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Akash Palkhiwala

Thank you, Cristiano, and good afternoon, everyone. I'll start with our second fiscal quarter earnings. We are pleased to announce non-GAAP revenues of $10.8 billion and non-GAAP EPS of $2.85, both of which are above the midpoint of our guidance.
QTL revenues of $1.3 billion and EBIT margin of 70% were flat on a year-over-year basis and slightly below midpoint of our guidance due to lower handset units in emerging regions. QCT delivered revenues of $9.5 billion and EBITDA margin of 30%, with revenues at the high end of guidance, due to upside across handsets, IoT and automotive. QCT handset revenues grew 12% year-over-year to $6.9 billion, reflecting the benefit of increased premium dear Android shipments.
QCT IoT revenues of $1.6 billion increased 27% versus a year ago period, driven by demand for our products with connectivity, processing and AI technologies. We delivered QCT auditive revenues of $959 million, reflecting 59% year-over-year growth on increased content in new vehicle launches with ApDragon digital chassis platforms. Lastly, we returned $2.7 billion to stockholders, including $938 million in dividends and $1.7 billion in stock repurchases.
Now turning to guidance. I'll first address the macroeconomic environment, including the impact of tariffs. There's uncertainty around the impact of the global trade landscape on demand across our businesses. Our guidance for the upcoming quarter is based on our current assessment of the financial impact of tariffs as they stand today. As the situation remains dynamic, we'll continue to closely monitor for potential changes.
For the third fiscal quarter, we are forecasting revenues of $9.9 billion to $10.7 billion and non-GAAP EPS of $2.60 to $2.80. We estimate QTL revenues to be approximately flat on a year-over-year basis, reflecting normal seasonality for handset units with revenues of $1.15 billion to $1.35 billion and EBT margin of 67% to 71%.
In QCT, we expect revenues of $8.7 billion to $9.3 billion, an EBIT margin of 28% to 30%. At the midpoint, this reflects year-over-year revenue growth of approximately 12%, led by strength in handsets, IoT and automotive. We expect QCT handset revenues to increase approximately 10% on a year-over-year basis, driven by growth in Android.
We estimate QCT IoT and auto motive revenues to grow approximately 15% and 20%, respectively, versus a year ago period, driven by the same factors outlined in our second quarter results. Lastly, we estimate non-GAAP operating expenses to be approximately $2.25 billion.
In closing, we are very pleased with our strong results in the first half of fiscal '25, with revenue and non-GAAP EPS growth of 17% and 21%, respectively, versus a year ago period. We are increasing our capital return target to 100% of free cash flow in fiscal '25, reflecting confidence in our strong cash flow generation and financial targets outlined at our recent Investor Day.
As the global trade environment continues to evolve, we remain focused on our execution priorities including our relations with customers and partners globally and investing in our industry-leading technology and product road map. Despite the near to macro uncertainty, our business strategy remains unchanged. and we remain committed to our long-term financial framework. Our disciplined fit allocation and balance sheet flexibility position us for success across varying market scenarios.
This concludes our prepared remarks. Back to you, Mauricio.

Mauricio Lopez Hodoyan Lopez Hodoyan

Thank you, Akash. Operator, we're now ready for questions.

Question and Answer Session

Operator

(Operator Instructions) Joshua Buchalter, TD Cowen.

Joshua Buchalter

Congrats on the solid results in a difficult backdrop. My first question, could you maybe spend a couple of minutes talking through what kind of assumptions you're baking into in particular, your guidance in the handset market? I mean, given there's pretty widespread concerns of tariff-related pull-ins. Are you seeing any signs of that yet? And in particular, your largest customer was up pretty meaningfully year-over-year. So was any change in order patterns there?

Akash Palkhiwala

Yes. Thanks, Josh, for the question. Our approach on tariffs is really our guidance reflects our current assessment of the financial impact from it. We do not see any material direct impact to us at this point. The landscape obviously is dynamic. So we're closely monitoring, but we're very focused on things we control and very focused on supporting our customers as well.
One thing to remember is when you look at our supply chain, we have a very diversified global supply chain. And so that positions us very well to navigate challenges that might happen as a result of tariffs. And then maybe specifically on your question of pull-ins, we have not any material pull-ins from our customers. So this reflects kind of reasonable, consistent ordering patterns from them.
And that's what's reflected in our guidance.

Joshua Buchalter

Understood. And to follow up, I think a quarter ago, you expressed some optimism but certainly didn't include any Huawei royalty revenue in the model. Any updates to share on those negotiations, obviously, given the difficult backdrop to be signing deals right now?

Alexander Rogers

Josh, this is Alex. There really aren't any updates. Discussions will be ongoing, but we don't have any updates right now.

Operator

Samik Chatterjee, JPMorgan.

Samik Chatterjee

So maybe if I can start on the IoT segment. And just in relation to the -- it seems like that is the segment you saw the most upside rated to your own expectations for the quarter. If you can just flesh out what drove that upside? And maybe just going back to following up on the last question as well, like is that a segment that any evidence of pull forward of demand? And then I have a quick follow-up.

Akash Palkhiwala

Yes. Samik, this is Akash. So in the IoT area, we saw tremendous growth in the quarter. We reported sustained year-over-year growth. And we saw growth across all three areas.
So consumer, networking and industrial. The largest growth contributor was actually industrial. As we have discussed in the past, we have this premise of where the market is going, which is a transition from microcontrollers to microprocessors and AI.
And we're seeing the benefit of our technology portfolio as it applies to that transition. And so we're at the front end of the transition in our minds. And some of the upside in the quarter came through the benefit that came from that transition.
Then maybe the last thing I'll highlight is -- when you step back and look at all the different areas in our IoT revenue stream, which is PC XR industrial networking. Our technology is becoming more relevant than ever to each of those areas. So that's what gives us confidence in our long-term forecast.

Samik Chatterjee

Okay. And then maybe for my follow-up, if I can ask you about your M&A pipeline and strategy here. Just -- when I look at focus AI and Edge impulse, obviously, I don't know those businesses as closely, but how should we think about some of these acquisitions enhancing the [capabilities] in the current end markets that you're trying to diversify and enhance your position in relative to maybe some acquisitions adding to the existing end markets and giving you more growth pillars in terms of additional incremental end markets that you can go into with some acquisitions?

Cristiano Amon

Samik, this is Cristiano. Good question. Look, this is very consistent to what we said before. And I kind of point you back to the plan we outlined on our last Investor Day. If you look, we have made acquisitions in the past to create our automotive business, which we feel very confident about how complete our road map is.
We made acquisitions such as which enable us to create an opportunity in compute. And we have been saying that the next focus for the company was to really augment our IoT space and especially in industrial as a cash-out line. We're 100% convinced there's a significant opportunity for advanced computing and AI at the edge in industrial.
And what you see us doing with Edge and Pulse with of course AI, is actually building a software platform, that we can scale our technology to all those different verticals and we'll probably continue to augment the platform with those types of acquisitions.

Operator

Timothy Arcuri, UBS.

Timothy Curry

Akash, typically, September is like seasonally, it's up kind of mid-singles to high singles. I know there's a lot of uncertainty, but -- is there anything besides just the macro that you would sort of point us away from thinking of that as like a normal Q3?

Akash Palkhiwala

Yes, Tim, you're right. I mean as we look at the fourth quarter, obviously, the underlying factor there is the environment. And so we've reflected the best information we have today, and we're going to watch -- obviously monitor that closely.
In QCT, specifically, when you look at Android automotive and IoT, we expect normal seasonality, both from a quarter-over-quarter and year-over-year perspective. And then within the Apple product business, as we've said, we expect our share to go lower in the launches that happened in fall 2025. So we're forecasting approximately 70% share in that launch. And the rest of the fact is kind of consistent with what you'd expect.

Timothy Curry

Great. And then just on China, there's a few offsetting factors. I know you did speak about the what's helping the market, but there's also tariffs and trade. So how do you handicap your China business? Are you seeing signs of the customers wanting to move away from US suppliers like you and move more to MediaTek? How do you weigh those factors?

Cristiano Amon

Tim, thanks for the question. This is Cristiano. Look, at this point, we feel their position is strong because it has to do with how unique our product is and how relevant our product is for the global ambition of our customers. I think we remind everyone that when we look at our exposure, there are the products that stay within China, but there is a significant volume that goes from China to the rest of the world. And I think that's what drives uniqueness, I think, of the Snapdragon position there.
And there are a couple of data points. I think just a couple of weeks ago, we had the Shanghai Auto Show. We had a number of new partnerships, including an expansion of the pipeline with new design wins in auto. We have seen no signs of a slowdown in design traction on Qualcomm products within our Chinese base, and that includes smartphones, PC, automotive, XR and there was some traction in industrial as well.

Operator

Stacy Rasgon, Bernstein.

Stacy Rasgon

I wanted to first ask about chipset gross margins. It looks like they were down a bit in Q2, maybe 90 bps or so. They seem like they're being guided a similar amount in Q2. But like -- why were they down in Q3 and Q2, especially given these within handsets that presume mix toward more premium given the weakness in the emerging regions smartphones that you talked about? Was it just mix between like the different segments? Or just like what was going on there?

Akash Palkhiwala

Yes. So Stacy, this is Akash. It's really the mix across tiers and segments as well, right? We saw some upside that came through on lower tiers that kind of made us very small difference in gross margin. But kind of when you step back and think about broader gross margin trend, we're pretty very happy with kind of both our actuals and guidance and there's no new information we do before. It's just how the mix plays out between quarters.

Stacy Rasgon

Got it. And for my follow-up, I know you talked about no direct impact from tariffs, but you said you're baking in what you're seeing, like what are you baking in for the indirect effective tariffs? Like you talked about Android being seasonal, I guess, in the September quarter, which doesn't sound like you're baking in or suggesting any potential for demand destruction if tariffs or anything get put back on this.
How should we be thinking about like the actual specific assumptions you're putting on the market in the wake of the current macro and the tariff situation as we go through the year?

Akash Palkhiwala

Sure. So Stacy, what I said is we do not see any material direct impact. There is smaller direct impact and some minor changes in demand. We are reflecting that, and so it's in our numbers. But nothing that really is significant enough to change the direction of our guidance.
So that's the data point I was giving. In terms of indirect impact, that's obviously something that we are watching closely. Difficult for us to predict that at this point.

Operator

Joe Moore, Morgan Stanley.

Joseph Moore

Great. And you guys are continuing to show really strong results in auto in what's been a tough market for others. And you're talking about doubling by fiscal '29 from here. Can you talk about the growth drivers when does ADAS start to kick in more as a growth category? And just what is it that gives you that confidence in that multiyear forecast?

Cristiano Amon

Joe, this is Cristiano. There are a couple of drivers. I think if you remember when we outlined and disclosed the pipeline, we said one third at was ADAS. And we also had Flex is really becoming a reality. We have some interesting designs and some upcoming SOPs with Flex that has both the digital cockpit and ADAS in the same chipset.
But the key drivers of the revenue is really the mix improvement with more digital cockpit, more computer and content and then in ADAS coming up. When ADAS alone, I think we just announced the quarter of five new designs of ADAS.

Akash Palkhiwala

And Joe, to quickly add a data point to it. When you kind of step back and look at within the auto market, the car is being transformed, we play in the market that is being transformed. So digitization of car is happening, and we play in the area that is actually growing significantly, both in terms of the penetration within the established base of the auto market, but then also the silicon content multiplies as you get into the new type of cars. And so we are playing in this tremor area within the car market, and that's what you're seeing in the numbers show up.

Operator

Chris Caso, Wolf Research.

Chris Caso

The first question is with regard to handsets, and you talked about that being up about 10% year-on-year. Could you break out the relative of, I guess, the two buckets that would drive that the China business and then your other large customer. And you also mentioned some impact from some of the subsidies that were happening in China. Could you give some more detail on that? And perhaps is that sustainable demand? Or would perhaps that caused some pull forward as well?

Akash Palkhiwala

Yes. From a subsidy perspective, in China, what you've seen is really the total units for the March quarter came in line with expectations. We are continuing to see a stronger mix play out, and this has been a trend for the last several years. So if you think about premium to your handsets over $400, they have increased from 21% of the installed -- 21% of new devices sold in 2019 to about 30% now in 2024. And so that part of the market is expanding.
Our customers are gaining share. And that is really what is informing the upside for us, both in the results quarter and the guidance quarter. And that's the primary driver of growth for us.

Chris Caso

Got it. I guess with regard to the PC business, and you gave some data points on the -- in your prepared remarks. I know that your product line has changed a bit, so you can attack some lower price points there. What does that mean for the growth of the PC business within IoT this year? And as you attack some of those lower price points are the margins on those products similar to what your IoT business is today?

Alexander Rogers

Yes. So if you think about what we've done in the PC business, we started at the top of the road map and established ourselves as the performance leader. And since then, we've introduced a total of four platforms, which addresses PCs all the way down to $600. And then the next generation of chips will come out later this year as well. So very, very happy with how the road map is playing out.
In terms of design wins, we expect 100 devices to be commercialized by -- in 2026. We have greater than 85 design wins today. And in terms of applications being ported and games being ported, we have now ported 1,400 games onto the platform and 750 native applications. So that's kind of preparing ourselves for a ramp in the market.
The data point that Cristiano provided in his prepared remarks is for those devices greater than 600 in US and the top five EU markets. We have approximately 9% share in the March quarter. So very happy with how the traction is playing out, and it positions us to achieve our target.

Cristiano Amon

Yes. I just want to maybe a mind there. When you go back to our Investor Day, we're kind of projecting 12% share by fiscal '29. So I think that gives us confidence we're on the right track.

Operator

Christopher Rolland, Susquehanna International.

Christopher Rolland

I guess my first one is if you guys could address maybe competition, whether you guys are seeing either more or less pressure, particularly at the high end, and kind of related. Would you say that CSS design that might provide APs out of the box for handset OEMs. Would you ever consider that a threat or probably just a very low-level threat to your business?

Cristiano Amon

Good question, Chris. I'm assuming you're asking about the competitive landscape in smartphones. So that's what I'm going to address. Competitive landscape has not changed for us at all. I think if we -- if we break that down by customer group, I think we have on Samsung, a relationship that is stable.
We have been competing for decades with their own silicon. We have changed the baseline of that business used to be 50% level and now our baseline share is about 75% level. And we have been executing multiyear agreements with that customer. So I think no change in the landscape. When you look about the competition for China-based customers, the competition is really between two players, and MediaTek.
We like the fact that the premium tier has expanded. We always have said it's a large enough market for two players and that's the competitive landscape we see going forward.

Christopher Rolland

Excellent. And Cristiano, maybe my second one here around AI. You guys have been really successful in AI, adding NPU, adding ASP as a result -- but maybe Intel suggested that this isn't the case in PC, they're not getting ASPs for increasing AI capabilities. So I guess my question is, I guess, first, kind of philosophical, whys work so well in mobile? And then for your future products going forward here, do you think there's still that link more AI, more NPU, more ASP?
Or is this an upgrade cycle that's really taken place and kind of ASP expansion from here related to AI might be more difficult.

Cristiano Amon

This is a great question. Actually, Chris, I love this question. I am -- so I wanted to unpack this, and I think there are two separate conversations. So I'm going to start with the philosophical as you pointed out. It's interesting.
There's -- it seems to be a little bit of an impatience, I think about what's happening with AI, especially mobile and PCs. But what you have to look is really the trend. And I think that's what's really important. And I will unpack the difference between phone and PC. In phones, is crystal clear, especially when you look at the maturity of AI today, the ability to have an assistant that does things for you -- even for productivity, you see now more clarity on use cases being developed for smaller screen.
When you have a smaller screen -- systems are incredibly useful for you. And where we are in the cycle right now, it's kind of similar to what we saw in the feature phone to smartphone transition. You're in the part of the cycle; the most of the new features come from the OEM and from the OS provider on AI.
And then eventually, they're going to start coming from third-party developers and that's where we're at scale -- we like the trend. It's driving more NPU content into the phone is driving ASP, and it's going to be a game about once this thing is deployed at scale with a number of new use cases about who can deliver more NPU performance without compromising battery life.
And I think that's kind of most of our investment is in this area. We like everything we see. I think there's a patient people expected everybody like tomorrow to buy an AI smartphone, but the trend is good and again measured by the of use cases were the beginning of third-party developers building use cases.
PC is a little different. PC, the first, when we enter the PC space, it's above our multi-day battery life and faster CPU in a better form factor. Now it's the same exact trend, it is a little bit different. I think that's why things like DeepSeek is incredibly helpful under a smaller model running on the PC. And four, for capabilities that you use AI all the time, there's an economic aspect running.
So I think what we're seeing right now is we're winning PC designs because we have a better laptop. It's faster. It is smaller. But the PC AI is just at the beginning. As more and more SaaS companies, especially as they get pressure from competition, smaller models make the cloud and the devices at the edge now competing for inference.
You're going to see more of those use cases and then the NPU is going to shine. And I think that you started to see that the OS vendor, Microsoft, talks about it a lot because they're building the AI use cases as an OS. But next, you're going to see the third party and it's going to be the same dynamics that we're seeing on the phone. So we remain encouraged by it. I think it's going to create a positive cycle and we are investing to have the best NPU out there.

Operator

Ross Seymore, Deutsche Bank.

Ross Seymore

Akash, they're both going to, I think, be for you. So the first one is you mentioned about the market share at your US customer going down to about 70% in this generation. I wanted to see what that means on the OpEx front for you. You guys have done a great job of controlling the OpEx dollars.
But as that business goes away, trajectory you've said many times before, how does the OpEx change and maybe the margin structure of Qualcomm during that exit from that main customer?

Akash Palkhiwala

Yes, Ross, thanks for the question. I think our strategy or OpEx has been very clear, and we put this in place a couple of years ago, where the idea was to keep the existing scale of the OpEx investment and transition the investment from handsets, while still maintaining leadership in handsets to these new areas that we are focusing on within automotive and then PC XR and industrial within IoT.
So -- that is the framework under which we are operating. We're continuing to move investment into those areas to create this tremendous growth opportunities for us. And then on the revenue side, as kind of Apple revenue goes down, we're looking -- we're very optimistic that the targets we laid out replaces that revenue and puts us in a good place from an overall P&L So that's the framework that we outlined at Investor Day as well, and that's what we're executing on.

Ross Seymore

Great. Then one more for you quickly. You guys boosted the free cash flow return to 100% return to shareholders. What was the reasoning behind doing that? I think everybody will obviously take it and it's a positive sign, but I just wanted to see what the catalyst was?

Akash Palkhiwala

Well, I think we've had very strong cash flow for the last couple of years, and so we've seen our cash balance grow. And there's an opportunity given where the stock price is, it's an opportunity for us to leverage that cash balance and increase our buybacks. But we are doing it while, of course, maintaining our strategic flexibility for M&A. And it's the same framework we laid out at Investor Day, not fundamentally changing how about it. But there's an opportunity, and we're investing as a result.

Operator

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

Cristiano Amon

Yes. Just a few comment. Thank you all for listening to our call. I would like to say a big thank you to all of our employees, especially our supply chain teams, that have been a lot of great work. Thanks for all of our customers.
And I just want to leave you with this thought. As we navigate those times, this is a company that is not -- it's experience deliver of uncertainty. We always ask ourselves, is our technology relevant? And I think this is a time that we actually never felt stronger about their technology road map and how the company is positioned to be relevant to a number of different industries. So that's our NorthStar. We'll continue to execute to that, and I look forward to in the next quarter. Thank you.

Operator

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