00:00All right. Meanwhile, back to Qualcomm. No shares unchanged on the day, a beaten raised quarter, but maybe I guess the street was looking for a little bit more.
00:06Jay Goldberg covers this sector better than anyone else. He joins us right now. Analysts at Seaport Research Partners. What did you make of the report, Jay?
00:14I thought Qualcomm looked pretty good. Right. Numbers look pretty clean. I'm still digging through it.
00:19I don't have a Bloomberg terminal, so I don't get the numbers as quickly as you all do. But just at first blush, it looks it looks good.
00:25All right. We're going to work on that. I think I think Bloomberg terminal.
00:30Yeah, I think I think part of the issue is the stock has run in the last two weeks because they announced their AI product.
00:37And I think that has people expecting some bigger upside. The AI product isn't going to be in the market until next year and isn't really going to be material until the year after that.
00:45So there are probably some people who are expecting some AI contribution. And this isn't the quarter when that's going to happen.
00:50I think it's interesting, though. I mean, when you look at the traditional business, the core business, if you will, I mean, that looks like it's holding up.
00:55Just fine. And I would think that would be encouraging to investors.
00:58The idea that there is some sort of bridge between what they have been in the past and what they're trying to be in the future.
01:04Absolutely. That's been the story of Qualcomm for the last few years is they're very reliant on the cell phone business.
01:10Smartphones are now mature. Everybody in the world who's going to buy one has one.
01:13And so where is the company going to grow if smartphones are X growth?
01:17And they've diversified into auto. They've diversified into PCs. They've diversified into data center now.
01:23And I think all of those are well, auto is trending well.
01:27PCs are very slow. AI is very much a show me story.
01:30I will say I have some questions about the core cell phone business, not near term, but longer term.
01:37I really I think they're starting to see a lot more competition there.
01:39And I wonder when the company is going to get a little bit more earnest in fighting that off.
01:44Well, Jay, that's where I wanted to go, because you think about that increasing competition.
01:48It comes from the likes of Apple.
01:49We know that Apple is transitioning away from using its modem components.
01:53Instead, it's trying to build those in-house, those designs for modems.
01:57And I mean, talk to us about what that means for a company such as Qualcomm,
02:02which, despite wanting to transition, is still very reliant when it comes to that core business of smartphones.
02:08That's right. 80-ish percent of revenue comes from things that are attached to smartphones.
02:14And right now, five of the five largest handset vendors in the world have their own application processor type of chip.
02:20Three of the five largest handset vendors in this world have their own modem.
02:24That's another type of chip.
02:25Applications processor and modem, that's the ballgame.
02:28That's what Qualcomm sells.
02:29And you have the biggest handset vendors all looking to do their own internal silicon.
02:33Now, it's not urgent, right?
02:35They've held off this loss of Apple.
02:36Well, some of the other products aren't great.
02:38But the trend is pretty clear.
02:40Qualcomm has competitive threats from its own customers.
02:42And they really need to address that a little more urgently than they seem to be giving up.
02:46And so you mentioned that that's, of course, something that you would like to hear more from when it comes to executives.
02:52When it comes to the call, what else do you want to hear a little bit more detail on?
02:57Honestly, I'd like to hear a little bit more about how their PC's business is going.
03:01They launched it to a lot of fanfare earlier this year, and then they've gotten very quiet about it.
03:05I don't think it's tracking particularly well, but I'd like to see some update on how that's progressing.
03:11And automotive is another area.
03:13Again, it takes years for automotive products to get deployed.
03:16But I think investors are always interested in what's going on there, what's the developments on that side.
03:21I am curious, too.
03:22You also cover Seaport.
03:24And we saw for a while, excuse me, Seaport, you also cover Arm.
03:27I am curious, Jay.
03:29I mean, we did see those shares pop initially on the back of Arm's release.
03:32The share is now only up about 2% to 3% right now.
03:35I know these are two completely different companies in terms of their focus in the ecosystem here.
03:40But where do you see Arm's fortunes going, particularly in the capacity of this AI build-out?
03:48Arm is super interesting.
03:50There's a lot going on right there, right now there.
03:52They have a new CEO.
03:54He's been there for about two years.
03:55And he's really driven the company to capture a larger share of value from the industry.
03:59They create a lot of value, and he's been doing a good job of sort of increasing, doing all the things to get their value capture higher.
04:07The next step in that process is everybody thinks they're going to build their own chip.
04:11It's moving up a big step in the supply chain.
04:14And if they do that, their gross margins won't look as good.
04:17There's only 50% gross margin, but the raw dollars are much larger.
04:21And so, you know, you can't take percentages to the bank.
04:24You can only take gross margin dollars to the bank.
04:26And so this is a big step for them.
04:28They've been investing heavily in it.
04:29It's very expensive.
04:30That's why OPEX has been so high and why we're all glad to see OPEX down a little bit this quarter.
04:35But we don't know what the product is yet.
04:37It's a big mystery.
04:37And, you know, everyone's curious what they're going to be doing.
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