FMET - Getting Ahead Of The Digital Transformation Ft. Cristiano Amon CEO And President Of Qualcomm

2023-04-22 01:30:00 ET

Summary

• The digital transformation has been accelerating since the pandemic began in 2020, from fully remote to hybrid working to the digitization of products and services.
• So even though the economy may be slowing down or feeling the effects of rising interest rates, the digital transformation is ongoing.
• When we look at the diversification of Qualcomm and if you look at what we're doing right now in addition to mobile, the automotive industry, we have this very broad IoT category and one of those elements in the IoT is the industrial.

The digital transformation has been accelerating since the pandemic began in 2020, from fully remote to hybrid working to the digitization of products and services. Host Oscar Pulido is joined by Cristiano Amon, President and CEO of Qualcomm ( QCOM ), to help guide us through this transformation.

Transcript

Oscar Pulido: Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm your host, Oscar Pulido. The digital transformation has been accelerating since the pandemic began in 2020, from fully remote to hybrid, working to the digitization of products and services.

Efforts are underway to integrate digital technology into all areas of business, fundamentally changing how businesses operate and deliver value to customers. It's also a cultural change that requires organizations to continually challenge the status quo, experiment and get comfortable with.

Here to guide us through this change and help us look to the future I'm pleased to welcome Cristiano Amon, President and CEO of Qualcomm, a firm that has helped develop technologies that make the smartphone in your pocket, the computer that it is today, and that is now taking those same technologies and putting them into everything else from the auto industry to the Metaverse.

Cristiano, welcome to The Bid.

Cristiano Amon: Happy to be here, Oscar.

Oscar Pulido: Well, Cristiano, it's been three years since the pandemic began, and I think many of us were aware that there was a digital transformation going on in the world, although feels like the pandemic made that more front and center for us as many of us had to work from home. We found ourselves on video calls and zoom calls.

I'm just curious, was that when the digital transformation began, in your opinion, or when did it begin? When can we point to that being the start?

Cristiano Amon: That's a great question. I don't think it was the beginning but was the acceleration for sure. And there's so many different ways to describe it. I'm going to maybe describe it in a couple different ways.

One is immediately when the pandemic hit companies needed to connect to the other people and, no matter where they were, but then they realized they also need to connect to their assets. And that's what we saw, and we continue to see that everything into a company needs to be intelligent; it needs to be connected, it needs to have a digital twin of it in the cloud.

I think the other way to think about it is it has been an ongoing process that the economy is becoming more digital. So, I think those two things are reality and I think what we saw a significant acceleration of that into the pandemic.

Oscar Pulido: So, what are some examples that tell you that digital transformation is underway?

Cristiano Amon: I think one is cloud connectivity is now paramount. Everything is in the cloud. Your data is in the cloud. Information in general is in the cloud. The second thing is what I mentioned before, a digital twin of everything. It's a digital twin of you, a digital twin of your car, a digital twin of everything else.

And then the second point of this is, all of the processes are being digitized, and I think that creates a significant improvement in efficiency and productivity. Now, here's the interesting thing, we look at the current situation right now in the current macroeconomic environment, and we have not seen that it had slowed down some of the enterprise digital transformation because companies will digitally transform for growth, but they also digitally transform for cost reduction and become more efficient. I think that's really what you're seeing broadly and that has continued into 2023.

Oscar Pulido: Right, so even though the economy may be slowing down or feeling the effects of rising interest rates, the digital transformation is ongoing.

You mentioned at an enterprise level, it's ongoing and the pandemic accelerated it, what's the investment opportunity then? Because when we talk about digitization, it's certainly much more than just digitizing what's on paper. And so, when you think about the investment opportunity, how do you quantify that?

Cristiano Amon: It's very significant. If I'm not mistaken by 2030, we're going to see multiple trillions of dollars in investment in digital and it's really across the board. It's investment in cloud, it's investment in intelligent devices outside the data center.

It's investment in connectivity, and it is very significant. I almost want to focus on how industries are going to be competitive or not. I think there's now this broad understanding that if your industry is not being digitally transformed, you may not be able to compete.

And I think because of that, we see there is an accelerator chase for many enterprises how they're going to digitally transform. And the industries that are not traditionally digital, you start to see the creation of the Chief Digital Officer or those type of positions because it becomes paramount to what their future is going to be.

Oscar Pulido: And so, on that point of maybe focusing in on industries, I know that one of the industries that you speak a lot about, as CEO of Qualcomm, is the auto industry, which maybe some people find surprising when they think of the history of your firm. But how is the digital transformation, impacting the auto industry or how will it impact the auto industry?

Cristiano Amon: That's a great question and actually it has been one of my favorite topics of conversation. Everything that we just talked about it before I can look at what's happened in the auto industry, we can find many examples of that.

So, Oscar, first if you step back and you look what's happening in the industry, investors ask car companies two questions.

The first question is, are you electrical? But the second question is actually the most important one. Are you digital? You know, the car is really becoming a connected computer on wheels, and I think it's changing pretty much everything into the car. Let me walk you to some examples.

First, you have all of the digital cockpit experience, all of those different screens in the car right now, allow for the first time, the car company to communicate directly with their customers. Before that was done by the dealership. Now the car company is in direct contact with these customers.

So, you started to see things in the car, for example CRM systems going into the car. That's our partnership with Salesforce ( CRM ), how Salesforce get integrated into our platform and Snapdragon Digital Chassis. You started to see a lot of services coming to the court, digital services, especially with electrification.

It is being determined that if you have an electrical vehicle, when you're charging, you're spending more time in your car and if you're spending more time in your car, you're going to be entertained, you're going to work from the car the same way that you work from home. And I think all those things are happening as you have those screens in the car connected to the cloud.

The other thing that is happening is now the car is connected with its maker 100% of the time into its digital twin. You get new features, you get software upgrades, you get new capabilities, you'll buy a car and it gets better over time. And the list goes on and on all the way to what's happening with leading towards a zero-crash environment with assisted driving and what we call ADAS, as well as autonomy getting a scale at really at all tiers. So, it's an incredible transformation with digital technology happening in this industry.

Oscar Pulido: Cristiano, when you talk about that vehicle that you just described, I was picturing myself sitting in this machine that has all these kinds of cool tools. How much of that is actually available now and how much of that is several years in the future. Where are we in that being a reality for most people?

Cristiano Amon: No, it's actually started to happen right now. If you look at some of the new cars they're launching right now in 2023 with some of our digital cockpit platforms, you start to see those beautiful screens, you'll see screens coming from the ceiling of the car and you started to see all of those new services enabled by 5G. It is happening now, but as you think about what's happening 24 and 25, we're now talking about new models in 25 and 26, it gets better and better.

Oscar Pulido: So you're saying it's starting to happen now. We recently spoke to Peggy Johnson, who's the CEO of Magic Leap ( MLEAP ), and she talked about the metaverse, this blending of our digital and physical worlds. And she talked about how for it to impact the end consumer, the hardware has to get better, the connectivity has to get better, and so we still weren't quite there yet, but you're describing it as like it's actually here already. How do you think about Peggy's comments in terms of what you're seeing in that digital cockpit?

Cristiano Amon: I think actually there's some similarities to what's happening in the car also with what's happening in virtual reality, augmented reality, mixed reality. For example, one of the things that we see a lot of interest in some of the car makers, and I'll come back to this virtual reality thing.

But in the car, in addition of all the dashboard and all those screens, you also have a heads up display. You have the windshield and you also have an opportunity to super impose information that comes from the digital side into that display, so it's another area of transformation.

But let's go back to what's happening in the virtual reality/augmented reality space. We've been investing on this for more than 10 years. Virtually now every one of the commercial devices that you see out there for virtual reality, augmented reality, mixed reality is using Qualcomm platforms, a great example of that is the Quest devices from Meta ( META ).

We recently launched Pico, with ByteDance ( BDNCE ) in China, and there's a number of other devices out there being built or launching. That concept that you just brought up, this is what's happening. You are going to have the connection between a physical and the digital world.

And for us, we can see that information in some of those experiences with glasses as a natural thing. So, the technology is going to cycles and if you look at some of the new devices that are being launched right now, they're significantly smaller. We know that humans are going to reject if you have to walk around the street with a big helmet, but if you have something that is significantly smaller, then people are going to use it and then the potential is really incredible.

Let me give you an example of something simple. We used to make phone calls but then in the 4G era as the phones became computers and your smartphone, we started to text people and we communicate [via] text. But now we had the pandemic and now we hold the phone in front of us right now to do a video call.

It's a very well understood technology challenge that we can do today, if you have a glass and I'm going to call you and I'm just going to render a hologram of you right in front of me and we're going to have a conversation, as simple as have a phone call like you right in front of me.

And so, I think the potential for this technology is very big and it could be as big as phones. We see a lot of interesting developments with this across all of the different ecosystems, and I don't think that reality is that far. If you look up what Meta has done, they already have critical mass, it was significant to have a lot of developers. There are some interesting enterprise applications. For training, for education, you have the ability to have collaboration tools and I think we're in the very beginning of something very big which is going to be the metaverse.

Oscar Pulido: I'm just old enough to remember the phone that you were describing that was clunky and big to hold. And certainly, when you think about how that piece of hardware has gotten smaller, lighter, and the transformation it has on people's lifestyles, and that's consistent with what Peggy said around as the hardware gets lighter, it becomes easier to use and therefore has a bigger impact on consumers.

So you touched on the auto industry and you painted a really interesting picture of how car manufacturers now can get better data about their consumers. Can we talk about maybe another example, the industrial sector? How is this impacting manufacturing or retail, this digital transformation?

Cristiano Amon: When we look at the diversification of Qualcomm and if you look at what we're doing right now in addition to mobile, the automotive industry, we have this very broad IoT category and one of those elements in the IoT is the industrial.

And we're starting to see a lot of demand because of the impact that it has on all those different verticals, one of those verticals is manufacturing. As a matter of fact we used to count our customers on two hands in mobile, and then at some point we're counting them on one hand. In industrial, we have over 16,000 customers today, and it shows how much the potential is for our technology to be part of the digital transformation.

Let's go to your question, which is manufacturing, and is a very profound change enabled by technology. So you look into a factory floor facility and all you can do, you can connect every one of the equipment. Even the software that you are going to run on a robot, you can run that from the cloud, connected with technology such as 5G.

A couple things that changed, the name of the game in the nineties, you build the biggest factory you can build in Asia, and you're going to have the lowest conversion cost, and you have the higher productivity for your fixed capital. Now, if all of your equipment is connected to the cloud, you can have distributed manufacturing, you can have smaller factories all controlled by the cloud, and you have the economies of scale having a bigger factory.

It's changing how people think about manufacturing is actually bringing factories back to regions that would not have the ability to, because competitive.

But that doesn't stop there. You have the ability in the factory floor to use those technology, you have handheld devices, you have the ability to use the same robots to do more than one product, you reduce the cost of re-tooling the factory if you have short product cycles because everything is wireless.

You don't have to rewire the entire factory. And then you have also big data and how you use data and analytics to continue improving your process. So, it's a very big transformation and one that is also underway.

Oscar Pulido: And so, as companies and industries participate in this digital transformation, what are the cybersecurity risks that they should be thinking about or that they're asking you about as they undergo this shift.

Cristiano Amon: Great question, Oscar. Especially if we think about everything becoming digital, everything's cloud connected, the surface area is now much bigger. One thing is somebody hacks into your phone and another thing is you have this technology now on the grid for the utility companies, you have the technology now on healthcare, you have the technology on manufacturing.

I think that's both a challenge as well as an opportunity. One of the largest investment areas we have in our chips is security. Where do we store important things such as credential and biometrics? How we do it with encryption, how we do it with multi-factor authentication, how [do] we do softer attestation?

One of the things we just announced was a solution for industrials called Aware, which is a cloud layer that connects to the chips. We announced the Aware Signature, when you actually can validate that the software running on the chips has not been modified, and you can attest to the safety of the software.

So, it's going to be an opportunity for innovation, it's going to be an opportunity for investment, it's going to be an opportunity for differentiation, but that's part of becoming digital. Security needs to be front and center.

Oscar Pulido: Maybe I can also ask you about AI, artificial intelligence, which is a buzzword now, and how does it fit in the context of this digital transformation?

Cristiano Amon: This is one of the biggest opportunities we have in front of Qualcomm right now, and I may not give it justice to the size of the opportunity the way I describe it - it could be transforming our company dramatically.

So, things that are happening with AI, as AI is evolving and evolving fast, and you look at those Large Language Models, for example, like ChatGPT and you look of how those new models work. You have a very Large Language Model, you have to run them multiple times when you do those queries and you have the opportunity to do not only text, but it's going to be images and video and the reality is you're going to have to run those things locally into the devices.

You won't be able to scale into the data center. A simple way to describe this. If you do something as simple as a search and now, you're going to do a search by chatting with the search results and asking queries, you significantly increase the cost of the search because the computational power, so you have to move some of that to each individual device.

This is now one of the fastest growing silicon areas for our chips, we're building very large capacity, very efficient processors because of our phone DNA, you have to run the very high-performance computation, but you cannot compromise on the battery life, and I think that's an opportunity to bring AI to everything.

I actually believe that in the same way that we have upgrade cycles, driven by the transition of a feature phone to a smartphone, the transition of a 3G to a 4G, to a 5G. People are going to want to build a new device, a new smartphone, a new computer, a new car just based on AI capability.

Oscar Pulido: So, Cristiano, you paint this picture of the digital transformation impacting so many industries now, and then what's coming in the future. And I, I said before I was old enough to remember that big phone, I'm also old enough to remember like an old school record player and it makes me think that maybe there are some things we don't want to digitize and some things we like to have in the analog version. So, as you think about this transformation going on, what are some of the things that you think we should keep in kind of analog form?

Cristiano Amon: That's a great question. Well, first, let's just hope that restaurants and food places continue to be analog, it's going to be horrible if it's digital, but you know, it's an interesting question. I like to answer this question, when you think about something as simple as wristwatches, right?

You can saw what happened from mechanical watches, going to digital watches, but you still have some charm and something special about mechanical watches. And I think some of that's going to happen, it's like vinyl coming back.

So personally, I do a lot of work with the automakers to transform the car into a digital connected computer, but I have a passion for muscle cars from the seventies I'm restoring too. And those are all analogs and they are fun!

Oscar Pulido: Sounds like there will be room for both in the foreseeable future based on customer preference. Well, Cristiano thank you so much for joining us on The Bid today.

Cristiano Amon: Happy to talk to you.

Oscar Pulido: Thanks for listening to this episode of The Bid.

This post originally appeared on the iShares Market Insights.

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