid-teens growth for the September quarter. Qorvo also mentioned a significant increase expected in September. I understand there’s some weakness in other areas of QCT, but can you focus on the smartphone segment? How do your projections compare with those of your peers? Is the volatility mostly from Apple and Huawei, or do you think there are more fundamental issues at play? Additionally, Cristiano, earlier this year at Mobile World Congress, you mentioned that you were not expecting any business from Apple in 2024 due to the lack of orders. Has anything changed regarding your relationship with Apple, and how should we view this relationship beyond 2023?

Yes, Brett. I'll break down your question into two parts: Android and Apple. For Android, there hasn’t been any significant change in market share among competitors in recent months. However, when we compare our total sell-through share for 2023 to 2022, we have actually gained share within the Android market. This indicates that we maintain a strong position, and the seasonal fluctuations we see are tied to the timing of device launches and which market segments we target, particularly the premium and high-tier segments around the holiday season versus mid-year. Regarding Apple, as I mentioned before, we anticipate lower seasonal fluctuations in the fourth quarter due to when chipset purchases are made. Earlier in the year, Apple acquired additional chipsets, and we're now forecasting expected demand and shipments for the next quarter. This issue is more about timing rather than a fundamental market trend. We expect to hold a majority share in the upcoming launch, so it's not really a question of market share.

Brett, to your second question, for the iPhone that is launching this year, we are going to support the modem. We're not making any updates to our prior plans for 2024.

Yes, the auto market, we spoke a lot about the handsets. I have two questions related. The auto market was also weak. Can you give an update on why it grew 13% versus 16% Street expectations? But this 13% is also lower than what we have seen before. So can you talk about the trends there? IoT was in line with expectations, but it's still declining 24% a year. So what is the trend over there? And on the handset side, I'm just wondering if there was deterioration throughout the quarter or it was improvement throughout the quarter? Kind of what was the intra-quarter trend?

I understand. On the handset side, really largely in line with what we had expected. So no trend one way or the other. Auto, in our actuals, came in slightly below our expectations. However, if you see what we guided for the upcoming quarter, quarter-over-quarter growth, we're guiding low double-digit growth. So it's just timing between the quarters that's impacting it. Within IoT, I'd say very consistent with comments earlier in the call, it's really the overall environment and how it impacts demand and impact on inventory is what's reflected in our numbers, very consistent with what some of our peers have seen as well.

Akash, I wanted to clarify something you mentioned. You said that December should align with typical seasonality. However, I reviewed the seasonality patterns and found them to be inconsistent, making it difficult to define what normal means. How do you characterize normal seasonality for the sector?

If you break it down into parts. I think you look at QTL growth, we've consistently seen QTL grow as a result of a mix of devices and total market size. So that would be part one. The second is we've seen the handset market grow primarily due to the launch of a flagship device by a modem-only customer. And so we would see that as well. So those are the 2 factors that would drive a majority of our growth into the December quarter.

I had 2. So Akash, I'm wondering if you can provide more color just on these channel headwinds. You gave a $2 billion number, I think, for December and then that came down to $1 billion or it was supposed to come down to $1 billion in March. And it was supposed to have been gone by June. Obviously, it's not gone. Can you kind of quantify what the headwind is? And maybe also talk, is that component inventory at your customer is still coming down? Or is that handset sell-in still being above the handset sell-through? And then I had a second question as well.

Yes. So when we talk about channel inventory, we talk about total inventory across beyond us. So it's customers and channel both combined. I mean, clearly, as we've gone through the year, the headwinds have been meaningfully higher than we'd expected going into the fiscal year. So that is reflected in the updates that we're giving. No fundamental change to our view of our share position and overall market we've talked about as well. So it's just those factors running through our numbers. We don't have an updated estimate of how much the total impact would be. But it's the same factors that we've been talking about throughout the year. We've not changed the total market size since the last call.

Got it. Just one last thing. Do you have any information on the refurbished market? It appears to be growing significantly and may be impacting the new Android market. What do you estimate the portion of the total addressable market for handsets is this year in terms of used or refurbished devices? We've seen figures around $350 million in units; something like that. While the market is flat to declining, it seems that the market for new phones has decreased considerably. Can you address that?

Yes. So we have the same data as you do on the refurbished phones. It has grown over the last couple of years. When we give the market, the global handset unit information, we're not talking about the refurbished phones. We are talking about new phones. And so it's already factored into the guidance we gave.

Thank you. We would like to express our appreciation to all our employees, customers, suppliers, and partners. The key messages are that we are pleased with our strategy and continue to execute it effectively. We are on track with our plans and believe we have one of the best product road maps in our history. We appreciate the design traction we are seeing. In this uncertain environment, we are focused on taking action on what we can control and ensuring we are prepared for when the market recovers. I also want to highlight that we see a new inflection point on the edge with Gen AI. To enable this on-device capability, a new computing engine is essential. While we have CPU and GPU, we also need the NPU. We have been investing in this for over a decade and are very pleased with its performance. I encourage everyone to pay attention to what we will showcase and announce at the upcoming Tech Summit in October. Thank you very much.