00:00Let's start with Qualcomm here. It was a bigger miss, a bigger move in the stock. Give us your
00:04reaction to just how this company is going to survive in an era of weaker demand for phones.
00:12I think that's a big question for Qualcomm. The story, if you go back a little bit, the story
00:17around Qualcomm for the last couple of years has been, how are they going to diversify their product
00:22revenue to get into other areas beyond mobile? And as of today, they're still pretty reliant on
00:27mobile. But the focus has really much been on cars and IoT and that data center. And I have to
00:34think
00:34that these quarters make me concerned that they have taken their eye off the core business.
00:39Mobile is a really challenging market right now. Memory is, of course, a big problem. It's eating
00:43in demand. But I look at these numbers and I think there's something else going on.
00:48They're talking about losing even more share at Apple. I think they've taken their eye off the
00:52ball on mobile. Yeah, I did want to ask about that because the company did warn it's losing
00:56business from Apple more rapidly than anticipated. So is this about them needing to find new customers
01:03for that mobile chip business or just diversify more broadly?
01:09I think that's the root of the problem on mobile is that they told us a couple years ago they
01:16were
01:16going to lose Apple by 2027. And now it looks like they're going to be out of Apple entirely by
01:20the
01:20end of this year. So that's not good. So they've needed to diversify their customer base in mobile.
01:26The problem is in mobile, all of their customers are also working on their own chips that are
01:31alternatives to Qualcomm. And they're competing against their own customers. And the new businesses,
01:36the other areas that I mentioned, those are coming online mostly, but it's going to take them a long
01:42time. And I think their ability to succeed in some of those markets is still really unproven.
01:47With regards to this transition, and I just want to go back to the just particularly in the handset
01:51market. I mean, they did seem to articulate that they think that they've seen a particular bottom
01:56right now. And we should point out that conference call just now getting underway. But it gets to this
02:00idea is the issues right now in the smartphone market overall, not just with Qualcomm. Is that
02:05purely a function of the component pricing? Or is there an is or just a maybe a demand cycle issue
02:11as well?
02:13I think it's a little bit of both. I mean, consumer like pretty much everybody in the world
02:18who's going to buy a smartphone has one right now. And so the market growth is entirely determined by
02:23replacement cycles. And I don't think there's a really compelling reason to buy a new phone right
02:27now. I think that changes later in the year, I think we'll get new exciting phones from Apple
02:31that will sort of get things going a little bit. But right now, the market's not particularly exciting.
02:36And on top of that, prices are getting more expensive because of memory. And so you go buy
02:41a new phone today and it might not be as good as the phone you got last year. So why
02:45upgrade?
02:46So draw a distinction between what we're seeing with Qualcomm and what we're seeing with Arm.
02:50Because I mean, Arm's still a company that gets most of its revenue from royalties tied to how many
02:55handsets are sold. Their shares are slightly weaker here, but not necessarily to the extreme.
03:01Is Arm a completely different story when we talk about what's been going on in the chip design space
03:06compared to Qualcomm?
03:08I think so. Arm has done a much better job of diversifying. They have a much more flexible
03:13business model because they're licensing IP. That lets them move more nimbly. So they've gotten
03:18much better traction in automotive and industrial. And then there, I think they have a much more credible
03:23data center story than Qualcomm does. Qualcomm has been trying to get in the data center for a decade
03:28now. This is their third or fourth, depending on you want to count. And like they put out some big
03:34numbers last month about what they hope to do in the data center. I don't think they have as much
03:39credibility as Arm does. Arm has been working away at the data center for much longer and has, I think,
03:45a more credible, sort of persuasive, bigger story.
03:49How long can that data center story persist? I mean, you look at the shares of Arm,
03:54the ADRs, they're already up like 100%, even more than that year to date. Data centers are just,
04:00it's a super hot theme right now. You have to wonder, does that momentum kind of die down?
04:05So the issue with Arm stock is that it has a very, very thin float. Effective free float is in
04:10the
04:10single digit percentage of shares, right? Soft banks alone, 75% of it. And that does weird things to
04:16the stock. If you look at its movement over the last like three months, it's gone from $150 up to
04:21$420.
04:22Now it's down in the mid-200s on basically no news, right? That's not fundamentals that's trading.
04:28That's a lot of sentiment and also this weird share price liquidity dynamic. So I think Arm is an
04:34important company. It has a really critical, central role to the entire semiconductor industry.
04:38They're doing very well at the, you know, in the data center, the hot area. And I think that will
04:44continue, they'll continue to do well there.
04:46I'm going down the link here.
04:46So •
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