Qualcomm Incorporated (QCOM) Bank of America 2023 Global Technology

Qualcomm Incorporated (NASDAQ:QCOM) Bank of America 2023 Global Technology June 7, 2023 7:00 PM ET

CorporateParticipants

Nakul Duggal – Senior Vice President & General Manager, Automotive

ConferenceCall Participants

Tal Liani – Bank of America

Tal Liani

I’m good. Thank you. Okay, thank you very much all for joining us, we put the best to the last, as we say, and we wanted to dig very deep into Qualcomm’s auto business. And I’m very pleased to host Nakul Duggal from Qualcomm, I’m going to let — I’m going to ask you to introduce yourself and your background and what you’re doing, because I’m sure you’re going to do a better job than me introducing yourself.

Nakul Duggal

Thank you, Tal. And thank you, everybody for being here. I’ve been with Qualcomm since 95, today’s actually 28 years on the date. And I’ve been doing automotive for about a decade, just over a decade, engineering background moved over to the business about a decade ago. And so, I’ve been involved with building this business for quite some time. And it really is about how do we take our technology, our platforms, our ecosystems, and address, a brand new end market, which it was many years ago, and obviously, very exciting, very compelling market from many different vantage points today.

Tal Liani

Got it. How do you define the automotive business just give us the high level of what are the target markets you’re going after?

Nakul Duggal

So what we started off in the business was to take technologies that we were building for the mobile business and their applicability into automotive. So wireless technologies, cockpit technology that came from Snapdragon, but over the years, we’ve actually moved over to become very focused on driver assistance, automated driving, we made a few acquisitions. And today we look at ourselves really as three major areas, the central compute transition that is going on in automotive, where there is a lot of integration of compute that is getting centralized, we’re going from dozens of microcontroller or smaller application processor type architectures to a few larger ones. And we are right in the middle of that we’ve been moving that forward. Everything that is about connectivity, mostly wireless connectivity, and then really all the software that builds up the plumbing for the vehicle that will be maybe at a high level, how to describe it, which is a pretty large part in terms of where the transition in the market is happening.

Tal Liani

So you’re selling various products, and we’re going to talk about digital cockpit, we’re going to talk about ADAS, is there synergy between one and another, and is there synergy between all of this and smartphones?

Nakul Duggal

So the one big advantage that we have and this is what allowed us to move into the market very quickly is that there is a lot of technology that the car is consuming today. And that technology isn’t necessarily available. Certainly not in the traditional semiconductor players that have served automotive typically. There are only a few companies who are mostly like us, the Samsungs and the MediaTeks of the world who have similar technologies. But it is really about the application of the technology as the car as a platform is evolving.

So the way we started off was, what could you reuse. But very quickly, it became obvious that the platforms are so different, that you actually have to change the technology, and then you have to position it, you have to situate it inside products that are very different from smartphone products. And that’s kind of what’s happened over the last decade or so. And obviously, there is a lot that you have to learn in terms of what the auto business needs. The software is different, the value chain is different. The reliability and quality requirements are different, the scalability, the cost sensitivity. So it has become now a completely dedicated roadmap. But it takes from the underlying technology roadmap that we build, and we are now — we have been influencing the company’s technology roadmap over the last five, six years or so.

Tal Liani

So before we go into the technology and the product — I want to ask a question at the high level, which is, where are we in the deployment? What are the biggest challenges in your growth? And the biggest opportunities you have in your growth? What drives your growth? Can you talk about kind of the next five years what needs to happen for this business to continue and grow?

Nakul Duggal

There are many facets about automotive that I think are not obvious when you look at it from the outside. And first of all, there is today a tremendous amount of competition in this industry, especially with electrification, what you’re seeing is that the barrier to entry to build an EV has actually gone down drastically. And for traditional automakers, that is a bit of a challenge as well, because there are a lot of new entrants, and you have to be able to come up with what your new architecture is going to look like relative to what used to be.

Timelines in a traditional automotive setting, not very aggressive. But if you, for example, go to China, you will see that a lot of newcomers that are coming in don’t really have any background in building cars. But there is a tremendous amount of infrastructure available to be able to get into the market. And they come from the tech space, they come from software. So the barrier to building a software defined vehicle product is actually reduced.

It is a business that requires a tremendous amount of energy, because it is not like a smartphone where you have a very fixed amount of time within which you can launch it and kind of what you’re doing. It is a much more complex product. And so you need to be able to operate the business at scale. We have a large size team that is working on automotive. This is not a team that is amended.

Many years ago, when we were reusing products, it was simpler today, we have large, dedicated teams that are working on this. And that scale is actually — you can’t really be in this business without operating at that scale. So you need enough escape velocity, you have to be able to be very sensitive to every tier of the market because automakers are going through this motion of insourcing a lot of the areas that they were previously dependent upon on tier ones. Everybody’s investing heavily in building software teams. Some are better than others, faster than others, you can imagine kind of what that starts to go look like. But you really have to be able to service and support everyone because the volumes are unpredictable, right? The volumes are very regionally centered, what will happen in the U.S. will not change very likely in terms of the mix, what will happen in China is highly unpredictable. So you have to spread your bets very widely.

And then when it starts to come down to the technology, it really comes down to what is the expanse of your product portfolio? How many different ways can you actually address the customer base that exists because it is actually not straightforward to be able to manage, we will launch in the next six quarters, we will launch 150 programs. That’s the scale at which the business is operating. So this isn’t something that you can enter in and see, okay, let me do you really have to do it at scale.

Tal Liani

How do you define a program?

Nakul Duggal

So for us, a typical program would be from when the business is acquired to launching it, which is between, I would say 18 and 30 months, depending upon the automaker, and it really is to the start of production. So a car is actually in a dealer’s lot available for sale and the complexity of the program. Nowadays, there is very little reuse in terms of the program, from one generation to the next, a lot changes because there’s a lot of competition. Connectivity programs are by definition simpler. But as you go 4G, 5G, there is a lot of change. But if you start to look at the cockpit space, extremely competitive, because everybody wants to be able to do something slightly different there. There is a lot of energy being focused on how does the automaker bring their own brand in the middle of all of it. They also vary depending upon the region you’re deploying in.

And then as you start to move for driver assistance and automated driving that is even more complex, because it comes down to what is the level of automation you’re targeting? What is the budget available for the program, which part of the world you’re launching? And so that would probably be 18 to 30 months, every six months in some cases.

Tal Liani

Are the programs, the launch date? Are they sensitive to economic cycle, meaning what we’re seeing today, does it cause auto companies to push out deployments or push out kind of program dates?

Nakul Duggal

I think it varies depending upon the market and depending upon the automaker. I think one thing that has been an opportunity but also complexity is the transition to EV, which has been pulled in pretty much by every automaker which forces the car architecture to now change. You have to start to move to a different car architecture. And those that are mature or those that have less complexity can embrace that much faster like, you will see for example Volvo is a big customer of ours and they’re launching many different types of vehicles, a lot of shared architecture within GLE, Polestar et cetera. But if you look at something like GM much higher levels of complexity in terms of what all you have to get done.

So this varies quite a bit depending upon the OEM. But I think it also depends upon how familiar you are with software as an automaker, how much capability you have insourced, where you have dependencies, where you are in the learning cycle, some are able to manage certain things very well themselves, other areas they are dependent on other customers. Launching the car is now fairly complex effort from a program perspective, and so we get to see what the struggles and trials and tribulations are of various automakers.

Tal Liani

Got it. Without getting into numbers, I just want to understand how this market is going to evolve over the next few years. Do you envision a J curve kind of growth? Do you envision steady and slow growth in the industry? Is there a critical mass that you need to pass through and then suddenly growth accelerates? How is this industry going to grow?

Nakul Duggal

One thing that is certainly happened is, after Tesla, a lot of other smaller players, especially in China, have actually moved very quickly. BYD is an exception and other larger player that has moved quickly. That is starting to get the attention of the traditional automakers in terms of the need to move to a newer architecture. The change to a newer architecture changes the silicon content in the car completely. So where you might have thought you have time you could push these things out, actually, it’s not possible anymore. Because if you want to have a footprint that is competitive in a market like China, why would you think that you will not need the same thing in other parts of the world. And so a lot of conservatism is being looked at again. And automakers that have actually bitten the bullet and are moving forward are now trying to understand what the execution complexity is.

For us, we’ve been well prepared for this, because we’ve been actually pushing in this direction for five plus years. So our investments, the roadmap that we are building, is all getting ready for bigger chips, more complex software, much higher levels of integration. And then it really is a question of how quickly can the industry absorb that level of complexity.

Tal Liani

Got it. I want to maybe go kind of into segment-by-segment and speak about your growth, and the first one is connectivity. Can you take us through the journey in connectivity? First of all, what is the — it’s obvious what’s the expertise you’re bringing in? But can you talk to us, what is expertise you’re bringing in from smartphones? How much adaptation do you have to make into the car environment? And who are the competitors in the space?

Nakul Duggal

Let me start with the competitors. I think MediaTek is really the only viable competitor when it comes to modems. The one thing that I think has served us very well is that we started to actually do connectivity in cars back in 2002. So we started working with GM with OnStar, when they had a choice between GSM and CDMA, management at that point in time, pushed very hard for them to embrace CDMA and they did. We are now in our 11th generation of modems at GM. And that has actually served us really well because at the end of the day, all things being equal, automakers will choose to go with us.

And the reason is, it’s just a tremendous amount of experience. It is actually one of the businesses where the complexity is much higher than the smartphone because you have to live in your product for a very long period of time globally. And I think, have done a pretty reasonable job in that — you may lose a deal here or there on pricing, et cetera. But it is a business where if you don’t have the scale, it’s actually very difficult to be able to go support this business.

We’ve tried many different things in this business. We have done unique features like dual SIM, dual active, you have to subscription of the car at the same time. We integrated V2X Inside the modem because that’s something we’re pushing for. We’ve now announced the acquisition of AutoX. That is still underway.

So it’s a space where we understand the surface area pretty well. We understand all of the various technologies, products that are required. We understand competition. And we are building a platform that continues to keep getting richer and richer. For example, most recently satellite communications, there has been a lot of interest in that. So we will evolve the platform to be able to go support that. Wi-Fi was the other area that we were not as focused on six, seven years ago. But we have a very broad Wi-Fi portfolio, discrete Wi-Fi products that we now designed to work together with our telematics portfolio said so that also actually gets a lot of lift with the overall solution and the Wi-Fi use case in the car is quite different.

GPS has become a very important use case in the car for a variety of different reasons from precise positioning to ADAS et cetera. That’s integrated. Powerline Communications was a business that we acquired about 10 years ago, actually for the home and back then the team actually started to look into what the application was in the car. We don’t have — we have fairly decent market share for both charging station technology and the in car technology on Powerline. So the connectivity business has actually, there are many independent businesses, they work together, they also work independently. And they are very broadly distributed across the ecosystem, and there is a lot of history with each customer. So I consider that a pretty stable and reliable franchise.

Tal Liani

And how is this segment going to grow? Is it just about penetration, meaning, okay, I got into this car or that car at GM or even once you penetrate, is there an opportunity to grow within the same platform?

Nakul Duggal

So this is an area where we are kind of trying to look for expansion of the SAN itself. So we have efforts around the two-wheeler space and the three wheeler space, because as so when you start to go into an electrified platform, it has to be connected, you cannot have a platform that cannot be connected. So that increases the SAN. And that is something that we’ve kicked off, we’ve had some early success, I think we’ll share more later this year. But from micro-mobility to two wheelers to three wheelers, that’s I think, an expansion.

The other areas services, which is something that we’ve been dabbling in and trying — so we built a services platform. And we are trying to figure out what types of services makes sense where there is always obviously, the complexity where you end up competing sometimes with what your customer is also trying to do. But because we are building a platform versus selling components, we have a very good understanding as to what our customers are doing with that platform. And that’s where we are looking for opportunities, both before market and after market, to actually be able to remain connected to the platform you’re selling over its life. And as you know, because the life of these platforms are 10 to 15 years, and there is a lot of value to be extracted by a variety of different people. So that’s kind of our focus in terms of our human services on top.

Tal Liani

Is the majority of automotive revenues today coming from connectivity?

Nakul Duggal

I wouldn’t say a majority, I’d say probably half and half.

Tal Liani

Got it. Now, another segment that you have is car-to-cloud. What first of all, what is it? And what’s the difference between this and collectivity?

Nakul Duggal

Yes, So car-to-cloud is a services platform. So it serves all of the hardware and software that we deploy in the vehicle is served through the car-to-cloud platform. And think of car-to-cloud really, as a services platform that has API’s that are available in the edge that you can essentially call from the cloud, we can call them directly, we can build our own solutions, we can partner with companies who we can extend those solutions to. So we support everything from fleet management solutions, OTA solutions, we are able to manage the configuration of the hardware. So if you don’t want to buy the fully dimensioned platform, if you want to buy a certain portion now and you want to pay for that later, that is something that car-to-cloud will support. We have announced partnerships with Salesforce, for example, where if you want to actually be able to look into what is going to bring CRM all the way down to the edge, what does that look like? So it’s basically a services platform that gives you a tremendous amount of visibility into the edge.

Tal Liani

Within the context of what we spoke so far, before we continue into the other parts? Is there an opportunity for Qualcomm to have recurring revenues? Or is it still about the old model of smartphones here is a chip put it in it works, or maybe there’s a software piece that goes with it?

Nakul Duggal

So there is always an opportunity for recurring revenue. And I would say, the way that we think about it is, first of all, because the life of the platform is much longer than, say, a typical consumer device. We always look for over dimensioning the platform because we know that the customer is going to need more over the life of the platform.

So for example, we have the ability to be able to sell you 60% of the capability today, knowing that you will come back for more, that is something that is supported. That’s part of the business model. We have the ability to add software capability on top, post the sale of the hardware. So the capability is built in but if it is needed, because some kind of regulation kicks in, or like an ADAS this is fairly common, where you need to be able to meet with a certain level of compliance today. But over time that compliance requirements may increase, I can push more software for you because I have additional hardware capability built in. So those are all software based.

And then the services and recurring revenue, those are very specific. So for example in the two-wheeler space, but actually in those cases we leave with the services model, we will actually package the solution as an end-to-end service where the hardware is built in as part of the service but it depends upon the specific opportunity.

Tal Liani

Every company that buys, every car manufacturer that buys connectivity from you will also buy car-to-cloud or can it be unbundled meaning but to buy from you connectivity and buy from another software company, the ability to provision the car?

Nakul Duggal

It is unbundled, They have the ability to buy any which way. And maybe I’ll be a bit specific there. Car-to-cloud provides a wide variety of capabilities. For example, if you want to be able to control the configuration of our hardware, you obviously have to be able to get car-to-cloud access. But if you want to run your own OTA solution versus ours, you’re free to go do that. So it is highly flexible in terms of what the business model is, which you have to be because this isn’t a space that, this is a space that we’re still building.

Tal Liani

So the question also is, we are saying that in the future, very far future, probably but automakers will make as much money from upselling software and services than making the car. Is Qualcomm benefiting from any upsell, you spoke about, to sell various levels, but or are you now selling the full fledge hardware to the company with the software capabilities to the automaker, they pay full price, and then it’s up to them to price it differently and upsell in the future different software packages. So how do you participate in, if at all, did you participate in the upsell opportunity later on?

Nakul Duggal

So we would participate definitely, first of all, at the hardware level, if I sell you a configuration that has additional room to grow. And for you to be able to get access to that you have to pay, perhaps would be one way to go participate, which we do. So that is a fairly standard configuration. So if you want to, for example, have a standard configuration that you want to deploy across all of your vehicles, but you don’t need the full performance on day one for every single skill. And we can come up with an engagement that allows you to be able to pay for when you actually go use, that allows us to be able to participate.

Tal Liani

Let me define the question a little bit different because I’m referring more to Tesla, for example. Tesla sells you a basic software with a car, but if you want the autonomous driving, whatever, it’s not autonomous, but if you want autonomous, right, it’s another $13,000. The question is you provide the same capabilities to companies? Are they — I want to understand if the car makers put the initial hardware already fully fledged, so they can upgrade the software in the future, or that they put basic hardware today, then you go to the mechanic they upgrade hardware so they can, how does it work from the car manufacturer? And how does it work from a Qualcomm perspective?

Nakul Duggal

From the reset, think of it like this, if we provide a product that is going to go into a premium tier vehicle that is not fully equipped, when it is sold, the hardware has to be made available by the automaker, but not all of the functionality is actually needed to be sold. So we would essentially at that point in time come up with an arrangement that would say you’re buying this kind of capability over a period of time, you will pay when you upgrade.

Tal Liani

That is software, right?

Nakul Duggal

That’s software. So the hardware, so you get paid for a certain amount of hardware. And then the rest of the capability hardware plus software is unlocked over time. Another way to think about the same thing is, automakers do not want to have too many platforms. So they will pick one standard platform and use it across all tiers. Now they know already that for the lower tier for example you don’t need all of that functionality, how do you go pay for that. So there are plenty of opportunities to be able to say the software allows me to be able to unlock more capability that allows me to be able to monetize over the life of the platform.

Tal Liani

We didn’t speak yet about digital cockpit. Can you take us through it, number one and what are the products that are involved in again same question as I asked you before, how did Qualcomm come to this market? Whether what’s the strength that you brought from the other worlds into this market?

Nakul Duggal

So back in 2012, we had — we were focusing on our connectivity business and Audi who had been a customer they were doing 4G with us at that point in time. They asked us to look into explore with them, if we would be interested in getting into the cockpit business and we took them up on it.

Tal Liani

Cockpit, just for those that don’t know cockpit is the –

Nakul Duggal

Cockpit is the instrument cluster and the screen where you have your maps your other controls. So usually today if you think about typical vehicle, you will have four displays. You will have the instrument cluster, you will have your infotainment system maps et cetera. You’ll have a passenger display and you will have an augmented reality heads up display. Those are the four things that you might have in a mid to high-tier vehicle.

So back then, they actually were using Nvidia for, I think there was an Nvidia graphics product that they were using for the infotainment business, and they invited us to say, hey, we would like to start to see what kind of technology you can bring. And it was a great opportunity, because it wasn’t something that we knew really anything about, it was back in 2013 or so. But we learned how to do automotive quality. And we learned how to do automotive software. The realization was that, if we made enough changes to the technology that we are developing in smartphones, the application of the platforms that we build in a car are actually very rich.

If you think about our standard products that we sell, today, we’re driving eight displays off of one SOC, various resolutions for various things, mirrors are going away for various aerodynamic type use cases, and they’re getting converted into displays. You have all kinds of cameras inside and outside, all kinds of visualization is going on. It’s all running off of the same technology foundation that we have created. So there is a tremendous amount of synergy between what we are building for the smartphone space not to a point where what we are doing in the car, especially in the cockpit has far exceeded what we are doing in the high-end of the phone.

And the concurrencies are extremely complex, because you are actually serving three customers, you’re serving the car, you are serving the real-time nature of how you are engaging with the driver, and you are serving an external application ecosystem that is coming in.

So we’ve been at this for now close to a decade and the one big advantage that we had was that we were able to look at our smartphone roadmap, pick the right parts, make the right changes, and make available very quickly, solutions that serve the needs of every tier. And over time, we were able to influence the direction of how do you actually design this cockpit, because it is really about integration, reducing the role of cost of ownership bringing down — bringing more functionality to lower tiers of the vehicle. And that has made us obviously, very strong platform provider.

What we also had to do, because this is not just hardware, there’s a tremendous amount of software that is needed. You have to serve a wide variety of fairly fragmented software ecosystems, which we learned. So we’ve actually invested in the software teams that are needed, we have the ecosystem partnerships. And that allows you to be able to have, a set of customers that are very comfortable with the platform, the teams, the software that they have built, and then you have a lot of repeatability in terms of how you build the business.

Tal Liani

Got it. What I noticed is that some carmakers make an announcement that their rear infotainment system is Qualcomm, the front is someone else. Are we going to — is this market now is being defined so we see multiple vendors in the car, et cetera. And then they’re going to choose one, or we’re going to live with this kind of fragmented environment for many years?

Nakul Duggal

That example is happening less and less. I think, at large automakers who have a very large difference between the tiers of their vehicles, entry tier vehicle that needs something very basic, versus more advanced systems that need something more capable. We are not focused on the entry tier. But I would say that most automakers are centralizing on really one platform that goes across most of their vehicle lines. And then if they have a second one, it is really for an entry tier that is kind of different affordability level. But you don’t see as much of that.

Tal Liani

Got it. Okay. And who are your competitors in digital cockpit?

Nakul Duggal

Many competitors. We have Samsung. We have, MediaTek is now starting to play. We have Renesas at a certain level. Not so much Nvidia anymore.

Tal Liani

They’re busy with Tianjin City.

Nakul Duggal

Yes. That tells you actually everything. We have a number of Chinese competitors that are starting to show up now locally. But it is a market where you need to be able to have a lot of different assets to be able to operate at scale. So I think so far, I think we’ve been able to do a fairly good job in holding.

Tal Liani

So on that I will ask you, what’s your differentiation? What do you bring to the market that the smaller Chinese don’t have? Or the others don’t have?

Nakul Duggal

And I think first of all, I think there’s a lot of experience. We have kind of taken this market in the direction that it is gone. So we control the set point in terms of what the integration is, how do you do a lot of the concurrency, how do you actually define a feature set for the next generation cockpit looks like. There is a lot of software integration you have to do. So you’re running safety software with an Android app side-by-side. You have to be able to support this globally because automakers are all developing their solutions all over the world. So you have to be able to have teams that can actually make that happen.

You have to work with a large number of ecosystem partners because a cockpit is built by between a dozen and two dozen different software providers that come together. You have to build a roadmap that scales. So one of the reasons why we build the roadmap that we did is, you can’t afford any more, in my mind to have a corporate roadmap and an ADAS roadmap separately. That’s just not enough, the size of the opportunity is not big enough. So you have to be able to consolidate those two, that requires you to make choices. So we, in this generation that we are in, we actually spun out the roadmap completely. We no longer use mobile chips. We only use the technology. These are all automotive chips that are built from the ground up just by our business.

So you have to be able to make those kinds of bets. And I think once you go do that, then you’re always going to have competition where somebody is going to want to try to do something on the cheap or experiment, et cetera. But these are systems that are very complex, because you have to be able to keep the software updated over its life. And so you kind of need a customer. So you need a partner, then they automatically going to say, okay, these guys have a lot of the experience, the people, the understanding, what do I need to go do when I’m making my choice? Well, I think that — so it’s a number of different. It’s much more than just a product. We have many other things that come into play.

Tal Liani

Got it. Okay. I touched on three areas so far, where Qualcomm was able to bring expertise in smartphones into the automotive market, very clear synergy between the products. The next area is something you had to make an acquisition, which is Snapdragon, right platform, ADAS, right? Autonomous driving, et cetera for those who don’t know. Take us through the journey, again of Qualcomm in the space. What did you bring in internally? And what did you acquire and where are you today?

Nakul Duggal

Yes. So maybe five years or so ago, it was pretty clear to us that if we had to be relevant in the automotive space, a real strategy take from mobile using auto that got us to where it did, but that was not going to be good enough. If you recall, we were in the middle of the NXP acquisition back then. So the thinking was, we will acquire NXP and XP will bring a lot of the things that we don’t know about automotive, and that will kind of complete the picture. It became clear to us a year or so before we finally parted ways that that was not going to pan out. So we doubled down and we said, we do need to have silicon that will work in the automotive space from a safety perspective.

And at that time, we had to start to think about what kind of roadmap do we need to build for ADAS. So we started to do what you might normally expect. We took the right chips that made sense. And we started to make sure that they were — they had the opportunity to play in the ADAS space. And it was a very good decision because it actually won us the GM business on ADAS. So we won that back in 2019. And we learned a tremendous amount, because really the ADAS use case is about taking a large number of sensors and processing them in a fixed delay budget for a variety of different use cases, whether it is real-time processing, apply AI to it, obviously, based upon the action that you have to go take.

So we had to figure out how we were going to go do this as a roadmap, it was pretty clear that the roadmap we would have to build for silicon would have to be a safety ready roadmap. So that decision we took fairly early on. Then the question was, do we build our own stack? Or do we just support other people’s stack. And the decision we took there was, we had some assets internally that we had been building on the stack side, but nothing that we could get into production with. So we had to go acquire a team that had that experience. And the path that we are now on is, that it’s a flexible roadmap, we can host other people’s stacks, we’re obviously building our own. And what I like about this market is that this is headed towards 100% attach, every single car is going to have safety software and safety hardware. And it really is going to come down to what kind — it is not that different from the cockpit in that to be able to get to where we are, is not going to happen in one or two years, it’s going to take a long time and have to be added.

So the more synergies you can create at the product level and the more you focus on creating software that is very tightly coupled with your hardware, we know how to do those things. We’ve done that for a long time. I think that makes you a very attractive bet for a customer to make. And I think if you spend enough time with automakers, what you will realize is, it really comes down to make versus buy decisions where they’re concerned about handing over what they might think is a very important part of their differentiation to a supplier. But then the very quickly the question is, is this expertise that they can have at scale internally. So if they have to make a choice, would they trust a supplier that is going to give them the flexibility that they need to have. So for us these are all bets that we are making for the long run. But I think so far, I think they are playing out well.

Tal Liani

One of the bigger player in this space is Mobileye. I’m not an expert on Mobileye, I don’t cover them. But I know they have north of 60% market share, if not more. But they do have a very proprietary approach where you have to buy their entire platform from them, everything from soup to nuts. How are you — how do you intend to take market share from Mobileye? How are you different from their approach when it comes to modularity of the product et cetera.

Nakul Duggal

In automotive, once the product goes to 100% attach rate. The only thing that automakers focus on is the cost of ownership and control points, there’s nothing else that they focus on. And one of the big challenges that the Mobileye model has is that the system is not programmable. It is designed for Mobileye software. So that will always have — it’s a target that you can aim at, because you’re always going to get attention.

For us really the starting point is very different, right? We are building heterogeneous SoCs that has been our history. We have proprietary hardware, that is highly accelerated. And then we have, CPUs and GPUs and DSPs that you can program on. And then, we have a very broad ecosystem that can develop on our platform. So the example I gave to you about the skills for example, I can sell you a platform that competes with Mobileye. And then I can open it up and charge you a little bit if you want to run a parking stack on it. And if you want to do something more, I can allow you to do something more as well.

So for us, it really is about what are the areas that we want to differentiate on with a hardware and software solution that is ours and allow the ecosystem to be able to go develop on top. And because the platform is highly programmable and we are going to be — lack of better word opportunistic in terms of how we enter the market. We build platforms that are very broad. We will build certain technology areas that want to excel in. And then, over time, we will figure out which market we want to focus on. But the cost of ownership question is always going to be a better equation with us because it gives the automaker a lot of choices.

Mobileye has done a fantastic job. They are a great company. But I think the kind of the Blackbox, part of the solution does, I think, pose some challenges.

Tal Liani

So the good thing is that we have a great discussion, the bad thing is, I only covered three questions out of 35 questions I prepared. And I know I had a lot of sub questions. I want to stop for a second to see if there is any question from the audience before I continue, we only have two minutes left. But I want to at least have the opportunity of any questions.

Question-and-Answer Session

Q – Unidentified Analyst

I can do that. But over time, how should we think about potential content or vehicle reduction? And kind of what have you seen in terms of changing dynamics over the past few years?

Nakul Duggal

Content per vehicle reduction, could you elaborate.

Unidentified Analyst

Yes. So we’ve heard about vehicles and autos moving from decentralized ECUs to more centralized ECUs. So in that context, how should we think about potential content per vehicle reductions? And obviously on the same side with perhaps lower quality chips and maybe potentially older chips as well?

Nakul Duggal

Yes. I don’t know if I can answer it in terms of dollars and cents, because there isn’t really a way to — you can normalize it. But maybe think of it like this, I think one is the example I like to use is a BMW 7 Series used to have like 150 different ECUs five, six years ago. Today, it probably has more like 10. Obviously, there is a big difference in terms of what the ASPs are but you can imagine all of the peripheral cost of carrying all of those 150 ECUs, obviously starts to go away. So there is certainly a system level savings that a BMW gets benefit from, but the bigger benefit is, you can take those same systems and now scale them down to a 5 Series and the 3 Series. So the overall silicon content across the entire vehicle lineup is going up, because you’re able to bring functionality to lower tiers. Is the total amount of electronics content going down?

I think it probably is, just because you are comparing with something that is fully equipped and perhaps not the norm to something that now becomes the norm. So I do think that the amount of electronics that is going into vehicles is just massively increasing, just because so many more cars are getting access to that capability.

Tal Liani

Correct. Any other question?

Tal Liani

We only have 20 seconds left. I think we better finish it here. Thank you so much.

Nakul Duggal

Thank you. Really appreciate it.

Tal Liani

Thank you.