高通 (QCOM) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Qualcomm fourth quarter earnings and fiscal year end conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session.

If you have a question, you'll need to press a 1 followed by a 4 on the push button phone.

As a reminder, this conference is being recorded November 7, 2002.

The playback number for today's call is 800-633-8284.

International callers please dial 402-977-9140.

The playback reservation number is 20898587.

I would now like to turn the call over to Julie Cunningham, Senior Vice President of Investor Relations.

Julie, please go ahead.

Thank you and good afternoon.

Joining me today are Dr. Irwin Jacobs, Chairman and CEO, Tony Thornley, President and COO, Bill Keitel, Chief Financial Officer, Dr. Paul Jacobs, Group President of Qualcomm Wireless & Internet and Don Schrock, Group President of Qualcomms CDMATechnology.

The internet presentation and audio broadcast accompanies this call, and you can access it by visiting www.Qualcomm.com.

In addition an audio rebroadcast will be available on our website for approximately two weeks.

Our fourth quarter of fiscal 2002 earnings conference call is taking place on Thursday November 7, 2002 at 2:30 P.M.

Pacific Standard Time.

This call contains time sensitive information that is accurate only as of today's date and time.

In addition, we may make forward-looking statements during this conference call that may differ materially from Qualcomm's actual results.

Please review our SEC filings for a detailed presentation on each of our business and associated risks.

I'll begin with a brief recap of our fourth quarter and fiscal 2002 results.

GAAP reported revenues were $874 million in the fourth quarter, an increase of 34% from the year-ago quarter.

For the fiscal year GAAP reported revenues were $3 billion, an increase of 13% from fiscal 2001.

GAAP reported earnings were $190 million or 23 cents per share for the fourth quarter and $360 million or 44 cents per share for the full fiscal year.

On a pro forma-basis, which excludes the QSI and other items as detailed in our earnings release, fourth quarter revenues were 29% higher to $840 million.

For fiscal 2002 pro forma revenues increased 9% to $2.9 billion compared to fiscal 2001.

Pro forma earnings were $250 million or 31 cents per share for fourth quarter and $794 million or 98 cents per share for the full fiscal year.

As I turn the call over to Dr. Jacobs, I would like to say we are hosting an analyst meeting on November 13th in London with detailed presentations from our executive team.

That meeting will be simulcast on our website with audio and slide presentations.

Dr. Jacobs, go ahead.

Thank you, Julie.

And good afternoon, everyone.

I'm pleased to report that we posted strong results for the fourth quarter and full fiscal year with steady growth in our chip and technology licensing businesses.

This is remarkable given the challenges facing the global economy and the telecom industry.

I would like to thank Qualcomm employees around the world for their continued dedication and commitment to quality and customer satisfaction.

The [inaudible] market has now grown to approximately 20% of the global wireless market, up from approximately 17% last year.

We expect to complete the calendar year with CDMA phone sales up to $85 million on the high end of our estimate and indeed, this estimate may prove to be conservative.

We currently expect the number of CDMA phones sold in calendar 2003 to grow in the range of 18-24% to approximately 100 to 105 million.

This growth can be attributed to the rapid commercial deployment of CDMA 2000 1x and 1xEVDO and to new markets, including China, currently the largest wireless market in the world, and India, currently the lowest - largest low penetration market.

At end of October, there were 24 million reported 1X users world wide and this number continues to grow.

Our 20 wireless operators in 11 countries have deployed 1 X and more are on the way.

Later in this call, Tony Thornley will provide an overview of global business developments.

I will touch on some of the highlights.

CDMA in China has steadily grown during the year as China Unicom rapidly deployed CDMA 1 networks in more than 300 cities.

Unicom has aggressively added subscribers over the last few months with a total of 4 million subscribers by mid-October.

We had the pleasure of hosting meetings with China Unicom here in San Diego last week.

Unicom management confirmed that it expects to achieve 7 million subscribers by the end of the year.

Although, handset availability is a concern.

We are working hard to insure a study supply of chip sets for our customers to meet the strong demand for CDMA phones in China.

Further Unicom is proceeding rapidly with it's CDMA 2000 1X upgrade in the major cities and is expected to roll out Brew applications by early 2003.

We believe the combination of 1X efficiency and speed with Brew and position location applications will provide excellent competitive advantages for Unicom CDMA services.

There have been reports about recent support by the Chinese Ministry of Information Industry, the MMI, for TDF CDMA, the third CDMA 3G technology in the ITU standard.

TD and CDMA uses CDMA with time division duplexing whereas [ Inaudible ] frequency division duplexing plus synchronization of mobile transmittance in cell.

Techniques we explored while commercializing CDMA.

When developed, we believe TDS CDMA offers the probability of a small advantage on the reverse link of fixed or portable users but over a smaller cover region than CDMA 2000.

Following capital review, we continue to find that many of our patterns are essential to TDS CDMA, as indeed, they are for other commercial CDMA technologies.

We have licensed approximately 40 companies, in including [inaudible] for TDS CDMA and have received the same royalty rate regardless of which CDMA standard is deployed.

In India, Reliance, DSNL, MTNL and Toda Teleservices have made good progress in CDMA limited mobility deployments.

These operators are aggressively moving ahead to provide low cost CDMA services to all major regions within India.

DSNL and MTNL have both introduced services for 200 rupies, or just over $4 a month.

Naturally this does not escape the attention of the GSL mobile operators who have appealed the favorable limited mobility court rulings.

The Indian Supreme Court is expected to hear the case in late November.

We remain optimistic about the outcome given the previous favorable rulings and the Indian governments stated objective to provide broad access to wireless services to people throughout India.

The key to success for these wireless operators around the world, is a solid economic underpinnings that only CDMA can provide.

Brew applications, as positioned location capabilities, are quickly becoming a high priority of CDMA operators allowing them to differentiate their service offerings from their competitors.

As subscribers are offered a greatly improved user experience with reasonably priced, higher speed wireless data, their appetite grows for a increasing variety of applications and content.

We've seen this with commercial Brew launches in South Korea, Japan and the United States and we're seeing the desire for even higher speed data and reduced cost with the adoption and launch of commercial 1X EVDO networks two in South Korea and the latest launch of a data-only network here in the United States by Monet mobile.

[Vesper] is also moving ahead with a 1X EVDO overlay in Rio De Janeiro with deployment planned for the first quarter of 2003 and a commercial launch by midyear.

Work and marketing continues on GSM 1 X. GSM 1X provides GSM operators with a now well proven alternative path to the third generation.

In a significant step forward, we have just signed an MOU with one of the top five GSM carriers in the world to conduct a GSM 1X trial to demonstrate the advantages and flexibility that this solution offers GSM carriers to deploy 3G.

We expect this trial to occur in 2003 and hope to be able to announce more of the details in the near future.

I am personally increasingly excited about CDMA, about Qualcomm and our future prospects.

In the spirit of early disclosure, I want to inform you that I will be selling a small percentage of my holdings, [inaudible] sales of stock over a two-year period within the rules that govern affiliate trading, by establishing a 10 b 51 program and selling up to 5 million shares of my - up to 2 million share of my stock in the very near future.

These sales are for the purpose of asset diversification, estate planning and to facilitate charitable giving commitments.

Based on conversations with Qualcomm executives and directors, anticipate that others may do likewise and I respect their right to do so.

Please do not read any other motives into this matter.

The overwhelming percentage of my personal net worth continues to be invested in Qualcomm.

Over the 17 years since founding the company and nearly eleven years since our public offering at a split adjusted price of $1, I have rarely been a seller of our stock.

As I share good news with you, I thought it was appropriate that I inform you in advance of my intention to engage in this asset diversification.

I will now turn the call over to Tony Thornley.

Thanks Irwin and good afternoon, everybody.

This is obviously an outstanding quarter for Qualcomm with demand for CDMA products accelerating very strongly.

What is even more exciting is the outlook for the current quarter which Bill will address in his financial summary.

We've heard concerns among certain analysts that the high current demand for our chip sets will result in inventory build.

In fact, what we hear is far more about shortages.

Irwin mentioned the Unicom's concern in having sufficient phones to meet their target subscriber growth and we hear the same thing in Asia, Australia, New Zealand, Latin America and smaller operators in North America.

We've achieved outstanding operating results with gross margins increasing and expenses down on a sequential basis.

We're,in fact, continuing to recruit for specific skill sets particularly in engineering as the scope of our products continues to broaden.

[inaudible] we do expect to see expense growth in fiscal 2003 but this will be lower than revenue growth.

We did have some ups and downs significant downs in our strategic initiatives segment which represents our investments to support the growth of the CDMA market.

Just to remind you, the reason we separate QSI is to give shareholders and analysts information to accurately value the products of Qualcomm.

Different measurements need to be applied to value our investments compared to the companies core operations.

From our cash flow statement in the press release you'll see the net cash outflow into QSI this quarter as $51 million.

This is the lowest amount for any quarter in fiscal 2002.

The next quarter, the quarter we're in now, we expect to have a net inflow of cash from QSI activities.

As a result of the Telefonica transaction in Mexico we've already received over $99 million, mostly since year end and we expect an additional payment of $435 million to be paid this week.

We are obligated under our agreements with other providers of vendor financing Pigasso to buy approximately $139 million in Pigasso secured debt from them.

Telefonica now is the majority owner of Pigasso.

In response to a question on Telefonica mobile's earnings conference call, they stated they will deploy GSM in Mexico.

Should they proceed on this path, they are obligated to prepay $285 million of the $482 million of debt that we hold in Pigasso.

We are obviously disappointed by their announcement, but we believe that the CDMA operators in Mexico will compete very effectively with the GSM offerings from Telefonica and American Mobile.

Our CDMA market protections for 2003 have already taken Telefonica's indicated decision into account.

I should add that Telefonica was also very positive about CDMA in Brazil where they are the market leader.

We invested $26 million into Vesper the quarter, most of which was for operating cash requirements.

These requirements have continued to decline throughout the year.

Subscribers grew slightly in the quarter to 483,000 despite a very weak economy in Brazil.

Our short term plan for Vesper includes a further reduction in costs so we can achieve operating cash break even at 650,000 subscribers.

One positive development in the quarter was the authorization of secondary use of Vesper's network for mobility services.

This requires either Vesper or it's partners to acquire what is called an SMP license.

We are working with partners currently on ways to achieve this with the lowest possible cash outlay.

We also provided 22 million of total commitment to [Inquam] during the fourth quarter.

Mobile in Romania, one of [Inquam's]operations, added 10,000 customers in the month of October and now has over 40,000 subscribers.

Importantly, most of the new subscribers are from the corporate sector.

These high margin subscribers are helping [Inquam] increase its RPU and [Inquam] is targeting approximately 200,000 subscribers to break even in Romania. [Inquam's] operations - also has operations in U.K., France, Spain and Portugal.

These are Tetra businesses purchased from bankruptcy proceedings. [Inquam] has plans to convert these to CDMA over time.

Vesper and [Inquam] have both been very important in promoting CDMA growth in Brazil and Europe.

They both though, are still at the development stage and so require further cash investment.

We are working hard to assist both of these companies to raise cash from third parties but we do expect ourselves to make further investments during 2003.

We are optimistic we can achieve our strategic goals and create a positive financial exit as we did with Pigasso.

However, as always, we are constantly assessing the situation regarding our investments and there is always the possibility that we'll be faced with an impairment in the value of these investments in the future.

I will now touch on some noteworthy regional developments and we'll expand on these at our London analyst meeting next week.

We are very pleased with CDMA developments in most parts of the world.

Irwin covered China and India already.

I would only add that our efforts to assist Unicom and Reliance are really paying off.

There remains a tremendous amount of work to do in terms of helping Unicom to realize the full value of its 1X deployment with applications and services as well as continue to help manufacturers bring out low cost and highly featured phones for these and other markets.

South Korean markets continues to be quite strong with CDMA subscribers totaling 32.3 million an increase of 1.3 million in the quarter.

More than 14 million of these subscribers were 1X subscribers through September.

Phone sales in October continued to be strong at more than 1.2 million units.

The majority of new phones sold have colored screens.

As we said previously, we do not see any major impact from the reported crackdown on subsidies and replacement phone sales in Korea continue to be strong.

We fully expect the South Korean market to be robust in 2003 with new devices being introduced particularly those featuring 1X EVDO.

In Japan, [KVDI] continues to have a strong showing with a total of 2.65 million 1X subscribers by the end of September.

On track for its own target to 7 million by the end of March.

Camera phones are becoming popular.

All four of the new 1 X models [KDVI] are offering are equipped with cameras.

Even the low end models have cameras.

Camera phones are driving an estimated $40-$50 increase in wholesale handset prices in Japan.

The North American market, where CDMA holds a 47% share, continues to be the biggest CDMA market driven by replacement sales as new attractive phone models come to market.

There are over 26 different 1X phone models available in the U.S. and a growing number have color screens, GPS 1 and Brew applications.

Verizon noted that demand for it's 1X express network continued to build. [inaudible] 8 1X phone models.

Verizon CDMA subscriber base grew 35% - 26.8 million that would give a total of 31.5 million subscribers.

Sprint also launched its PCS edition, 1X network in the quarter with seven 1X phone models most of which have colored screens.

In summery, momentum is building in all major CDMA markets as reflected in our guidance for fiscal 2003.

Now I'll hand over the call to Paul Jacobs.

Thanks Tony and good afternoon, everyone.

Over the past fiscal year, the [inaudible] internet group has built services and enabling technology which provide differentiation for CDMA carriers and improve their economics.

Our technology licensing business grew it's revenues 8% to $847 million in fiscal 2002.

We signed a total of 35 CDMA license agreements during the fiscal year including 24 new licenses and 11 extensions to existing licenses.

We now have a total of over 115 companies licensed for CDMA world wide including all of the major manufacturers.

During the fourth quarter we signed 10 licenses, 7 of which were new and 3 were extensions.

Notable in the quarter was the Seaman's agreement which extended the existing agreement to include WCDMA and CDS CDMA subscriber and infrastructure equipment.

The QWMI segment , revenues grew 3% year-over-over.

The QWDS business was the primary contributor but we're starting to see revenue growth in the investment stage businesses in the segment as well.

Our Omnitrax business tends to be a leading indicator of the U.S. economy because of close ties with the transportation industry, a key component.

Very happy to say that we're seeing progress and increased activity in the industry.

QWDS shipped approximately 15,000 Omnitrax units in the fourth quarter, up from both the year ago quarter and last quarter.

Increased units are primarily coming from sales in the private fleet transportation market which is a new market for QWDS.

Total Omnitrax units shipped during the fiscal year was just under 46,000 with a cumulative total of 450,000 units shipped world wide.

We added a major customer, Frito Lay, this fiscal year with commitments of 1100 Omnitrax and OmniExpress units and 4400 TrailorTrax units.

QWDS has also been active in demonstration of the Omnitrax system advanced security features in support of local and national homeland security efforts.

They are participating in a contract awarded by the U.S.

Department of Transportation to test security for hazardous materials shipments.

Our QAS business has made good strides during fiscal 2002 with three commercial Brew deployments in the U.S., Japan and South Korea and several more planned including Altel in the U.S. and China Unicom.

There are more than 24 Brew enabled handset models available now worldwide and more than 30 device manufacturers are supporting Brew with Motorola and Toshiba being the most recent agreements signed.

Since the last conference call, the number of active Brew users has increased from 1.3 million to over 2.5 million.

The number of over the air downloads of Brew applications have gone from 8 million to over 15 million since last quarter.

Verizon launched their Brew-based "Get it Now" series in the quarter.

They're running "Get it Now" primarily on a color screen phone that have a monochrome phone at the low end as well.

We expect to see a number of new color screen Brew phones by the end of the calendar year.

Verizon has not publicly released the statistics on their "Get it Now" service, but we are happy with the growth to date and we're excited by their existing and upcoming device and application offerings. [inaudible] retail in South Korea has released the latest statistics for their Brew-based, Magic and Multipack service. 19% of their subscribers are now using Magic and Multipack.

Average data revenue per user continues to be strong with new users generating over six times the RPU of TPS 2G users and 50% higher RPU than non-Brew 1X subscribers.

Importantly the Brew application development community is also seeing economic success with Brew.

[Mitch Lassky, CEO of JAMDOT],one of the leading Brew developers, statement that [JAMDOT] will generate more revenue in the next two months from "Get it Now" than they had in their entire company history from WAP.

This goes back to the wap based launch just over two years ago of the WAP based Gladiator game which was one of the most successful WAP games, over 1.25 million unique users.

In another area of QIS, this fiscal year we also announced a exclusive agreement with Nextel, the largest provider of mobile wireless services to business customers, to deploy our QChat voice over IP, push to talk technology over 3G CDMA network, continued to meet our development milestones on this project.

The last fiscal year has been very positive for us as we work closely with application developers and carriers to launch Brew commercial and 3 networks, prepare to launch additional networks in the future.

Our goal with Brew is to continue to help our carrier customers maximize their 1X networks and grow their revenues with exciting new wireless data offerings.

Now l'll turn the call over to Don Schrock.

Thanks Paul and hello everyone.

No year is without its challenges but I'm pleased to report that despite a challenging economic climate, and the continued worst semiconductor downturn on record, QCT posted healthy growth of 17% to $1.6 billion and earnings growth before taxes at 44% for fiscal 2002 compared to fiscal 2001.

We achieved our second consecutive quarterly record for MSM shipments with 20 million MSM units shipped in the fourth quarter compared to 16 million last quarter and 12.8 million in the year ago quarter.

We finished the fiscal year with over 65 million MSM units shipped.

We also surpassed the 725 million mark for cumulative total shipments which include infrastructure and our RF chips.

So we're driving significant volumes for our foundry partners.

QCT's success comes from our customer's success.

This year we enabled customers to bring more than 175 CDMA 2000 1X phone models to the markets rapidly with color displays, cameras, position location, multimedia and downloadable content.

In the fourth quarter 2002 we shipped 15 million 1X MSM chips or 75% of our total volume for the quarter.

Total 1X shipments for fiscal 2002 were 40 million chips for a cumulative total of 46 million third generation 1X MSM's shipped.

Our 1X MSM 5100 product with integrated position location, [blue tooth] and multimedia is our fastest growing device.

We are aggressively ramping the volumes and improving yields on this complex product as quickly as possible.

Yet anticipate a slight margin dip in Q2 fy '03 based on mixed changes relative to our more mature products.

We shipped CSM [inaudible] to support a total of 10 million equivalent voice channels in fiscal 2002.

The two primary drivers were CDMA 2000 1X network upgrades in North America and the IS95A deployment in China.

We are now seeing CSM demand for the China 1X and India 1X buildouts.

Our substantial investment in R&D continues to pay off and this year we sampled numerous complete chip set and software system solutions on our product road map with everyone introduced on schedule.

We sampled and put into production the MSM 5500 and CSM 5500 for 1XEVDO phones and infrastructure resulting in the world's first commercial launch in Korea and U.S. and numerous trials world wide.

We have 30 different customers world wide designing products with these DO chip set solutions.

In March, we sampled the world's first CDMA 0IF or direct conversion chips.

The MSM 6,000, MSM 6050 plus the RFT 6100, RFR 6,000, RFL 6000 and our PM 6,000 series power management chips.

These chips have been released for production and will start appearing in terminals in early 2003.

To expand our addressable market for the future we accelerated the sampling schedule of the MSM 6200.

Our first dual mode WCDMA GSM GPRS chip set solution by a full quarter to meet customer demand.

We've announced that Samsung, Sanyo and Novatel Wireless have selected the MSM 6200.

We've completed sampling the world's first WCDMA GSM GPRS 0IF or direct conversion RF chips as well.

The RTR 6200, RFR 6200, and RFL 6200.

These chips integrate WCDMA RF and a full GSM RF transreceiver into the same chips to allow multimode WCDMA GSM handsets to be made with no increase in size compared to a single [inaudible] handset.

We met numerous milestones in WCDMA or [inaudible] TS, as they call it in Europe, including, [inaudible] operability testing with all major infrastructure manufacturers using Qualcomm's test handset with our MSM 5200 chip set.

Today Qualcomm's test mobile is the most widely used [inaudible] test mobile in Europe.

With our infrastructure partners, we have completed numerous public demonstrations of our leading capability including voice, 6400 kilobit per second circuit switch data, 384 kilobits per second packet switch data, 3G to 2G voice hand overs, streaming video and [Blue Tooth]. [inaudible] announced it' s selection of Sanyo as a phone supplier for [Jphones] network in Japan.

The Sanyo design is based on our MSM 5200 chip set.

We'll provide more detail for our very stong Mchips progress at our London analyst conference next week.

In the September quarter, we sampled our latest chips, our MSM 6100 and MSM 6300, on time again.

Complete with system software and [inaudible] platforms.

Both chips feature our new 0IF architecture with a new more powerful ARM 926ET microprocessor, our new QDSP4DFP and a strong multimedia feature set, including camera interface, impact polar video, decode and encode, 2D and 3D graphics [inaudible] acceleration for advanced gaming applications and enhanced PC quality midi sound synthesizer.

The MSM 6100 is 1X GS GPS 1.

The MSM 6300 is the first world phone chip set solution combining 1X GPS 1 and GSM GPRS capability into 1 MSM.

This chip is the first that can truly operate in every country in the world at CDM, CDMA and/or GSM or in every country including Korea and Japan where no GSM exists.

The zip RF chip sets the RTR 6300, RFR 6,000 and RFL 6,000 which integrates [inaudible] and a full GSM transceiver, together in the same silicone were also sampled in September quarter to enable the MSM 6300 total solution.

Finally let me share a couple of points on our outlook for the first quarter of fiscal 2003.

We expect to ship approximately 25-27 million MSM chips in the December quarter.

Greater than 90% of this is in backlog already.

Of the 25-27 million, we expect greater than 21 million 1X chip shipments, which is greater than 80% of the total shipments in the quarter.

We've been gaining market share and seeing our markets expand, the entire QCT - QCT's contract team is working hard to continue leading.

Thank you, I'll turn the call over to Bill Keitel.

Thanks, Don.

Good afternoon, everyone.

I'll begin with a explanation of the difference in our GAAP and pro forma earnings for fourth quarter of fiscal 2002, a difference of 8 cents per share.

The difference is primarily goodwill amortization and the results of our Qualcomm strategic initiatives or QSI segments.

Goodwill amortization for the quarter was $64 million approximately 5 cents it in the context of pro forma earnings and consistent with FAS 142, this will amortization will cease next quarter.

Find [inaudible] losses from QSI relate to noncore investments in wireless carriers and manufacturers, including interest income on loans, realized gains on investments, realized and unrealized decreases in the value of investments and Qualcomm's share of income losses from consolidated subsidiaries and investments accounted for under the equity method of accounting.

QSI reported a pretax loss of $98 million in the fourth quarter including $42 million for our portion of Vesper losses and $17 million for our portion of Inquam losses as previously noted by Tony.

QSI also reported a $38 million charge primarily to reflect changes in market value of several investments.

Moving to our core operations, pro forma revenues for the fourth quarter were $840 million, up 29% from the year ago period and up 16% sequentially.

Pro forma earnings per share 31cents up 63% from a year ago and up 29% sequentially.

We exceeded the high end of our previous guidance for the fourth quarter by 4 cents per share.

Approximately 3 cents of this improvement was due to higher MSM shipments, continued gains in operating efficiencies and CDMA phone average selling prices holding constant at approximately $200 per phone.

The remaining 1 cent improvement is income recorded for a licensee that had under reported and under paid royalties in prior periods.

R&D and SG&A expenses combined were $210 million for the fourth quarter, a $4 million sequential decrease.

R&D and SG&A expenses as a total were 25% of revenues for the fourth quarter verses 30% in the prior quarter and 32% in the year ago quarter.

Pro forma investment income was $16 million compared to $28 million in the previous quarter.

Investment income, comprised primarily of investment income on corporate cash and marketable securities, was lower in the fourth quarter of fiscal 2002 due to an increase in other than temporary losses on certain debt securities.

Now I'll highlight our segment results.

QCT, our chip division, posted record revenues of $484 million in the fourth quarter.

Revenues grew 20% sequentially and 44% from the year ago quarter.

3G 1X chip shipments increased to 15 million up from 11 million in the prior quarter.

Total MSM phone chips increased to 20 million in the fourth quarter, up 25% sequentially and up 54% from the year ago quarter.

We shipped a record number of phone chips in the September quarter and we expect to achieve a new record in the December quarter.

QTC's operating margin increased to 33% compared to 29% in the previous quarter and 20% in the year ago period.

Clearly we have good operating leverage and we're realizing a strong return on our R&D investment for the last couple years.

QTM reported revenues of $243 million of which $223 million came from the third party license fees and royalties.

This compares to $199 million in the third quarter and $189 million in the year ago period.

As I mentioned earlier, the average manufacturer selling price of CDMA phones held constant at approximately $200 and we recorded under reported and under paid royalties.

Pro forma earnings before tax for QTL were $229 million up 27% sequentially and 29% from the year ago quarter.

Operating margin improved to 91%.

Qualcomm Wireless and Internet reported revenues of $110 million in the quarter and a pro forma loss before tax of $1 million.

As expected, earnings from our Omnitrax business continue to be offset by expenses to develop and grow our Brew business.

Our corporate cash and marketable securities excluding QSI increased to $3 billion and we continue to have essentially no debt.

In the fourth quarter fiscal 2002, our core businesses generated more than $500 million of cash flow from operations.

We invested $51 million additional cash into QSI and $38 million in core operations capital equipment.

Our overall cash position is expected to grow this quarter at a faster pace because of [inaudible] and reductions in QSI investment activities.

For fiscal 2002, pro forma revenues were $2.9 billion and pro forma earnings per share were 98 cents growth of 9% and 11% respectively.

I felt it was a very productive year as we broadened our product offerings, improved our operating efficiencies, and further strengthened an already strong balance sheet.

That summarizes our fourth quarter results.

I'll now provide our guidance for fiscal 2003 both the first quarter and full fiscal year.

We expect December quarter pro forma revenues to increase by approximately 15-22% compared to the fourth quarter of fiscal 2002.

We expect first fiscal quarter pro forma earnings per share to be approximately 35-38 cents.

This estimate assumes shipments of 25-27 million MSM phone chips during the quarter including approximately 21-22 million, 3G 1X MSM phone chips.

We expect a total of 85 million CDMA handsets shipped in calendar 2002 and we expect a pro forma tax rate of 35% consistent with fiscal 2002.

Although we're not providing revenue or earnings guidance for the second quarter of fiscal 2003, at this point we are expecting a seasonal decrease in the March quarter as compared to the December quarter.

MSM shipment quantities in the March quarter are likely to be slightly greater than what they were in the September 2002 quarter.

And we expect a decline in gross margin as we ship an increasing proportion of our most advanced 3G chips.

Also, our March quarter expenses have increased sequentially for a couple of years now due to resumption of certain importing taxes and public company expenses.

We are planning to increase our employee base particularly engineering and resources in QTC.

Based on the current business outlook for the full fiscal year 2003, we expect pro forma revenue growth to be approximately 19-23% and pro forma earnings per share to be $1.15 to $1.20.

This estimate is based on the shipment of 100-105 million CDMA handsets in calendar 2003.

An increase of 18% to 23% over calendar 2002.

I do want to note we've been actively reviewing and refining our calendar 2003 CDMA market estimate and we've consistently arrived at a market forecast in the 100-105 million range.

I look forward to sharing with you more data points regarding our fiscal 2003 guidance next week at our analysts meeting in London.

That concludes our remarks.

Operator, we are ready for questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session.

To queue a question, press 1-4.

To retract a question, press 1-3.

If you are using a speaker phone, please pick up your handset before pressing the numbers.

One moment please for the first question.

Daniel Cohen with Goldman Sachs, please go ahead.

Thank you.

Just a question related to the fourth quarter guidance.

What the hand shipments will be just given the 85 million for the year and the 25-27 million for chip set shipments but a wide range in terms of total revenue growth on a sequential basis.

Can you talk what the variables are between the low and high end there?

The variables are primarily two things.

The range in chip set estimates that we gave out and that also carries through pretty closely to our royalty revenues.

Okay.

And as you look you have a wide range for this quarter but as you look to fiscal ' 03, it's a fairly narrow range.

What is the gating factor for the 19-22% given that large number of handset sales that we imagine will be in the December '03 quarter?

If this quarter turns out to be that much better, how does that factor into the guidance for next fiscal year?

The reason you see a range for the December forecast that you're pointing out is relatively large when you compare it to the full year forecast because this is the December quarter and we are expecting some manufacturers and carriers to refine their orders as we get closer to the end of the quarter.

Great.

And then lastly, I guess, in terms of the 100-105 million breakout, could you just break out a little bit what you think geographically that's going to point to next year and has it changed at all in terms of geographic representation this year based on Q3 and orders for Q4?

Thanks.

Geographically we'll be giving you specks in London.

What I would say, though,is that in every major region I expect we'll be showing growth next year.

And I would also note that the higher growth we would expect to be in the Asia region including Japan, Korea, China and India.

And on China and India specifically in those assumptions?

We'll have to wait for next week for that.

Okay.

Thank you.

The next question is from Mike Wapling with RBC Capital Markets.

Please go ahead with your question.

Great.

Thank you.

Congratulations on a great quarter.

I wonder if you could update us on the OSPs, a mix versus going into bigger areas like China and India.

Our guidance on ASPs for next year is an average of 10% ASP decline.

What we've done is, we've used Don's forecasted chip sets by region and high end and low end to map to that ASP forecast.

So net net, I think we are optimistic that camera phones, color screens, extra memory, dual microprocessors, et cetera will continue to be in our favor on ASPs but as well, we're going to be pushing hard to reduce the cost on low end phones to help with the penetration of CDMA.

Great.

Thank you.

And one more quick question, can you make comments related to some of your competitors talking about capping royalties at 5% for WCDMA.

I can pick up on that.

Actually we welcome that.

There is still many companies reporting that they, or claiming that they have essential [inaudible] intellectual property on WCDMA, and so that is certainly an uncertainty in what the cumulative royalties might be for WCDMA.

We're having a subset of those companies come together and announce a rate or, they didn't give a specific number, but that they would be controlling that, I think is a good step toward allowing broader growth of the WCDMA market so we do welcome that.

Thank you, very much.

The next question is from the line of Mark Roberts with Wachovia Securities.

Please go ahead with your question.

Thank you.

Good afternoon.

Bill, can you give us a breakdown or idea of what CDMA phones sold that you estimate on a fiscal basis.

I'm trying to isolate what the variable on the December quarter is for estimated CDMA phone sell-through.

Our estimate with phone sell-through is approximately 26 million units.

The prior three quarters, our estimate is 18, 19 and 22.

And then to back up one more quarter so that you have a full fiscal year would be about 21 million units.

Great.

Thank you.

And, Don, what do you estimate that your chip market share was in '02 and where do you expect ,relative to all of the WCDMA and CDMA phones that are likely to sell in '03, what would you estimate that your chip set market share will be?

Truly we don't give our market share numbers or our estimates of those numbers but safe to say we have been gaining in the second half of the year particularly as we've shipped a lot of 1X chip sets.

And if I could ask a follow-up question.

Of the three companies that have selected your WCDMA multi-mode chip set, are you aware of other WCDMA chip sets that they also sampled and any kind of feedback you got from them about how yours fared and why they picked yours relative to somebody elses?

I'm not aware if they sampled others, beside ourselves.

So far feedback for more companies relative to ours has been extremely good.

Great.

Thank you, very much.

The next question is from Mark McCechney with Bank of America Securities.

Please go ahead.

Congrats on the quarter.

I wanted to ask on the royalty licenses.

The royalty revenue, that was up 22.4% sequentially.

How much of that came from one-time license versus royalties?

Our licensing fees in total for the year were about $55 million and that's evenly spread per quarter.

And then, as I noted, there was about a penny's worth of a recovery from one license for what were underpaid and under reported from prior periods.

Royalties.

Yes.

So say your royalties were probably up maybe 15-20%, I mean, were units , would units be up that big sequentially or was that mainly ASP improvement?

The ASPs would have held study because reported last quarter that ASPs were $200 and why they came in from the last license report.

It is phone volumes and the one-time event non occurring income that I mentioned.

Is that significant or around 10 million or so or how big could that have been?

That was approximately $14 million.

Okay.

And then one other quick question.

Don, you talked about the chip set margins falling off in March.

Can you explain that a bit and would you expect ASPs to come down for chip sets as well in March?

I think, clearly, as I mentioned we're seeing a much larger percentage of 1X GPM S1 position handsets as we look in December and then going forward.

Those of some of our most complex chip sets that we build today.

So clearly, it's a typical - it's a learning curve.

We are ramping and improving yields as we go and relative to the MSM 3100s or 5105s, and some of the older chip sets, we still have work to do there.

We anticipate a slight reduction there in that quarter.

I'm sorry, you're talking December where the margins come down.

The March quarter.

It's continuing to ramp through both quarters but a stronger ramp of that as 1X continues in the March quarter and a little bit of a dip.

Would your ASPs be up as a result since you're shipping higher end chips?

I think ASPs will be comparable for the quarter and we also are trying to price pretty aggressively to make sure 1X & GPS 1 gets out throughout the world.

Just a slight dip as we work through the yields.

Gotcha.

And you're talking 25-27 million chips and somewhere around 20-22 in March.

I guess the variable is sell-through and how much inventory is left over and less demand in that quarter.

It's probably too early to say anything about visibility on March yet but can you help us think about that quarter better?

Probably looking at seasonality.

We mentioned we have two rules of thought: Market share gain and market expansion.

As Irwin mentioned, we are seeing China moving nicely and we'll see India come on and we hope that will help to balance out some of the seasonality.

At this point our bookings have been very strong continuing into the October month.

The visibility isn't perfect but so far it's looking good for us.

Congrats and good work on the direct conversion chips.

Thank you.

The next question is from John Buker with JKM.

Please go ahead.

The Chinese ministries allocated spectrum for TDD-based technologies.

I mean wondering when you have any other technologies that are TDD-based that are under development in China.

They have allocated for the FTD-based.

Part is for the transmit end than frequency for FDD.

That spectrum is available and additional spectrum made available.

It's early yet to say what they will be doing in third generation.

They are watching carefully what is happening in the rest of the world in deciding how to proceed ahead themselves.

Of course, at this point, Unicom is proceeding rapidly with the CDMA 2000 1X technology which they refer to as 2.5G and will be continuing to expand that rapidly across the country.

So they will get experience with that technology.

They have been running [some inaudible II] has in fact, sponsored trials at 2.1 GHz which is [inaudible]and so far I don't think they had any success yet in the TDD SCDMA results so this thing worked, can be done there.

As I mentioned in my presentation, TDD and synchronization are a reverse link with themselves and could provide potential for improvements in some cases.

I think technology will be fairly late to market, and therefore quite a bit of expansion of the other FTD-based 3G technologies first.

At this point you're not concerned about the emergence of a nonCDMA-based TDD technology deployed in China?

I'm not aware of any, the FTD is a CDMA-based one.

There can be other technologies developed.

I think the CDMA ones provide tremendous capabilities, spectrum, efficiencies and low cost because of being manufactured world wide, the ability to export and add new capabilities and features by the Chinese manufacturers so I think that they will be the major part of the business.

Thank you, very much.

The next question is from Jeff Schlessinger from UBS Warburg.

Please go ahead.

Thank you.

Can I clarify a couple things?

The licenses were 55 million and was that with the one-time or [inaudible] on top of the 55.

The one-time would be on top of the 55.

That's great.

Can you give us the operating cash flow on a GAAP basis?

Jeff, let me backup to clarify.

The 55 is for the year not the quarter.

The fiscal year.

And the one-time is for the quarter.

It's on top of the 55.

What was the operating GAAP for the quarter?

We generated $450 million of cash that was added to our cash position.

On a GAAP basis what you would take off of that is the cash that we put into QSI which was $51 million.

So your cash flow, what we increased our cash position by was approximately $400 million.

And as opposed to return from financing on investments?

It was a small element as you'll see in the release that was from stock options and the DSPP.

Around 11 million.

That helps [inaudible].

Last question, what was the percentage of the MSM shipped in the quarter into China and what do you expect that percentage to be in the calendar fourth quarter?

Thank you.

It's a hard number for us to detract, Jeff.

We know who we ship the chips to, the four masterers.

Where they go with those chips is a little more difficult for us to track.

Unicom stated they are going for 7 million total new subscribers and stated that they are about 4 million subscribers at the end of September.

So one can do the math there and guess.

And last question, you stated that there's about 24 million 1X users at the end of October?

Is that correct, that number?

That's the number that's been reported by CTG.

It's a number that's very difficult to track, I think.

So I would say that's the absolute minimum.

Probably more than that.

What do you think that pop-up would be, Tony.

I could,.

It just very.

Not all of the operators are reporting that so almost impossible to track it.

As you know, when you have a 1 X phone, it can operate on a non-1 X network so how they are accounting users using the 1 X network that leads to confusion.

And one last question for Paul, based on the revenue per user on the Blue Brew business and based on the contracts you have, what level of users do you think that business will break even.

The expectation is next fiscal year this will be profitable.

Trying to understand at what point it will break even in the Brew business.

Thank you, very much.

I don't think we have a good projection yet because of the different instructs and contracts with the different operators.

Still I would say a little early for us to give you exactly how that's going to shake out.

But still the expectation is the next fiscal year it will break even.

A number of thing that is go into that, the break even estimate.

Other thing that is go into that QIS business.

Revenues as well back into that.

Thank you.

The next question is from Ken Luke with Lehman Brothers.

Please go ahead.

Thank you.

Congratulations on the quarter.

Questions, I was wondering if you look at the December number where you are guiding 35-38 and suggesting sort of a similar in terms of chip shipments in March as September where you did the 31cent number, how do you see the profile of the year developing given a guidance number which is $1.50-$1.20 in terms of earnings per share, how should we think about that?

Is it flat in June or up in terms of chip shipments and earnings per share?

Right, we thought that would be a question we could get asked.

We obviously have graded visibility into the December quarter and some reasonable visibility now with chip orders into the March quarter.

So we're relatively confident in those and I would say in the March quarter that we do expect certainly more than September, more than 20 million and we will see how that develops.

We're not prepared to say exactly how many just yet but think it's going to be positive relief to September.

So that would lead the second half of the year in our estimate down from the first half, clearly.

And our view is that we wanted to be conservative at this point.

Many uncertainties out there, so we thought it was prudent to be conservative in our estimates for the year.

Certainly if things continue on the current momentum, we should do better than those projections.

Thanks.

And a question for Irwin, you talked about a major carrier during a 1X overlay trial, is it safe to assume that would be a Asian carrier?

We didn't specify other than a major GSM carrier.

And lastly, obviously the Korea handsets [ Inaudible ] recently, can you talk through why you don't see that having any impact.

Well, they've had the ban on subsidies for a while there, the government has accused some of the carriers of working around that and now is saying that there will be some penalties that involve not being able to sell to new subscribers.

But new subscriber -

Two things, first, they are spacing that so that two of the carriers will be able to sell to new subscribers while the third will not.

This is our current understanding.

So you always have two carriers out there selling.

Secondly a good part of the market, a very large part of the market is replacement market and that's unaffected as we understand it.

And so we haven't seen any significant impact to date and nobody right now is projecting a significant impact.

Indeed I would think the Korean government would really not want to interfere with what's a very strong export market and that's built upon gaining experience in the home market and want the carriers to obey their rulings but to do that without causing any major disruption.

Thanks, very much.

The next question is from [Vorpeck Ushalamec] with Bear Stearns.

Please go ahead with your question.

Thank you.

Good afternoon.

Just a couple of clarifications.

In terms of -you mentioned early on the Chinese shipments, unable to forecast but can you give a sense how many shipments you have seen going to local Chinese vendors.

Obviously you can't specify specific names but how many chips do you see last quarter / this quarter going to local Chinese players.

I can take that one.

Currently what we are seeing is it's going up rapidly.

As you know China started off the first six months very slow.

As we got into September and particularly October we've seen it really start to trend up very strong and with that, therefore, we're starting to see the Chinese manufacturers chipping handsets themselves and therefore ordering handsets.

[chips].

I'm sorry.

Ordering chips.

Correct.

So clearly, it's on a strong increasing ramp for this quarter and as we mentioned China and India will be two of the markets that will really help to buffer the seasonal decline in the first quarter.

So it would be fair to kind of ballpark 5-6 million chips but local Chinese vendors in this year that you would see purchasing?

Is that adding up from my perspective?

Which year do you mean?

5-6 million purchased by local Chinese manufacturers.

In what year?

This year. '02.

Calendar.

That's high.

Probably a little bit high.

Because, I mean, 7 million subscribers and they're somewhat short of phones, so shipment of phones will be somewhat more than 7.

The majority are coming out of imports into the country.

I think that's high and high for '02.

And are you seeing more like the million chip set shipments going into India at this point or the quantities are small in Q4?

India is still not too visibility because they are buying phones from other manufacturers outside of India so we don't have the visibility in the case of Chinese manufacturers.

And also did I get it right, in India RPU average is expected to be $6 revenue per user?

No, what Irwin said is two carriers who'd launched basic plans would be $4 a month.

So $4.

Are they getting subsidized, the handsets, do you know, in order to drive the subscription?

Actually things have been changing there.

I think they do include some of the costs of handset in recovery in their monthly charges.

Those are two government companies so we get less visibility into them.

We'll begin to get more visibility as the private companies begin to expand.

Also those are the limited mobility or fixed wireless where they are now allowed to provide mobility over a reasonable-sized region such as, for example, New Delhi.

And so the pricing is still more like that of fixed than of the mobile carriers.

Okay.

Thank you very much.

Due to time constraints, the last question will be from Lewis Gerhardy with Morgan Stanley Dean Witter.

Please go ahead with your question.

First off I'd like to congratulate you on a solid quarter.

The first question is chip sets, you shipped approximately 2.5 million channel equivalents.

I'm wondering how many channel equivalents are comprehended in next quarters and the fiscal 2003 guidance?

I think 2002 was a really solid year with the U.S. build-out.

I think it will be roughly half of what we've seen going forward.

So half in fiscal 2003?

About half in the year and half in the quarter.

Okay.

And a follow-up if I may, what percent of MSM shipment forecast next year is based on non-voice products, things like modem cards and other applications?

Still a very small portion of it.

It's, you know, single digit percentages.

Okay.

Great.

Thank you.

I think we'll be seeing more and more of those devices, phones but phones being used also to allow connections to laptops and palmtops, and, of course, the PDA typeset include the chip and voice as opposed to just data only.

Having said that, I've been using a modular plug [inaudible]card plugged into my laptop and it's just wonderful to be able to wander anywhere in the country and have very stong connections even actually while sitting on the airplane.

So that's working out very well.

I want to thank you all very much for attending the conference.

Again, we are quite pleased with the response we are seeing to the -- acceptance of our 1X technology and now the beginnings of the growth in 1X EVDO.

We still believe that data will be a very strong supplement to the voice market.

Voice market clearly will be the larger part of RPU but we see data and with downloadable applications becoming a larger part and important part of the business.

That all means that CDMA will continue to thrive.

We are looking forward with great excitement to this coming year.

Thank you.

Ladies and gentlemen, that does conclude your conference call for today.

We thank you for your participation and ask that you please disconnect your lines.