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Qualcomm Incorporated (NASDAQ:QCOM)
Q3 2018 Earnings Conference Call
July 25, 2018, 4:45 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm third quarter fiscal 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, press * then the number 1 on your telephone keypad. To withdraw your question, press #. If you're using a speaker phone, please pick up your handset before pressing the numbers. As a reminder, this conference is being recorded July 25, 2018. The playback number for today's call is 855-859-2056. International callers please dial 404-537-3406. The playback reservation number is 39466129.

I would now like to turn the call over to John Sinnott, Vice President of Investor Relations. Mr. Sinnott, please go ahead.

John Sinnott -- Investor Relations

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and George Davis. In addition, Cristiano Amon, Alex Rogers, and Don Rosenberg 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-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements.

And now, to comments from Qualcomm's Chief Executive Officer, Steve Mollenkopf.

Steve Mollenkopf -- Chief Executive Officer

Thank you, John and good afternoon, everyone. We reported very strong results this quarter, which I will comment on shortly. But first, I want to update you on the status of the NXP transaction. As you've seen from our press release, pending any new material developments, we intend to terminate our agreement to acquire NXP at the end of the day. The decision for us to move forward without NXP was a difficult one. Continued uncertainty overhanging such a large acquisition introduces heightened risk. We weighed that risk against the likelihood of a change in the current geopolitical environment, which we didn't believe was a high probability outcome in the near future.

In the end, we determined this was the best path forward for our customers, partners, employees, and stockholders. To say the least, the 21 months since we've announced the NXP acquisition have been volatile. In spite of all the potential distractions, the Qualcomm and NXP leadership remained focused on laying the foundation for the successful integration of our two companies. I want to personally thank Rick Clemmer and his management team for being tremendous partners, and complement them on the excellent company that they have built at NXP.

Consistent with our prior commitment to return capital that was previously earmarked for the NXP acquisition, our Board has approved a new $30 billion stock repurchase authorization. We intend to execute on a large majority of the authorization by the end of Fiscal 2019.

The rationale for NXP acquisition was to accelerate our strategy of growing into adjacent opportunities where mobile compute was becoming ubiquitous. This strategy remains unchanged. Over the past two years, we continued to leverage the powerful industry dynamics of mobile everywhere. The results of these efforts are strongly evidenced in the growth of our adjacencies and RF front-end opportunities, which we estimate will contribute to our fiscal year ending this September approximately $5 billion in revenue, up more than 70% in the last two years.

In key industries like auto, our pipeline of awarded design wins has expanded dramatically this year to $5 billion, up $2 billion from January, as automakers and Tier 1 suppliers leverage the strength of our roadmap and begin gearing up for 5G-enabled cars in 2021.

Our infotainment solutions account for more than half of the $5 billion pipeline, just four years after we announced our entry into this category. We've continued to gain share in Wi-Fi and have now achieved leading positions in several Wi-Fi segments. Our Snapdragon franchise has moved well beyond mobile devices, becoming the leading platform in areas like AR and VR, and is positioned to be a critical enabler in AI and machine learning at the edge.

We are also transforming the Notebook segment to a true smartphone experience and are growing our ecosystem of partners, including recently adding Samsung. Our industrial IoT product revenues are also growing rapidly and are on track to double this fiscal year versus two years ago. We anticipate our addressable opportunity in the industrial IoT space to grow at approximately 20% [inaudible] over the next few years and we expect to exceed that growth for our industrial IoT revenues.

In the past two years, we brought forward 5G R&D spending to ensure Qualcomm's sustained leadership in the next generation of mobile technology. Today, with every passing week, carriers around the world are announcing an expansion of their 5G rollout, and we are a partner to nearly all of them.

Our significant investment in 5G leadership will become even more tangible with the early rollouts in device launches in 2019, along with larger deployments in 2020 and beyond. As a complement to our 5G modem leadership, our RF front-end technology will continue to be differentiated in the market as we bring a systems approach to solve many of the technical challenges of delivering a 5G experience. This transition presents a win/win for us and our customers, enabling us the opportunity to grow our dollar share of content in mobile devices while lowering the total cost for handset OEMs.

With continued execution on our growth strategy combined with systematic cost discipline and capital return, we are well positioned to drive shareholder return in Fiscal 2019 and beyond. As you can see from our quarterly results, our business continues to perform well and the timelines we have previously highlighted to resolve our licensing disputes remains unchanged.

Our fiscal third quarter results were very strong, with non-GAAP earnings per share $0.31 above the midpoint of our prior guidance range. Our results reflect strong execution across our businesses and continued focus on expense management. In QTL, our third quarter results reflect a $500 million payment from the other licensee that is in dispute with us. This is a partial payment made while the negotiations continue for past royalties due going back to the third quarter of Fiscal 2017. The payment does not reflect the full amount of royalties due under their licensing agreement, but we believe it is a positive step as we continue the negotiations in an effort to reach a resolution.

Also within QTL, we continue to make progress on signing agreements under our new 5G licensing framework. Recently, we have concluded more than 10 multi-year 5G multi-mode handset license agreements, including agreements with Xiaomi and Sharp, and we are in active negotiations with many more OEMs. In QCT, we shipped 199 million MSMs in our third fiscal quarter, above the midpoint of our guidance range, reflecting stronger than expected demand in China, due to the strength of our roadmap, particularly our 700 and 800 Series Snapdragon solutions.

Looking ahead, our fiscal fourth quarter guidance reflects continued favorable trends in our businesses. We estimate calendar 2018 global 3G 4G device shipments to be approximately 1.8 to 1.9 billion units, consistent with our prior forecast, and continue to see handset selling prices trending stronger than expected. In QCT, demand for our Snapdragon 845 continues to grow and we now have more than 130 Snapdragon 845 device designs in development.

Consistent with our prior statements, we continue to see our key Chinese OEM partners leveraging our Snapdragon roadmap to improve their products in the domestic Chinese region, and grow share in new regions, including Europe. We have also seen very favorable third-party test results with our Snapdragon 845 and X16, X20 modems significantly outperforming other merchant modem solutions in premium tier devices.

We are also seeing further momentum supporting our RF front-end growth strategy and product differentiation. With four design wins of our complete modem to antenna solution, our gallium arsenide, MMPA, and module solutions have launched in customer premium tier devices with more key Tier 1 launches coming this calendar year. We have also made 2 RF product announcements earlier this week, which are extremely important Qualcomm innovations to help solve the challenging, complex antenna requirements for 5G devices.

We announced commercial shipment of the world's first commercial 5G new radio millimeter RF wave solution and also announced a fully integrated sub-6 GHz RF solution. These announcements further expand our industry leading 5G product and technology position, and there are 18 network operators and 20 manufacturers who have selected our X50 5G modem for trials in 5G devices.

We are leading the industry to 5G commercialization next year and are pleased to see OEM partners finalizing their 2019 5G smartphone launch plans. Qualcomm's chipsets are now the leading 5G development platform of choice for operators, infrastructure suppliers, and smartphone OEMs.

In closing, we are pleased to report very strong results this quarter and look forward to continuing to update you on our progress across the key strategic areas we have outlined for shareholders. This is a very exciting time for Qualcomm. With 5G approaching, our core technology with advanced computing, connectivity, and security are continuing to drive growth and disruption in mobile, automotive, IoT, and networking. I will now turn the call over to George.

George S. Davis -- Executive Vice President and Chief Financial Officer

Thank you, Steve, and good afternoon, everyone. Before I discuss our quarterly results, I would like to join Steve and thank the NXP team for their partnership and collaboration over the past 21 months. Now, turning to the quarter.

We are pleased to report very strong fiscal third quarter results with revenue of 45.6 billion and non-GAAP EPS of $1.01. As Steve mentioned, these results reflect $500 million of revenue in QTL related to an interim payment with the other licensee in dispute. This is a partial payment made while the negotiations continue for past royalties due going back to third quarter of Fiscal 2017, and does not reflect the full amount of royalties due from the underlying license agreement or our expectations of royalties that will be due once the dispute is settled. The interim agreement provides for an additional $200 million, with $100 million paid in each of the next two quarters.

Non-GAAP EPS of $1.01 was $0.31 above the $0.70 midpoint of our guidance range. The partial payment accounted for $0.26, with the remaining $0.05 above the midpoint driven by favorable interest expense, tax rate, and QTL OEM mix during the quarter. QCT earnings before tax was up 6% year-over-year, representing the ninth consecutive quarter of year-over-year growth in EBT. EBT margin was 15%, at the high end of our guidance range, on higher volume and favorable product cost initiatives.

In QCT, MSM shipments were $199 million, above our $195 million guidance midpoint on stronger than anticipated demand from Chinese OEMs. QCT revenue for the quarter was $4.1 billion, flat on a year-over-year basis, reflecting strong demand from Chinese OEMs, offset by lower demand from Apple.

In QTL, excluding the $500 million payment from other licensee in dispute, revenue was modestly above the midpoint of our prior guidance range on mix. QTL EBT margin was 72%, including the partial payment. Excluding the partial payment, EBT margin was 57%, coming in above our prior guidance range of 50% to 54% on OEM mix, as well as lower than expected litigation expenses.

In our fiscal third quarter, non-GAAP combined R&D and SG&A was up approximately 1% sequentially, in line with the midpoint of our guidance range. In the fiscal third quarter, excess litigation expenses were approximately $140 million, and we expect litigation expenses to be similar next quarter as the cases against Apple continue, including hearings in several of our patent infringement cases in the U.S., Germany, and China.

We continue to execute on our $1 billion cost plan and as a result, incurred approximately $110 million in restructuring cost primarily related to severance and asset impairments. These items were excluded from our non-GAAP results. For Fiscal 2019, we remain on track to reduce total operating expenses by $1 billion from our prior baseline of $7.4 billion.

Our non-GAAP effective tax rate for the quarter was a 6% benefit, lower than our prior expectations, reflecting the change in our estimates of U.S. earnings principally due to the interim payment in QTL. We returned approximately $1.9 billion to stockholders during the quarter, including approximately $900 million in dividends paid and $1 billion in stock repurchases.

Our Q3 cash and marketable securities balance was $36 billion, which excluded $2 billion held to collateralize letters of credit for the NXP acquisition and $2.8 billion restricted for our recent redemption of acquisition-related debt. We ended the quarter with total debt outstanding of $22.5 billion.

Turning to our fiscal fourth quarter guidance, we estimate revenue to be in the range of approximately $5.1 billion to $5.9 billion. We estimate non-GAAP earnings per share to be approximately $0.75 to $0.85 per share. We expect non-GAAP combined R&D and SG&A expenses will be flat sequentially, including the impact of an extra week in our fiscal fourth quarter. Excluding the extra week of operations, we estimate that non-GAAP combined R&D and SG&A expenses would be down mid single digits percentage sequentially in line with the timing of our cost program, despite the ramp in 5G development activities.

We expect QTL revenues for the fiscal fourth quarter to be in the range of $1 billion to $1.2 billion. This revenue guidance includes the expected $100 million payment from the other licensee in dispute while negotiations are ongoing. We expect QTL's EBT margin to be between 58% and 62%.

It is worth noting that beginning in our fiscal first quarter of 2019, we will implement the new ASC 606 revenue recognition guidance. This requires that we estimate QTL royalty revenues each quarter, rather than recognizing them one quarter in arrears and then make revenue adjustments in the following quarters once actual amounts are reported by our licensees. Accordingly, the September quarter results for our licensing business will not be reported in our Fiscal Q1 results, but will be recorded on the balance sheet into retained earnings with offsetting entries in accounts receivable. Our first fiscal quarter will not reflect estimated December royalty revenues for our licensing business, consistent with the absence of a one-quarter lag.

This change will alter QTL typical seasonality, as the busy holiday quarter for our licensees will now be recognized in our fiscal first quarter, rather than our fiscal second quarter of each year. Of course, the impact of our [inaudible] disputes, in particular, Apple, has also impacted seasonality over the past year, given the absence of the usual impact of the flagship launches of these large OEMs.

Turning to QCT, we anticipate MSM shipments in the fiscal fourth quarter to be in the range of 205 to 225 million units, up approximately 8% sequentially at the midpoint on seasonality and strength of our roadmap with Chinese OEMs. We expect QCT EBT margin to be approximately 16% to 18%, up 200 basis points at the midpoint sequentially on a favorable mix toward Snapdragon's 700 and 800 tiers, partially offset by lower shipments to Apple. We believe Apple intends to solely use our competitors' modems, rather than our modems, in its next iPhone release. We will continue to provide modems for Apple legacy devices.

We expect that non-GAAP interest expense net of investment income will be approximately flat sequentially. We expect our non-GAAP tax rate for the fiscal fourth quarter and the full-year to be approximately 2% expense.

As Steve mentioned, we expect to terminate the NXP transaction after today's end date, subject only to receipt of evidence of a material change in circumstances related to the deal. Termination will trigger payment of the $2 billion termination fee. Consistent with our previously announced Plan B alternative, following the termination of the agreement, our Board has authorized the purchase of up to $30 billion of stock, replacing the existing $10 billion authorization. We intend to execute on a large majority of the authorization by the end of Fiscal 2019. Our repurchases will be funded almost entirely from balance sheet cash and we will update you on the specific plans as we come to market.

Our fourth quarter guidance does not include any impact of this new stock repurchase program or the impact of the $2 billion termination fee. The termination fee is expected to have approximately a $1.35 impact on GAAP earnings when recorded.

We remain committed to a strong balance sheet, maintaining a strong investment grade rating, and to ongoing growth in our dividend over time. That concludes my comments. I will now turn the call back to John.

John Sinnott -- Investor Relations

Thank you, George. Operator, we are ready for questions.

Questions and Answers:

Operator

To queue a question, press * then the number 1. To withdraw your question, press #. If you are using a speakerphone, please pick up your handset before pressing the numbers. One moment please for your first question.

Amit Daryanani from RBC Capital Markets. Please go ahead with your question.

Amit Daryanani -- RBC Capital Markets -- Analyst

Thank you. Good afternoon, guys. I guess just a question on the NXP dynamic. Steve, how do you think about M&A to achieve what you really wanted to get out of NXP going forward? Is it your sense that Qualcomm can't really do any deals until the global macro tariff issues improve? Or do you think NXP was perhaps something unique that you couldn't do and you could still go do other deals? I just want to understand how you go about the divorcing that you talked about NXP? And then on buy-backs, how do we think about the pace and how do you execute such a large buy-back in a short timeframe?

Steve Mollenkopf -- Chief Executive Officer

Amit, this is Steve. I'll take the first one. George, why don't you take the second half of that? I'm not sure there was anything particular about this transaction or any engagement around the transaction. I think it's probably more of a statement of the overall macro environment that everyone's operating in right now. For us, I don't know if it signals any difference in terms of our ability to do things in the future. We are obviously, from a capital allocation point of view, obviously moving very rapidly into a stock buy-back, which is where the focus is right now. But I don't think if I see anything closed down outside of the fact that it's just an unusual window, I think for everybody involved in the industry right now.

George S. Davis -- Executive Vice President and Chief Financial Officer

On the pacing of the buy-backs, we'll come out with some information on that soon. But obviously if we're going to get a large majority done within 2019, there will have to be some form of accelerated buy-back as part of that plan.

Operator

Mike Walkley from Canaccord Genuity. Please go ahead with your question.

Mike Walkley -- Canaccord Genuity -- Analyst

Great. Thanks, George. Just following up on the buy-back and your guidance. Is there any changes to the 525 in 2019 that you expect to generate, assuming that the two licensing agreements are not settled? Can you maybe just walk us through the puts and takes toward getting toward that number, if that's still the case?

George S. Davis -- Executive Vice President and Chief Financial Officer

Yes, let me just give you an update. First off, we have not changed our FY19 guidance. As a reminder, resolution of our licensing disputes will be critical to our 675 to 750 objective. If you think about the legal milestones that we've talked about in the past in support of driving these disputes toward resolution, we believe those milestones are on track and fundamentally unchanged.

In terms of the timing and impact of the share repurchase accretion relative to NXP, obviously the share repurchase will depend on the timing of when the shares come in. It will also depend on the timing of the licensing resolution. You can get to actually a higher number than the NXP accretion that we talked about for 2019 of $1.50 with share repurchase, but of course, that requires the licensing disputes to be completed. So, right now, no change in our outlook of 675 to 750 and on the 525, we'll have to look at really what the timing is on the share repurchase and the implications of that.

Operator

Tim Long from BMO Capital. Please go ahead with your question.

Tim Long -- BMO Capital Markets -- Analyst

Thank you. Just two if I could. First, a lot of talk about 5G. Could you just update us on what you think that'll mean to the Qualcomm model for both the chip and royalty businesses as far as ASP increases or market share gains you think that would result in.

Then secondly, on the chip business, it sounds like within modems going down and a pretty favorable mix, I'm assuming you're expecting a pretty good ASP and probably gross margin move the next few quarters? If you could discuss that a little bit. Thank you.

Cristiano R. Amon -- President

Hi, Tim, this is Cristiano. I'll start with the 5G chip and I'll shift to Alex for the license, and then we can come back and talk about the modem. We're very happy with what we're seeing in 5G right now. The 5G is accelerating. I think we said there are a large number of operators. I can say that all of our Snapdragon 800 OEMs today are planning to launch a 5G device, smartphone in 2019. I think that positions us well. It's early ramp of a technology, but what we have seen with every new generation, I think if we are in a good leadership position as the market moves, it could be a significant event in the later part of '19 and '20. As you would expect, we see an opportunity for both revenue and margin expansion on the chip business.

Alex Rogers -- Executive Vice President and President, Qualcomm Technology Licensing

This is Alex. On the QTL side, the 5G transition is very good for the QTL business. We have a strong IT leadership position, including within the standards arena and standard essential patents. We're also very well positioned with the licensing framework that we rolled out, as evidenced by the over 10 license agreements that we've just recently signed. And so we think that we're in a very good position for long-term stability through the 5G transition.

George S. Davis -- Executive Vice President and Chief Financial Officer

Tim, on the gross margin, as you think about Q4, probably the biggest single impact pulling margin down is the absence of the other licensee payment which came in. What we're seeing is despite lower Apple business, both quarter-over-quarter and year-over-year, you're seeing strength in the 700 and 800 tiers in China in the chip business. That's actually really moderated what otherwise would have been a more difficult margin story.

Operator

Chris Caso from Raymond James. Please go ahead with your question.

Chris Caso -- Raymond James -- Analyst

Yes, thank you. Just a question on the 606 adoption and how that affects Fiscal '19 guidance. Was that already incorporated in the Fiscal '19 guidance that you had provided previously? I guess my understanding as I'm thinking it through is it would be a benefit to the fiscal first quarter against prior assumptions because that would capture the strong season. Am I thinking about that correctly?

George S. Davis -- Executive Vice President and Chief Financial Officer

606 was always in our estimates for '19. Really, if you think about it, it just affects the shape of the year, not the size of the year. You get all four seasonal quarters in.

Operator

Stacy Rasgon from Bernstein Research. Please go ahead with your question.

Stacy Rasgon -- Bernstein Research -- Analyst

Hi, guys. Thanks for taking my questions. I have two. First on the timing of the buy-back, if the buy-back was supposed to give $1.50 for the full-year but it's going to take you through the full-year to actually execute on it, how does it give you the full $1.50 in 2019?

For my second question, the $100 million in revenue you have built into your guidance for next quarter and the quarter after, is that $100 million representative at all of your expectations for the run rate following settlement? Effectively, did you sort of take down your [inaudible] revenue guidance. You said $1 billion to $1.1 billion, now it's $1 billion to $1.2 billion, but it includes an additional $100 million, so it looks like if we X that $100 million, the core business was taken down. Was that in fact the case or is that just some sort of seasonal or other issues that are going on? Thank you.

George S. Davis -- Executive Vice President and Chief Financial Officer

Let me maybe just start on the back end of it on the numbers with respect to the $100 million and maybe, Alex, after I'm finished with the answer you can jump in. But the $100 million really does not represent a change. Or the $1 billion to $1.2 billion guide is really not a change. We said that depending on seasonal factors, we expect to be roughly between $1 billion and $1.1 billion each quarter.

As you know, we're seeing the more seasonally weak quarter, although quite frankly, a lot of the seasonality has come out as we look at the year because we're missing some of those flagship launches. The absolute market is generally pretty flat relative to that period. I think overall you're actually seeing a little better mix from QTL along with the $100 million. In terms of the buy-back, really you would be below $1.50 absent any resolution and you could be well above $1.50 with resolution, which is the dynamic between the accretion that would come from a full year of NXP with the synergies in place and the share repurchase program. No real change in the math.

Alex Rogers -- Executive Vice President and President, Qualcomm Technology Licensing

This is Alex. Really quickly, the $100 million in the quarter does not set an expectation for the licensing revenue should there be a resolution to the negotiation process. That is just a partial payment, but it does not reflect what's owed under the agreement. As we've said before, we're in active negotiations and this is just a partial payment and the negotiations are ongoing. As long as we think the negotiations are heading in a positive direction, we'll keep driving them. We think this payment is a good faith indication that they are heading in a positive direction.

Operator

James Faucette from Morgan Stanley. Please go ahead with your question.

James Faucette -- Morgan Stanley -- Analyst

Steve, I wanted to ask you kind of a big picture question back on the decision making process and hopefully we can help interpolate a little bit into how you're thinking about the future. But I'm wondering if you could give a little more color as to where you saw the opportunity cost of continuing to wait for China to go through its process and, as you described it, that political window to change maybe back more favorably? How are you thinking about the opportunity costs of continuing to wait and why make the decision to move on now? How should we be thinking about and how you're thinking about the future opportunities for Qualcomm, particularly in some of these new areas that you're pursuing? Thanks.

Steve Mollenkopf -- Chief Executive Officer

Sure, James. I think the situation -- a quick reminder. We signed the agreement about 21 months ago. We also had already extended the agreement once. I think very good discussions, by the way, with the regulators worldwide, and in particular in China. It was very clear to us that the macro environment was a very difficult macro environment to get something of this size through. It was not clear that was going to change in the future dramatically. Particularly in the time window that we had to really move. And I say move toward two things. One is I think the company needs to focus on the opportunities that are ahead. I think that's important.

The other aspect is we just need to provide certainty, not only to our partners and shareholders, but also to the employees, as to where we're going. We looked at that all together in a big mix and basically decided the right thing to do was to move on. We obviously have some time left on the clock here today to be exact, but hopefully that helps you understand where we're headed. I think you should also view it as a statement of -- look, we feel very good about the business, where we're headed, and the forward aspects and we want to move on and really deliver that to shareholders, as we said we would.

Operator

Romit Shah from Nomura Equity. Please go ahead with your question.

Romit Shah -- Nomura Equity -- Analyst

Yes, thank you. George, going from 14 weeks in September to 13 weeks in the calendar fourth quarter, do you anticipate any impact to MSM shipments? Is that something we should contemplate? Then can I just ask you about Apple and your thin modem share? Do you guys believe that you're locked out of that account indefinitely? What will it take for Qualcomm to win back that business? Thank you.

George S. Davis -- Executive Vice President and Chief Financial Officer

Really, what we see with an extra week is more the purchasing dynamics and decisions tend to be more indifferent to whether there's an additional week in the quarter or not. It's really around timing of launches. So, it's really we're seeing the major effect on the cost side of the extra week really the run rate.

Cristiano R. Amon -- President

Hi, this is Cristiano. Talking about your question on Apple. This is a very dynamic industry. I think we've been very clear in we don't expect to be in the next product launch. We will continue to support them with the legacy. I think those are decisions that are made as the industry moves and by design. I think we continue to be focused on technology. We feel pretty good about our modem leadership. I think we disclosed there's some very interesting third-party customer reports that show our performance. We'll continue to be investing on the modem. If the opportunity presents itself, I think we will be a supplier of Apple.

Operator

Matt Ramsay from Cowen. Please go ahead with your question.

Matthew Ramsay -- Cowen & Company -- Analyst

Thank you very much. Good afternoon. Steve, I wanted to ask a little bit about the adjacencies. I mean, one of the big [inaudible] points of doing the NXP transaction was to give you guys or sort of jump start the scale, particularly in automotive and the microcontroller IoT businesses. Now that the deal seems to be off the table, maybe you could talk a little bit about the scale that you currently have in the adjacent businesses that you're ramping and how you think about that competitively without getting NXP done? Thank you.

Steve Mollenkopf -- Chief Executive Officer

Matt, I think maybe I'll differentiate. The answer depends on which market you're in. In the automobile segment, we already feel that we're a pretty large player. We benefited from the fact that we are strong in the technologies that are defining many of the new use cases, in particular telematics, the connected car through telematics as a product line, but also in our infotainment business. So, we feel today we already have segment scale. Obviously, we would have a much stronger scale with NXP, and we like the transaction as a result. But our auto business is already a significant business. As I mentioned, $5 billion backlog and growing. So, we're pleased with that. I think we're well positioned in the technologies that will define the key excitement in the future as well.

In IoT, again, I think we're in the right place with the core technologies and the technologies that the industry is working toward. We do not have that strong and organic channel as would be brought to us by the NXP transaction. It's growing and it contributes to the business today, but we're going to have to augment that a bit here in the future.

We hope to also move forward on that. But also deliver on the stock buy-back in the interim as well. So it's sort of a two-pronged capital allocation perspective, I think, from the company. But we feel lucky and pleased to have a strong position in the technologies which we think are the key technologies to winning in those markets long-term.

Operator

Ross Seymore from Deutsche Bank. Please go ahead with your question.

Ross Seymore -- Deutsche Bank -- Analyst

Thanks for letting me ask a question. Steve, just a follow-on to that as the first part of my question. How do you reconcile the billion dollars of cost-cutting where there's a number of press reports saying that adjacencies are exactly where the trimming is occurring with your goal to diversify?

Then my second question, which is somewhat unrelated is George, it looks like your MSM guidance is at least seasonal if not above seasonal, at up 8%. Considering what you said about Apple, is there something else going on there? Does the extra week benefit the revenue outlook for QCT? Any color on that would be helpful.

Steve Mollenkopf -- Chief Executive Officer

Ross, this is Steve. Let me answer that first question about where the focus is. Our focus of the cost-cutting is really more about focusing the company's resources on these areas, as opposed to taking R&D or resources away. As you know, the history of the company, we've had a number of other bets that I think are a little bit further outside of the core competency of the company, and we're trying to focus on R&D in the areas where we think there is growth. Industrial, IoT, automotive, networking are clearly above the line there for us, which we are excited about. We are moving some focused R&D toward those businesses versus away from them in total.

We are also looking at how we can spend money to execute on the licensing business with less spend. We hope to move into a more of a peacetime situation with the licensing business, but rest assured, we are very focused on focusing the company toward the areas that we've mentioned.

Cristiano R. Amon -- President

Ross, on the MSM, I think there are a number of things that we see in the business and I think that's reflected in the guide. I think, No. 1 is we see an extension of our key China customers going toward the premium tier. We mentioned, I think we saw high demand on Snapdragon 700 and 800 as they expanded to the segment. We also see large-scale Chinese OEM international expansion. That's increasing the MSM sales for us. As an example, some of our key customers now have products in the U.K., Germany, Spain, Italy, Portugal, and France, which is a new geographic region for them. We expect that to continue as China will bring large-scale 5G deployment in the later part of '19.

Operator

[Inaudible] from UBS. Please go ahead with your question.

Unidentified -- UBS -- Analyst

Thank you. I had two. First of all, on the payments in the QTL, George, with the $100 million that you're going to get in September and the $100 million that you'll get in December, does that fully catch you up by the end of December? That's the first question. Then the second question is on the potential to get an injunction in China against Apple. I think there's a practical process around you to validate your IP. So, my question is, what is the process and whether you've checked all the boxes so if you did want to pursue that, you could? Thanks.

George S. Davis -- Executive Vice President and Chief Financial Officer

Tim, in terms of the payments, the $700 million in total is a portion, but does not represent the full amount that we would expect to receive. In fact, I would say it's a fraction of the full amount that we would expect to receive under agreement. It's not meant to be a catch up. It's meant to be a good faith payment while negotiations are going on.

Donald J. Rosenberg -- Executive Vice President, General Counsel & Corporate Secretary

This is Don. I think your question was about China and our patent litigation there against Apple. The answer is yes, we are seeking injunctive relief there. In some cases in China, you're not only entitled to permanent injunctions, but you're entitled to preliminary injunctions on occasion. But China is definitely a jurisdiction which is willing to enjoin infringers for patent infringement.

Operator

Chris Danely from Citigroup. Please go ahead with your question.

Chris Danely -- Citigroup -- Analyst

Thanks, guys. Just a couple quick ones. On the dispute with the $700 million in catch-up payments, I think before you've comments that you expect that to end or to close before the end of the year. Do you still expect that and would you expect the royalty rate to decline there and then could other customers get wind of that and have their [inaudible] rates go lower? And any update on when you think the Apple resolution will be settled?

Alex Rogers -- Executive Vice President and President, Qualcomm Technology Licensing

This is Alex. Again, I would not characterize this $700 million at catch-up payments because, as we've said, these payments are partial payments during the context of a negotiation which we feel has been moving along somewhat slowly, but in a positive direction. The partial payments are kind of an empirical data point that we're making progress in the negotiation. So, it's not final by any means. It doesn't represent what is at issue in the agreement and what the values are at issue in the agreement and what the end result might be.

And so, this is not a data point for other licensees to take and say, well somebody else is getting a different sort of deal. These negotiations are ongoing. We think they're positive. If they don't result in an amendment or resolution, then as we've said in the past, there is an opportunity for dispute resolution. So, again, I would just think about this as a good faith partial payment, not indicative of the value of the overall agreement. [Background discussion]

With respect to Apple, the way you should think about it is we're on the same schedule we've laid out over the last several quarters. We continue to talk. We also have a number of legal strategies that are in flight; they are further in flight than they were the last time we spoke, and we hope that through the combination of either of those paths we could get to a resolution. We're confident that we will. No change in the timeline from what we've said previously.

Operator

Srini Pajjuri from Macquarie. Please go ahead with your question.

Srini Pajjuri -- Macquarie Securities -- Analyst

I have a clarification and a question. George, on the ASC 606, I think you said the September quarter revenue for the devices that are shipped in the September quarter, you said that's going to go on the balance sheet. I think it's going to be more than a billion dollars going onto the balance sheet. Just curious, when do you expect to recognize that? When will that flow through to the income statement?

Then my question is, on the opex, the $1 billion savings, could you give us an update in terms of where you are in terms of achieving that $1 billion and once we get to that level, what do you expect the opex on a non-GAAP basis excluding legal range to be? Thank you.

George S. Davis -- Executive Vice President and Chief Financial Officer

Under 606, the quarter that goes onto the balance sheet goes to basically directly to retained earnings. It never flows through the income statement. So, we shipped ahead one quarter, which is what we talked about on the call the change in the seasonality. So, our old Q2 is now Q1. Then the Q4 the following year will be the old Q1 of the year after that. So, you're going to get all four quarters in the year under 606, but you basically lose one quarter onto the balance sheet. Obviously, we get all the cash flow and other elements associated with it and we will just report the December quarter instead of the September quarter.

We continue to make progress on the timing of the cost program. We've said the baseline was $7.4 billion for opex and that we believe we'll be able to take out a billion dollars in '19, which would put it at $6.4 billion. We'd be down about 5% quarter-over-quarter in Q4 or mid single digits, as we said, 5%-plus quarter-over-quarter absent the extra week. So, that gives you an indication directionally, and we would expect another step down in the quarter following that as we make progress into the year.

We believe we're on track and we're still confident we'll take a billion out relative to the baseline.

Operator

Brett Simpson from Arete. Please go ahead with your question.

Brett Simpson -- Arete -- Analyst

Yes, thanks very much. Can you perhaps just talk us through the timing of the core cases you have with Apple? So, the timing of the cases but, more importantly, the timing of the judgments and when you expect these to be finalized for Germany, for China, for ITC, for FTC? That would be very helpful. I've got a follow-up. Thank you.

Donald J. Rosenberg -- Executive Vice President, General Counsel & Corporate Secretary

Hi, this is Don. So, that's a tall order. I don't think I can give you all the precise dates. But we're got, as you said, the ITC for example, our first case has already had hearings. We're expecting what's called an initial determination in September and a final determination there in January. We've got another ITC case that will be going to hearing sometime very early in the year, I think in January as well. In China, we have multiple patent cases running in at least three jurisdictions there. Each of those is on a different schedule. But they are moving along quite quickly. And so we would expect something either by the end of this year in terms of hearings and trials or early in next year. In Germany, we've got a number of patent cases filed there as well in both Munich and Manheim. Those are moving toward same type of, later this year, early next year in terms of trial dates.

Brett Simpson -- Arete -- Analyst

Okay, that's great. Thanks very much, Don. Then just maybe for Cristiano on the RF business. You're talking a bit of a [inaudible] for the first time on 5G RF. Can you maybe just talk about what type of attach rates you're getting with 5G RF with your 5G modem when you talk about addressing system solution, modem to antenna? And where do you think Qualcomm is really differentiating in 5G RF specifically? I just wanted to circle back to the revenue targets for Fiscal '19 for RF. You talked about $2 billion to $3 billion, I think, of RF revenue in Fiscal '19. What's the revenue opportunity that 5G might give you on top of this over time? Thank you.

Cristiano R. Amon -- President

Thank you for the questions. I think maybe I'll start by saying we are expanding RF today. We have a number of designs that we have been reporting throughout the year. I think those designs, some are getting market, some are getting to market soon and we'll be able to see the tier downs. We're happy that not only are we getting the complete end-to-end solutions in the low band, but also the mid and the high band, including the permits and the filters. We expect that will continue.

With 5G, the reason we're optimistic about the opportunity of increasing attach rates is when you think of millimeter wave, you have to design the front end in the antenna and the transceiver integrated into a package and also you have to optimize performance of a new technology and a new environment where we have a time-to-market leadership. Those things are great trends for us to expand the RF business, which we're actually pleased with the results we're starting to get right now.

Donald J. Rosenberg -- Executive Vice President, General Counsel & Corporate Secretary

This is Don again. I just wanted to correct something. I believe I said the ITC second case is going to hearing in January. In fact, it's going to hearing in September.

Operator

Edward Snyder from Charter Equity. Please go ahead with your question.

Edward Snyder -- Charter Equity -- Analyst

Thank you very much. I'd like to hear, if I could, the QCT results, especially with regard to the 700 series. I'm sure you guys have seen the uptick in wins for MediaTek's P60. They seem to have abandoned the high-end to you, which is obviously very good news for your 800 series. I know you've got the 700 series has been kind of positioned to fight back on that platform. You said they've gotten quite a few dozens of wins on that. Can you just help us out with the dynamic between your 700 series and their P60 series? Especially in the mid-tier 4G market?

Then if I could also, China has lagged in 4G overall. They've got basic 4G and I know they've put a flag in the ground about commercial 5G deployments by next year. That would suggest they're going to have to cover a lot of ground between LTE Advance and LTE Pro between now and then to make that target. Do you think there's some risks to their deploying 5G or maybe it'll be delayed beyond what they've targeted, why they're trying to catch up, and what impact does LTE Pro or LTE Advance increase in mix that China's going to have on your motor business especially? Thanks a lot.

Cristiano R. Amon -- President

Thank you, Ed. Let me start with the 700. The dynamic we saw in the China market with our key OEMs and have been consistent with what we have said for probably the past two years, is the market is moving up. I'll answer two of your questions with the 700 series. The 700 series, it basically was an opportunity, as some of the mid-tier devices, OEMs are more interested in bringing that to more premium feature set. One of the feathers that also drove a lot of the 700 is the advanced modem performance in LTE.

In some other markets, especially outside China, you see some markets advertising that even as a 4.5G technology. So that was, for example, in Latin America how the 700 series got labeled in terms of performance. So, this is a good sign, but also the 800 series we saw pick up, as some of the key customers entered the market. So, our view is the market continues to move into the right direction for us. That bodes well with the expansion of our customers into other markets. Not to single anyone out in particular, but just looking at Xiaomi as an example, they're now in 70 countries and they're the No. 4 smartphone in Europe within one year.

That's a good thing and looking at the global feature set of LTE as the design point for our customers in China. Not only China, domestic. Going to 5G, that's where things become more interesting. The scale of the user-friendly trial of the largest operator in China, China Mobile, which everyone on the infrastructure side and the OEM side is working toward the second half is very large. That gives us an indication that the transition could be as meaningful as we saw with 4G, so that creates an opportunity for basically jump-in feature set in China toward the 5G with a 5G new radio stand-alone and we're excited about that as well.

Operator

That concludes today's question-and-answer session. Mr. Mollenkopf, do you have anything further to add before adjourning the call?

Steve Mollenkopf -- Chief Executive Officer

Yes, thank you. Just an observation that obviously, the company's been through a lot in the last year. But I also want to recognize that we've accomplished a lot as well. Not only the strong quarter and outlook that we've put in, but also just the depth and breadth of the product delivery that's occurred. The 845, the products Cristiano mentioned, as well as the leadership position in 5G. I think it's a testament to the tenacity and the dedication and the competitive spirit that Qualcomm has been known for. I just want to thank the employees and our partners and our customers for supporting us through this period and we look forward to delivering for them in the future. Thank you, everyone.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Duration: 56 minutes

Call participants:

Steve Mollenkopf -- Chief Executive Officer

George S. Davis -- Executive Vice President and Chief Financial Officer

Cristiano R. Amon -- President

John Sinnott -- Investor Relations

Amit Daryanani -- RBC Capital Markets -- Analyst

Mike Walkley -- Canaccord Genuity -- Analyst

Tim Long -- BMO Capital Markets -- Analyst

Chris Caso -- Raymond James -- Analyst

Stacy Rasgon -- Bernstein Research -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Romit Shah -- Nomura Equity -- Analyst

Matthew Ramsay -- Cowen & Company -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Chris Danely -- Citigroup -- Analyst

Srini Pajjuri -- Macquarie Securities -- Analyst

Brett Simpson -- Arete -- Analyst

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