The Six Five team discusses Intel, Qualcomm, and Huawei licenses.
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Transcript:
Patrick Moorhead: US government has cut off potentially the last semblance of support from Intel and Qualcomm to Huawei. Dan, why don’t you kick this one off?
Daniel Newman: Yeah, look, there were some licenses that were granted. A lot of people still wonder how that actually happened in the first place, but they were, and then Qualcomm and Intel were able to sell to Huawei. Now, of course, Huawei’s had a lot of change. They spun off the Honor brand. They are building their new Harmony OS. You saw the Apple numbers, which again, there’s debate if you’re an Apple fan. Last quarter, Apple did way better than the China setup had been. If you’re harder on Apple, you’re saying that the world is falling and China is ending. Tim Cook’s flying over there.
But the net of it is that there’s some long tail stuff that impacts Qualcomm on the 4G side. If they can’t sell these any longer, there could be an opportunity for media tech. Intel, of course, impacted by Huawei, and this is another microaggression as I see it. This isn’t on the end of the scale of selling the advanced AI stuff. So all the walls that are going up between us and China has to do with leading the arms race globally to be the most advanced and most capable in delivering these AI. This, to me, is odd. It doesn’t actually fit within that. It fits more within these consistent, we’re going to jab at you, you’re going to jab back at us and it’s going to create pain for your companies, we’re going to try to create a little pain for your… Back and forth, Pat. Stacy, I’d love to hear you’re all on it, but that’s my feeling of what’s happening here.
Stacy Rasgon: To be fair, these licenses apparently were up for renewal in Q3 anyways and I think it was going to go, I don’t think any of these companies was expecting a renewal. Qualcomm had already said that Huawei we was going to be out of the model by the end of the calendar year, and that was two issues. One of them could have been the license. The other is part of the reason that Qualcomm’s revenues are over in the folio, Huawei is doing their own internally manufactured 5G chips now at SMIC, the 4G portfolio is transitioning to 5G, so it’s going away anyways, but I think, I don’t know that it’s necessarily, it’s petty to do it one quarter early, but I think it was going to happen anyways.
We sized this for both companies, it’s not that big. Qualcomm had already said it was going away. You can do the math. They’re only selling low-end 4G to Huawei. All the high-end stuff, Huawei to transition to 5G. Our math suggests it was probably a few hundred million dollars, maybe 15 cents in EPS, and this is in the context of a company that, at least street consensus, has it doing $11-plus in earnings next year. It’s not that big. Huawei also pays licensing. The Huawei licensing agreement with Qualcomm, for those of you that don’t know, Qualcomm has a chip business and licensing business, the Huawei licensing agreement expires early next fiscal year, and so they’re actually actively engaged in re-negotiations right now. If Huawei stopped paying licensing, it’s another 10 cents.
For Qualcomm, it’s not that material. For Intel, similar kind of magnitude. The problem is Intel’s not doing 11 bucks next year. The street has Intel doing 2, right? It’s probably, I’d size the potential impact to Intel if Huawei does 5 million pieces a year, give or take, makes them ASP assumptions, it’s 500 million to a billion dollars, maybe 10 cents an EPS. Intel, by the way, the day after pre-announced, they actually lowered their guidance for the quarter. What they said is the old guidance, I think, was 12.5 to 13.5 billion, so the midpoint is 13 billion. They said we’re going to come in below the midpoint, so it’s kind of consistent figure. They knocked the number down by a couple of hundred million dollars in the quarter, consistent with our annual, we said 500 million to a billion for the year and that feels about right. Qualcomm also came out.
Qualcomm actually held their guidance for the quarter. They said we’re aware of it. We’re not changing our guidance. So it all kind of hangs together. It’s not that big of a deal from a number standpoint for either. The issue that Intel had is just it’s one more thing on the pile.
Patrick Moorhead: Yeah, a whole lot of nothing here. Just to close this one out, I found it interesting that Xeon wasn’t part of the conversation here because Huawei has a very sizable infrastructure business where they ship a lot of these into Chinese carriers, Middle Eastern carriers, Southeast Asia.
Stacy Rasgon: That may have already been shut down by the, I don’t know that they’re selling that stuff anymore. Most of the other guys that were selling infrastructure chips to, for example, like Xilinx or Altera, Intel owns Altera, AMD owns Xilinx. That got shut down several years ago.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
