高通 (QCOM) 2003 Q1 法說會逐字稿

Welcome to the QUALCOMM first quarter 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 will need to press the one followed by the four on your push-button phone.

As a reminder, this conference is being recorded, January 22, 2003.

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

International callers, please dial 402-977-9140.

The playback reservation number is 21095067.

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

Ms. Cunningham, please go ahead.

Thank you and good afternoon.

I'm joined by Dr. Irwin Jacobs, Chairman and CEO;

Tony Thornley, President and COO;

Bill Keitel, Chief Financial Officer;

Dr. Paul Jacobs, Group President of QUALCOMM Wireless and Internet; and Don Schrock, Group President of CDMA Technologies.

An 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 first quarter fiscal 2003 Earnings Conference Call is taking place on Wednesday, January 22, 2003, at approximately 2:30 p.m.

Pacific 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 of each of our businesses and associated risks.

In addition, I'd like to mention that our form 10Q for the December quarter has been filed and you can get that online at the SEC website.

I'll begin with a summary of QUALCOMM's first quarter results.

We report earnings with and without the QUALCOMM strategic initiative or QSI segment.

We report earnings excluding QSI to provide investors with supplemental information on the performance of our core operating businesses: QUALCOMM technology licensing, QUALCOMM CDMA technologies, and QUALCOMM Wireless and Internet.

GAAP reported revenues were $1.1 billion, up 26% sequentially and 57% year-over-year.

GAAP reported net income was $241 million or 30 cents per share, up 30% sequentially and 76% year-over-year.

Revenues excluding QSI were $1.1 billion, up 27% sequentially and 54% year-over-year.

Net income, excluding the QSI segment, was $345 million or 42 cents per share, up 35% sequentially and 83% year-over-year.

And now I'd like to introduce Dr. Irwin Jacobs Chairman and CEO.

Thank you, Julie and good afternoon, everyone.

Before I discuss our first fiscal quarter results, I'd like to comment on our announcement today about Don Schrock's retirement as Group President of QUALCOMM's CDMA Technologies, effective August 1.

Don is highly respected within the industry and within QUALCOMM.

He's done an excellent job over the past six years in leading the QCT organization to achieve many milestones.

Don has been a role model for the team, both in technical development and in nurturing customer and supplier relationships.

We will all miss Don greatly and wish him the best.

We are pleased that he will remain with QUALCOMM as Group President through July to ensure an orderly transition.

We've appointed Sanjay Jauy [ph], General Manager of QCT and I'm confident that Sanjay [ph] who has worked with Don and the entire team for several years, will pick up where Don leaves off.

You will have the opportunity to meet and interact with Sanjay [ph] by our next analyst meeting in New York on May 22.

Turning now to earnings.

Our first fiscal quarter results showed exceptionally strong growth in our core technology licensing and semiconductor businesses.

Technology licensing grew revenues by 21% and earnings before taxes 22% year-over-year.

QCT nearly doubled its revenues and earnings before taxes, grew 232% year-over-year.

First fiscal quarter shipments of MSM phone chips nearly doubled from 15 million in the year-ago quarter to approximately 29 million.

And QCT continued to grow market share in the December quarter.

We believe that more than 85 million CDMA phones were sold in calendar 2002 and will confirm the actual number when all royalty reports are received for the December quarter.

This continued strength, along with order input and demand forecast from our customers, ongoing dialogue with CDMA operators, and our careful internal forecast process, has caused us to increase our fiscal 2003 guidance from the previous range of $1.15 to $1.20, based on the sale of 100 to 105 million CDMA phones in calendar 2003 to $1.34 to $1.39, based on the sale of 105 to 112 million CDMA phones in calendar 2003.

At this early stage, these estimates do not assume the same growth for the full year as we expect in the first two quarters.

As we believe it is best to be cautious given the current environment and given our anticipation of significant growth in emerging markets.

Our customers, however, are forecasting a higher demand for our chips than we have included in this forecast and we are planning for greater chipset capacity should these forecasts become orders.

We will update our outlook if we see a material change as our visibility improves.

Since our last conference call in early November, new commercial CDMA 2000-1X networks were launched by 14 operators and one new WCDMA network was launched in Japan.

This brings the total number of commercial 3G-CDMA networks to 35 and 17 countries.

Tony Thornley will provide an overview of global business development later in this call.

I will touch on some of the highlights.

CDMA in China continued its steady growth as China Unicom exceeded its goal of 7 million total subscribers by the end of 2002.

Of that 7 million, approximately 4.5 million are in those provinces that China Unicom reports publicly.

China Unicom certified 58 CDMA phone models for use on its network, including 51 models for IS 95-A and 7 models for CDMA2000 1X.

China Unicom plans to have 30 cities upgraded to 1X by the end of February.

In India, Tata and Reliance launched a CDMA-based limited mobility networks during the December quarter.

Tata's network covers five circles, including Delhi.

Reliance has deployed its nationwide CDMA 1X network in 673 cities and towns across India, covering more than 65% of the population.

Reliance's [indiscernible) lines to CDMA service under the Reliance India mobile brand name and announced that it began signing up subscribers on January 15, offering CDMA 1X phones from Samsung and LG.

The Indian Supreme Court heard the Cellular Operators' Association appeal and remitted the case back to the Telecom Regulatory Authority of India, TRAI.

We remain optimistic about the outcome given continuing deployment and service offerings and the Indian government's stated objective to provide broad access to wireless services to people throughout India.

CDMA2000 1X EV-DO is gaining momentum in the market.

We shipped approximately 700,000 EV-DO chips in the December quarter and have received orders for increasing quantities for delivery in the March quarter.

South Korean operators estimate that over 4 million EV-DO subscribers will be added this year and KDDI in Japan is on track to launch commercial services in October.

In addition, EV-DO trials are under way with operators in the U.S. and Latin America.

Plans of trial GSM 1X with a major GSM carrier are progressing.

We expect to launch that trial and provide more details in the Spring.

Next month, at the GSM world congress in Cannes, France, we plan to demonstrate GSM 1X with a duel-mode handset, GSM and WCDMA voice and data using our chips and BREW over GPRS.

That completes my remarks.

Now I will turn the call over to Tony Thornley.

Thank you, Irwin.

First I would like to add my thanks to Don for the great job he has done over the years.

Perhaps one of the best things he has done is to build a very strong team, who I'm sure will continue their great work under Sanjay's [ph] leadership.

I'd like to congratulate Sanjay, [ph] with whom I'm worked closely with in the last few years.

He will do a great job in leading QCT.

Overall, our December quarter results were very strong.

Not only because we achieved substantial records and revenues and earnings, but also because we strengthened the organization across the Company and further developed key customer relationships which are critical to our success.

Operating expenses grew only marginally on a sequential basis, helped by seasonal factors, such as the holidays and lower benefit costs.

As we continue to strengthen the organization and grow our business, we expect higher operating expenses in the March quarter but still below our targets for expense to revenue ratios.

The QSI segment results included a significant net cash receipt of approximately $390 million during the first fiscal quarter related to the Pigaso [ph] transaction.

During the first fiscal quarter, losses from Vesper in Brazil, net of minority interest, were $30 million, $12 million sequential improvement and the lowest quarterly loss since we began consolidation.

However, Vesper didn't reach the breakeven target due to changes to its limited mobility offering, which were approved by Annatel, [ph] the Brazilian regulatory authority.

This slowed subscriber growth substantially.

We ended the year with approximately 475,000 subscribers.

In November, as the Vesper Company wanted to acquire new mobile licenses in the state of Sao Paulo while excluding Sao Paulo city, the state of Mina Gerais and in the northeast region of Brazil.

The new licenses cover areas with a combined population in excess of 64 million people with a very low cost of approximately U.S. dollars $1.36 per pop.

The total cost of the licenses was $82 million, however only $8 million was due on issuance of the licenses with the balance due over six years beginning in 2006.

We continue to explore strategic alliances for Vesper to take advantage of its large CDMA footprint in Brazil.

Equity losses from Inquom [ph] were $21 million in the first fiscal quarter.

Their operation in Romania continued to grow its high quality subscriber base, up to 67,000 at the end of 2002.

Improvements in the operations of its various tetra [ph] properties were also achieved in the quarter.

Inquom [ph] will require additional funding for operations beyond March 2003 and they are currently working with investors to raise the necessary funding for the balance of 2003.

QUALCOMM and another current investor are considering investing as part of this financing round and may provide limited bridge financing to enable Inquom [ph] its longer term financing objectives.

The balance of the losses in QSI comes mainly from noncash writedowns of investments under the accounting rules for other than temporary losses in the market value of investments, the largest of which relates to KT Freetel. [ph] We're holding our original investments in KT Freetel because we believe the market is undervaluing the company at the present time.

The total cash out for investments in the December quarter was $70 million, primarily related to Vesper and Inquom. [ph]

And moving to what's happening in the global marketplace, Irwin has covered China and India, so I will provide regional highlights from the other global CDMA markets.

First, let me will begin by updating our regional estimates for 2003, which we gave out at our analyst meeting in November.

Using $108 million as the mid-point of our 105 to $112 million range, the Asia region would be $49 million, including $15 million in China and $7 million in India.

North American region remains at $43 million.

Latin America is $10 million.

And the rest of the world, including WCDMA and other wireless devices remains at $6 million.

Our web presentation has a chart that shows the current and previous estimates for 2003 as well as historical figures for '02 and '01.

The South Korean market finished calendar about '02 with total subscribers of 32.35 million with a penetration rate of nearly 68%.

Over 80% of all phones sold in South Korea are now color screen, 1x and 1x EV-DO phones.

Temporary Korean government restrictions in attracting new subscribers imposed on all operators during the December quarter benefited the migration to 1X as the operators focused on selling 3G 1x and 1x EV-DO phones to their existing 2G subscribers.

As a result, the impact of these restrictions on our business was minimal.

By the end of 2002, the number of 3G CDMA users was 16.5 million, surpassing 50% of the total subscriber base.

The next phase of growth in Korea should be aided by roll out of many 1xEV-DO devices and services.

It is also very encouraging to note that the early indications from the operators are that data RPUs have risen substantially from subscribers with DO phones.

In Japan, KDDI continues to sell CDMA2000 1X aggressively with a total of 4.7 million subscribers.

A total of 13.3 million subscriber base at the end of December, up from 2.65 million at the end of September.

Camera phones have continued to be very popular among subscribers.

The leading 1X suppliers in Japan, [indiscernible], Sanyo and Sony Erikson.

Telstra in Australia and its launch of CDMA2000 1X services initially focused on business customers, but later will focus on consumers.

Telstra operates both CDMA and GSM networks but have chosen to focus their wireless data offerings on 1X.

Telecom New Zealand has also had considerable success with the 1X launch.

Latin America, with Brazilcel [ph], a joint venture between Telephonic and Movoice [ph] and Portugal Telecom, agreed to purchase the Brazilian operator TCO.

This agreement, once approved by Brazilian regulators, would give Brazilcel [ph] a CDMA -- which is a CDMA TDA operator today, approximately 16.8 million users with a market share in excess of 50% in Brazil.

The joint venture indicated its intention to deploy CDMA in the TCO territories as well as in its own existing CDMA regions.

Bell South International has also launched CDMA service in Ecuador, previously a CDMA territory.

They're also trialling 1X EV-DO in a number of markets.

CDMA subscribers in Mexico and central America are also growing.

We've made good progress on the introduction of low-cost phones in the Latin American market.

The first of these was shipped by Comport [ph] to BSI, Bell South International.

We're close to completion of a phone developed jointly with Flextronics [ph] incorporating the MSM6000, which will result in further reductions in prices.

This will allow CDMA operators to more effectively compete for new low [indiscernible] customers as well as at the higher end of the market that values the data capabilities and voice qualities of CDMA phones.

We believe the North American market ended the calendar '02 with over 65 million CDMA subscribers, representing 46% of the market.

During the December quarter Verizon launched its nationwide "Get It Now" service based on group.

Paul will talk about it more later in the call.

And aggressively marketed color screen 1X phones, including the MSM5100 based Motorola T720.

Verizon expects to sell only 1X phones throughout its markets by mid-'03.

And it's targeting the enterprise market for wireless data services.

Sprint, the second largest CDMA carrier in the U.S., with an 11% market share, continues to rollout its PCS vision 1X services.

More than 70% of Sprint's new customers and 50% of existing customers are signing up for PCS vision data services.

Sprint launched its first camera phone also during the quarter.

Both Verizon and Sprint along with their affiliates are accelerating introduction of phone models based on the MSM5100 with integrated GPS-1 positional location capabilities to meet E 911 requirements.

In summary, CDMA operators around the world are driving the early migration to CDMA2000 1X and 1xEV-DO.

Those operators that have chosen BREW recognize the competitive differentiation and revenue potential that useful and efficient wireless data applications will provide.

The outlook for financial results in '03 is excellent, as evidenced in our increased estimates for revenues and earnings.

We're in an excellent position as CDMA penetration grows in many markets.

China and India are the best examples of where the story is just beginning to unfold.

Further, the potential to grow revenues in Europe in '04 and beyond, in addition to ongoing growth in the Americas and Asia, is very positive.

On that happy note, I'll turn the call over to Paul Jacobs.

Thanks, Tony.

I'll begin with our technology licensing business, reported under the QTL segment.

QTL Revenues grew 5% sequentially and 21% year-over-year.

This increase reflects the growth of CDMA across geography.

We signed 8 licenses in the first fiscal quarter, including four new licenses and four extensions to existing licenses.

Interesting to note that 27 subscriber licensees and 12 infrastructure licensees reported sales of CDMA2000 1X products in the September 2002 quarter and seven infrastructure licensees reported sales of WCDMA products in the same period.

At this point, the WCDMA royalties aren't significant in comparison to CDMA1 and CDMA2000, but we look forward to growth in the WCDMA as those deployments get under way.

In the QWI segment, revenues declined slightly on both a sequential and year-over-year basis.

However, each business within the QWI segment exceeded its targets for the quarter and segment earnings before taxes went from a loss sequentially year-over-year to a positive $3 million due to cost containment efforts and some higher margin government work.

Now I'll touch on the highlights.

Omni tracks [ph] and related product shipments during the first fiscal quarter totaled 10,600 units, down sequentially from 15,000 units due to seasonality, but up year-over-year from 9,400 units.

Once again, the top customer shipments are the private fleet customers, which is a new market area for QWBS.

We also signed contracts with 20 new customers as well as renewing contracts with two major customers.

Turning to the QWBS Homeland Security initiative, in September, we kicked off the federal motor carrier safety administration, operational task and technology for improved security and transporting hazardous materials.

The first phase for threatened risk assessments has been completed and we're defining the deliverables for the operational phase.

We had great participation from leading premiere shippers and carriers.

Product development work is proceeding very well with commercial release of the tamper detection cabling and global loggin driver authentication products. [Indiscernible] panic buttons in beta test along with the related onboard computer.

Our QUALCOMM digital media division has been reducing expenses to ensure profitability while we await large scale deployment of digital technology in theaters.

We continue to work with studio consortium on digital cinema to get our compression technology expect accepted by the movie industry.

The other part of QDM works with the government and has been selling products to provide secure communications based on CDMA.

We see government work not only as a new line of business, but also to see projects which can move into the commercial realm, such as Q-chat.

Speaking of Q-chat, QIS, QUALCOMM Internet services division, now has trial agreements with two CDMA carriers in addition to Nextel.

And our QUALCOMM Internet services business has had several other significant developments during the quarter, which, as Tony said, was the first full quarter of Verizon's nationwide launch of the "Get It Now" service which is based on BREW.

There are over 3.2 million active BREW users worldwide as of the end of December 2002 and the momentum continues to grow.

We've seen nearly 20 million individual downloads globally and more than 6 million of those downloads occurred in the December quarter.

I'd love to share more information on BREW's commercial success, but we can't break out the performance of individual operators.

But nothing motivates developers more than a growing market in which they can actually make money and we've seen rapid growth in the amount of money that developers have been making.

In the month of December alone, QUALCOMM paid developers more than $1 million for BREW applications sold through our channels.

As the embedded base of BREW users grows, along with the number of carriers in full commercial launch, we expect to see the payments continue their rapid growth.

We're seeing developer excitement in China, too.

We co-hosted the China BREW application development consortium meeting with China Unicom last month.

This meeting attracted hundreds of developers and manufacturers.

So we know there is great interest in getting BREW applications to market as rapidly as possible in China.

And, in fact, applications developed in China have already been commercially launched on some operators' networks.

We also announced an agreement with China Unicom to create a joint venture to grow the Chinese developer community.

The joint venture will help fuel the development of interesting applications to be offered on China Unicom's BREW enabled CMA network.

We also extended the BREW contract with KC Freetel in South Korea.

KT Freetel now has 26 handset models which support its BREW-based magic and multi-patch service.

And finally, I can confirm something that's been rumored for some time.

We have signed a definitive agreement with [indiscernible] the largest carrier in Brazil to deploy BREW services.

I would note that this agreement covers areas that belong to the [indiscernible] telephonic joint venture.

We're very excited about this opportunity.

With that, I will turn the call over to Donald Schrock.

Thanks, Paul.

Hello, everyone.

Before I provide the quarterly QCT highlights, I want to say that the announcement of my retirement comes at a time when the QTC team is extremely well-positioned with a solid team of professionals in place in all of the functional disciplines who have worked together for many years.

I'm confident that under Sanjay's [ph] leadership, QTC will continue its track record of delivering high quality proven solutions on time.

I want to thank you so much for the opportunity to work at QUALCOMM, working with this fine group of people has been the highlight of my career.

Now it is my pleasure to report that QCT continued to grow its market share in the December quarter.

We achieved our third consecutive quarterly record for MSM chip shipments with approximately 29 million MSM units in the [indiscernible] quarter.

Up from approximately 20 million in the last quarter and approximately 15 million in the year-ago quarter.

Just to put that in context, that's a 45% sequential increase and a 93% increase in unit shipments over the year ago quarter.

We shipped 23 million CDMA2000 1X chips or 80% of the total MSM shipments during the quarter.

The cumulative total of 3G chips shipped has now reached nearly 70 million.

We shipped CFM infrastructure chips to support approximately 2.2 million equivalent voice channels in the first fiscal quarter, which is slightly lower than last quarter, but more than double the one million equivalent voice channels shipped in the year-ago quarter.

During the December quarter, we continued to build a customer base for MSM 6000 family and multi-mode chips.

We delivered volume production quantities of our MSM6000 and MSM6050 with their companion [indiscernible] RF chips on time for customer product launches in early 2003.

We also have all major customers developing MSM6100-based phones driven by the adoption of camera phones, video on demand, and camcorder applications.

We also continue to execute on our [indiscernible] RF product segmentation strategy by sampling the RFT-6120 [indiscernible] transmit chip and the RFR-6125 cellular plus GPS receive chip for even lower cost solutions throughout the world.

We also announced two key products in the MSM world map during the quarter.

The MSM6250, upgrade to our MSM6200, offers complete multimedia and position location integration for WCDMA GSM GPRS wireless devices combined with more powerful microprocessor and DSPs.

And the MSM6500, which supports the CDMA2000 1X, 1xEV-DO, and GSM GPRS.

Both of these developments are on schedule.

Our WCDMA UMGS GSM top development programs remain steadily on track.

We signed a new customer for the MSM6200 and expanded our interoperability testing to include all major European operators and infrastructure suppliers.

Five wireless device manufacturers today have selected QUALCOMM chip set solutions for their UMGS designs.

On the position location front, there are more than 5 million GPS1-enabled devices now in commercial use in Japan, South Korea, and the USA.

This makes GPS1 the most widely deployed position location technology commercially available for mobile devices.

There are more than 30 GPS 1 phone models commercially available now with over 100 position location applications.

And our first zip-based GPS 1 chip, the MSM6050, is coming to market in phones soon.

We believe this will further increase the adoption of GPS 1 as this chip is the most cost effective solution available.

We're also pleased to announce that Unicom is moving forward to deploy our GPS technology for position-location based services.

China Unicom and QUALCOMM co-hosted a very successful GPS 1 application developers conference in December and we participated in Unicom's live GPS 1 demo for the People's Congress in Beijing.

Finally, let me review our outlook for the March quarter of fiscal 2003.

We're fully booked to ship approximately 27 million MSM chips in March with approximately 86% of those expected to be 3G chips.

Thank you, now I hand it over to Bill Keitel.

Thanks, Don and good afternoon, everyone.

At the QUALCOMM analyst meeting in London two months ago, I defined a reporting simplification we would adopt in fiscal 2003.

It's been made possible by advent of FAS 142, which eliminates the amortization of goodwill.

We will now report GAAP results and results excluding our QSI business segment.

If you're interested in the detailed description of this reporting simplification, we will post a table on our website within the next 24 hours that describes the new method.

Now I'll begin with QSI results.

We evaluate strategic investments on a different basis than our core operations.

Which is why we segment report QSI.

QSI segment includes strategic investments in wireless carriers, primarily Vesper, realized gains and losses, unrealized losses and QUALCOMM's share of income losses from consolidated subsidiaries.

QSI's losses report taxes were $133 million in the first fiscal quarter, including $30 million for our portion of Vesper losses and $33 million for our equity in losses of investees, including Inquom [ph] and Delcom. [ph] QSI also recorded a $66 million charge to reflect reductions in the estimated market value of several investments.

Turning to our core business results, revenues excluding QSI were $1.1 billion in the first fiscal quarter, up 27% sequentially and 54% year-over-year.

Earnings per share were 42 cents in the first fiscal quarter, up 35% sequentially and 83% year-over-year.

We exceeded the high end of our previous guidance for the first quarter by 4 cents per share primarily due to QCT and higher demand for MSM shipments.

Overall, each of our business units exceeded their first quarter earnings targets.

R&D and SG&A expenses were $217 million for the first quarter, a $7 million sequential increase.

Combined R&D and SG&A expenses were 20% of revenue, versus 25% in the prior quarter and 28% in the year-ago quarter.

Investment income comprised primarily of interest income on corporate cash and marketable debt securities, was $26 million, compared to $16 million in the previous quarter.

Investment income was lower in the prior quarter due to other than temporary losses on certain marketable securities.

Results by segment, starting with QCTR is as follows.

QCT posted report revenues of $710 million in the first quarter, up 47% sequentially and 98% from the year-ago quarter.

In addition to growth in the CDMA market, QCT has increased market share and improved average selling prices.

QTC's operating margin increased to 41% compared to 33% in the previous quarter and 24% in the year-ago period.

We're realizing excellent operating leverage and a strong return on our R&D investments over the last couple of years.

QTL reported revenues of $255 million, up 5% sequentially and 21% from the year-ago quarter.

Sequentially, the revenue growth percentage may seem low, but you will recall that there was a $14 million payment last quarter for underreported royalties from one licensee.

Also, we saw a decline of approximately 7% in average phone selling prices based on royalty reports for the September quarter.

Most of this ASP decline was due to higher sales in low ASP regions.

Looking at it region by region, ASPs were not down less than 2%.

Compared to the year-ago quarter, average phone selling prices are down only 3%.

Earnings before taxes for QTL were $229 million, up 4% sequentially and 22% from the year-ago quarter.

The operating margin was 90%.

QUALCOMM wireless and Internet reported revenues of $109 million in the quarter and earnings before taxes, $3 million.

Each of our three businesses within the QWI segment exceeded earnings targets in the first quarter.

Corporate cash and marketable securities, excluding QSI, increased approximately $700 million to $3.7 billion.

In the first quarter of fiscal 2003, our ongoing operation has generated more than $300 million of cash flow and we received approximately $390 million in payments from Pigaso.[ph] We invested $77 million in capital expenditures, including $36 million to purchase a San Diego facility we previously had been leasing.

And we invested $70 million additional cash into QSI, primarily for Vesper and Inquom. [ph]

Our significant revenue growth has increased our receivables and inventory.

Day sales outstanding held constant at 53 to 54 days and we averaged 32 days from billing to collection.

We continue to hold less than 30 days of inventory.

Our estimated GAAP effective tax rate for fiscal 2003 is 38%.

Excluding QSI, the estimated effective tax rate is 34%.

Vesper operating losses and cumulative capital losses in excess of capital expected gains account for this difference.

I will now provide our guidance for 2003 for both the March quarter and the full fiscal year.

We anticipate that March quarter revenues, excluding the QSI segment, will increase by approximately 50% year-over-year.

This represents a decrease of 7% sequentially compared to the first quarter of fiscal '03.

We anticipate that our earnings per share, excluding QSI, will be approximately 34 to 35 cents in the second fiscal quarter, a 75% increase year-over-year.

This estimate is based on the shipment of approximately 27 million MSM phone chips during the March quarter, of which approximately which 86% are expected to be 3G 1X and 1xEV-DO MSM phone chips.

We anticipate a sequential increase in SG&A and R&D expenses of approximately 15% in the March quarter due to seasonality of certain expenses.

Our March quarter expenses have increased sequentially for a couple of years now, due to resumption of employee payroll taxes and public company expenses.

We are increasing our employee base, as well, particularly in engineering resources in QCT.

Based on our CDMA market forecast of 105 to 112 million new phones in calendar year 2003, we now anticipate revenue growth, excluding QSI, to be approximately 28 to 33% and earnings per share to be $1.34 to $1.39 for fiscal 2003.

Up 37 to 42% from fiscal 2002.

For the full fiscal year, we're planning for a decline in average selling prices of CDMA phones of approximately 10%.

We estimate fiscal year 2003 effective tax rate for operations excluding QSI to be 34% compared to 35% in fiscal year 2002.

As Irwin noted, fiscal 2003 estimates do not include the same level of growth for the second half as we're expecting for the first half.

Given the current environment and our anticipation of significant growth in emerging markets, we believe it is best to be cautious.

However, we are planning for increased chipset capacity in the event that orders prove to be higher.

We also expect to make approximately $350 million of net investment into QSI strategic initiatives this fiscal year.

This is lower than the $400 million estimate we gave you in November and a significant reduction from fiscal 2002.

That concludes our remarks.

Operator, we're ready for questions.

Thank you.

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

If you have 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.

Our first question comes from the line of Lewis Gerhardy of Morgan Stanley.

Please proceed, sir.

Well, congratulations on the success and financial performance.

I had a question just on the second half of the year as you were talking about, Bill, and if on I look at the last three years it looks like about 45% of CDMA handsets get shipped in the first half and around 55% or a little bit more in the second half.

And you mentioned your customers' forecast.

Can you give us a sense of: Is this what they're thinking?

And you're just discounting their forecasts?

As Irwin noted, the customer demand is higher than the forecast we've put forth.

That is typical that their demand is higher than our own forecast.

You are correct that the second half in prior years has tended to be higher than our first half but there are a number of factors going on this year, particularly the significant growth in emerging markets.

So, all things considered, you know, we apply the same process we've applied in the past in our forecasting process.

We do do a top-down estimate of what we think the market can reasonably take and all things considered, we thought that the forecast we gave you is reasonable.

All right.

Thank you.

And now I have a question for Dr. Irwin Jacobs.

And that is, if you look outside of India and some of the other fixed wireless markets that are using CDMA, can you talk about the likelihood that some of these fixed deployments might move more towards greater degrees of mobility and maybe talk about the regulatory situation as that happens.

Yes.

That situation also applies down in Brazil.

I suspect over time many of the regulators will ease up the ability for operators of fixed line services, wireless fixed line services, will allow them to go ahead and provide more mobility, but I suspect that will happen slowly and obviously will be a matter of contention between cellular and the wireless operators.

We're already seeing a lot of the situation with legal activities.

There were some in Brazil and certainly now in India.

Now, having said that, I think longer term, the technology supports it, it provides more competition, it provides more services, it provides a better situation for consumers and businesses.

I think that that, indeed, is the future.

Thank you very much.

The next question comes from Nathaniel Cohen of Goldman Sachs.

Please proceed with your question.

Okay.

Thank you.

I wonder, Bill, could you give your assumptions for both ASPs in the calendar fourth quarter and handset shipments?

Handset shipments for the fourth quarter, we don't have definitive amounts yet, but our estimate is approximately 27 million, which would put the full year a couple million ahead -- and the calendar year a couple million ahead of the [indiscernible] estimate we have given previously.

I don't have final numbers there, but that's our estimate at this time.

On the ASP side, Nathaniel, the -- the ASPs for the last relative reports came in at approximately $188 and about a 7% decline.

Again, the majority of that decline was due to regional mix, less than 2% was due to outright ASP decline.

That was for the September quarter.

Correct.

And so, for your 10% ASP assumption decline in '03; that off of a $200 ASP or what --

It would be off of a -- a fiscal '02 average of approximately $193.

$193.

Okay.

And then just quickly on the chipset side, I guess given your assumption of handsets of 27 million and obviously 29 million chips shipped in the fourth -- or in this current quarter, what -- is that what's holding you back in terms of the guidance?

It seems as if perhaps your orders would show things looking a little bit better than the 27 million at this point for March, but is the discrepancy there making you be cautious on being more aggressive?

Or is there anything else?

Well, no, it wasn't really the -- the December quarter that's making us cautious.

It's, you know, it's a number of factors.

The soft worldwide economy.

You know, the fact that two of our major markets today, in terms of growth being China and India, are relatively new markets.

So...

I think that that applies, too, to the June quarter as much as anything.

The March quarter, as Don said, we got 100% vote and that looks pretty firm.

So...

June and beyond we will have less visibility and we're cautious.

Would you expect June to be down sequentially as well or -- or tough to say at this point?

Well, we certainly -- as you can see in the second half, we're assuming down the first half at this stage.

And so June would -- would be probably sequentially down because traditionally that's been the pattern.

Okay.

Great.

Thank you.

The next question comes from T.C.

Robillard of Salomon Smith Barney.

Thank you.

Just had a question, when I looked at the increase in guidance that you had for CDMA handset unit shipments and then looked at that versus what your increase in guidance was on the earnings side, I'm just trying to reconcile the two.

You guys increased unit shipments by roughly 5 to 7 million units, but earnings was up about 19 cents.

If I adjust for the tax rate of the differential about a percent that works out to be about 4 cents, but I'm having trouble making kind of a 7 million handset unit increase equate to roughly 15 cents on the bottom line.

Can you help us walk through that?

That would be really helpful.

The key factor, T.C., is that our outlook now includes a forecast of full fiscal year that QCT will have earned a greater share of the chipset market than what we had said in November.

That's the primary driver.

So, should we expect to see the same type of trend, then, on the ASP line with respect to -- to the QCT in terms of a flat ASP sequentially?

Is that a fair assumption?

I think that's reasonable.

Okay.

And should we then -- as we're kind of looking at -- on a go-forward basis -- is it -- is it safe to assume, then, kind of a mid-30% pretax margin in that business?

It looks like you ran up to 40% on the strong shipment?

I think mid-30% is about right for the March quarter.

Okay.

That's great.

And then I guess kind of more of a bigger picture question, given, given Don's announcement for retirement, is there anyone else in that room that we should be concerned about retiring anytime soon? [ Laughter ]

Nobody that's raised that issue at all! [ Laughter ] All right.

All right.

If you're referring, perhaps, to the oldest member of the group, hopefully things will remain exciting and I, personally, will be able to continue to contribute and look forward to continued service here.

Okay.

Great, that's good to hear, Irwin.

Thanks a lot! [ Laughter ]

The next question is from Brian Modof of DB Alex Brown.

Pardon me --

Yeah, can you hear me now?

Don, can you hear me?

Yes, I can.

Nice working with you, Don, I look forward to seeing you at our conference.

Anyway, in terms of the WCDMA, Irwin, can you give us an update on what you're seeing in the WCDMA world?

There's certainly been some additional push-up since we last talked?

Kind of a rundown there.

And then I have a follow-up question.

Well, there is certainly lots of activity, people working very hard to get networks out there, get some handsets out there, get the testing done, get the standards stabilized.

More of things we talked about in the past.

But, I suspect, again, that until one can get the handsets out, the little time running on several different networks and test them and also be able to handle the ability to operate on 2G as well as 3G networks, there is still lots of work to be done.

And so I'm not surprised by the pushouts.

I think that some of the estimates given by some manufacturers have just been overly optimistic and have caused some problems to the industry.

I think everybody is working very hard at this point.

There's just, again, I don't see an advance over my previous estimates of 2004/2005 for substantial numbers.

Handset volumes, would you expect that as more of an '05 event?

We've been making very good progress with our own chips.

Clearly there's a software issue and a testing issue.

I would begin -- I would expect to be seeing a significant buildup by middle of '04.

And, so, we should be seeing WCDMA coming into its own by the end of that year.

Is that really the end of phase IV testing that you will start seeing the ramp?

Right.

Okay.

And then looking through the -- kind of your numbers on China and India, looks like you're taking China up by another 2 million and India up by another million compared to previous guidance.

What are you not putting on the table here relative to what they're talking to you about as potential numbers in China and India.

And regard with the overall numbers going from 100 to 105, looking more towards 105 to 112, what, besides those changes, are you seeing out there that's causing you to be comfortable to take the range up to 105 to 112?

Let me try that, Brian.

In China, what Unicom said is their target is to get to 20 million subscribers by the end of '03, which would represent roughly a 13 million increase.

And then we're allowing for some replacements, as well.

That's what's included in our number.

I think it's very consistent with what they're saying.

Certainly we think that they could do better than that but, you know, there is a long way to go.

India, we've taken the number up, certainly the Indian operators are talking about and planning to get more than the 7 million that we've included, but because we're going from a base of 1 million -- you know, we're really somewhat cautious there, although we believe very strongly that Reliance is doing things which are going to really allow them to grow subscribers very quickly.

And the competition is responding equally.

So, we expect to see that very good growth there.

In the other markets, as I mentioned, we're seeing really good progress everywhere.

We -- in the U.S. market, I guess there are strengths and weaknesses, but overall I think the replacement market on the CDMA side is doing very well.

In Latin America, for sure, with the announcement by Telephonicare [ph] and Portugal Telecom in Brazil, and Mexico is going well, and other parts of Latin America, Bell South International, we're really seeing good growth in Latin America.

So, our number there, I think, you know, they're certainly in the middle of the range.

There is room for upside.

And finally, Japan, Japan, we're -- we've got -- we haven't changed our numbers and it's not growing substantially over this year.

But, again, I think KDDI is making great progress in the market and then at some point, as Docomo [ph] has to start increasing subscribers somewhat and J-phone [ph] is launched already, WCDMA, so, we will see some growth there.

So, overall, you know, Australia, Russia, et cetera.

So, there are lots of other places that are positive and places for upside.

And the 112 does includes a little of the WCDMA in it?

Yes, as we have before, it is a couple of million that we have in there for WCDMA.

Up 2 million.

Okay.

And one last question, I promise.

Don, the silicons remaining on the transceiver you developed, I think it's in the 6200 series of chips that you are integrating in with your base band.

How is that getting received by your customers?

And when are we going to see that in a 1X product?

The whole family is being received very well, as I mentioned.

If we look at the 6050, I think we have 16 different licensees developing handsets with the 6050 in it.

We're shipping volume devices on 6000 and 6050 and have a number -- another 16 hands is being developed for the 6100.

So, the whole transceiver ziff [ph] is being designed in in Japan, Korea, China, in all the marketplaces.

So, I think as we go into the second half of the year, we will see a very strong ramp to start on the whole 6000 family.

Right now it's going very well.

Okay.

Thank you.

The next question is from Tim Long of Credit Suisse First Boston.

Please proceed, sir.

Thank you.

If I could go back to the China question again and ask it a little bit differently.

What has changed in the last three months that you're no longer discounting what China Unicom is saying on the subscriber front?

Is it chipset orders or are they more convincing in their subscriber numbers?

And if you have any sense on those numbers, whether or not those 13 million adds or so will be all new subscribers or will they be a component of those switching over from the GSM network?

First of all morning it's very hard to beat performance.

They gave a number, they worked very hard to optimize their networks over the first several months to bring out additional phone models, to bring down the cost of distribution and broaden the distribution base and to get the idea of CDMA out there.

And, so, they really worked hard and they hit their number.

And, so, that, of course, gives you -- gives them a great deal of credibility and we can see the energy and effort they're putting in and now coming along and putting in CDMA 1X.

So, they've got twice as much time because they lost the first six months last year in just getting off the ground.

And, so, we think they've certainly have a credible target.

Okay.

And then maybe if I could just follow up, you said you're factoring in a slight replacement market developing for CDMA.

Are you factoring in any multiple RUIM markets so subscribers can be overstated?

That's a significant issue on the GSM networks over there?

Yes, we are.

We do see some of that, of course, with some subscribers having multiple UIM cards.

So, yes, we are factoring that in.

Is it meaningful at this point?

Not huge at this point, but, of course, on a base of 7 million, it's not going to be that big.

Okay.

Thank you.

The next question is from Dale Foul of CIBC World Markets.

Yes, congratulations on your numbers and outlooks, gentlemen.

Could you give us your viewpoint on both chips at inventories and handset inventories as we ended the calendar year?

Pretty much the same as -- as we ended September.

We've been monitoring pretty much as everybody else has and we have not identified any significant pockets of inventory.

So, I would say our picture is pretty much the same as it was in the September quarter.

We don't see an inventory issue.

We're spending more of our time chasing shortages in terms of what customers want or what a carrier wants.

Certainly based on the request we're seeing from manufacturers, they're not seeing that situation, either.

I think we've had a few companies come out [indiscernible] saying their inventories are very low.

So, we're seeing the same -- as Bill said, we're seeing strong demand, people pushing for the parts quickly and our G2 they say they don't have any inventory.

Very low.

That's unusual.

Yeah.

And real quickly --

We're shipping considerable numbers of phones already this year in this quarter.

So...

Chips.

Yeah, chips, yeah.

And real quickly, Don, I may have missed it, did you give us an estimate of the ASP trends for your chipsets this year?

I think the question was asked and Bill answered it, that, you know, we see it fairly flat, although it's been up a little bit year-over-year, will be fairly flat for the year.

Thank you.

The next question is from Mark Roberts of Wachovia Securities.

Thank you.

Congratulations on a good quarter.

Don, I have two questions for you.

In doing the math here, it looks like that your chipset market share in the quarter and your projection for the year is over 90%.

Is that -- am I doing the same math you're doing?

It's gone up nicely, let's put it that way.

It definitely has.

We mentioned it increased.

We usually don't comment on exactly what it is, but it has increased nicely.

Clearly we're shipping 1X and others aren't.

So, but in my -- am I correctly doing the math that it is over 90%?

It's higher than it was.

Like I say, it's gone up nicely and, again, we don't comment on it.

So you will have to do the math.

Okay.

In the five -- the five -- the five manufacturers who have selected QUALCOMM for their WCDMA made chip set lineup, were you competing with other chipset providers for those phones where you won a design slot over someone else?

We made public three of them.

That's Sanyo, Samsung and LG.

And then, naturally, in all of those accounts we were competing and we won every one of them.

Okay.

And, by the way, that's for not only straight WCDMA single mode, but dual-mode in all three cases.

Okay.

Have you -- have you competed for any design slots at manufacturers where you have lost?

Not to our knowledge.

Okay.

And last question, and maybe this is more for Irwin, Datong [ph] has made several comments that they are going to not license, or not license with you, for TDS CDMA and that they will reimburse any manufacturers that are developing the technology for any potential royalty liability.

What is your status of negotiating license agreements with Datong [ph] and is this something that would fit under the existing umbrella license that you have in China?

First of all, the umbrella covered -- did not cover WCDMA nor TDS CMA, it was the CDMA2,000 and it was just a overall framework, really, for negotiating with individual manufacturers.

We have not had any negotiating sessions with Chinese manufacturers on licenses for WCDMA nor for TDS CDMA at this point, but there have been claims that there were discussions, but to my knowledge, there have not been any.

And until it gets closer to a -- an issue of manufacturer, it's not critical from our point of view.

Okay.

Thank you.

Good quarter.

Thank you.

The next question is from Tim Luke of Lehman Brothers.

Thank you.

Don, I wondered if you could give us a sense of how you see, you talked about 100% booking for March, I wondering if you could talk about how you see the visibility for your area as you look into June, how that's shaping up?

Well, yeah, as we mentioned, they were fully booked to the 27 million units for the March quarter, for now booking basically for the April quarter.

And it's coming along nicely.

I have to say that the quarter is filling in well.

And so we're -- we're hopeful it's going to be a very good quarter for us, as well.

Do you think it could end up being flattish, then, since the unit number?

Did you say flattish?

Yeah.

I think that's probably a little bit high.

And then, perhaps you could just give us a little bit of color on the timing of your -- of your decision, that might be helpful for investors.

Well, you know, clearly the announcement is today, but I will be with here with QUALCOMM through July, through the end of July to make sure that the transition to Sanjay [ph] is very clean and I think it will be.

Of course, I will be available if needed after that.

So, I think it's -- like I say, we have a great team in place in QCT in all the functional areas.

Sanjay [ph] is a very experienced person in QCT, having worked there through five different MSM generations, leading those generations.

He's coming in now at a great time, you know, we're at the top of our game doing very well.

And I think he's a great person to take over because he has a tremendous technical background and a lot of passion for the business.

And, you know, he's a strong driver.

So, I think he's a good person to come in now and actually take over and take it to much the next level.

Uh-huh.

Thank you very much.

The next question is from John Buker of GKM.

Thank you.

Chipset ASP question.

You mentioned year-over-year flat for QCT ASPs.

What percentage of the total QCT MSM volume does QUALCOMM expect will be low end MSM6000 series of chipsets in -- coming up with that relatively flat ASP assumption year on year?

Thank you.

I will take a little bit of that and someone else can jump in.

Clearly we also give price decreases during the year and Q1 calendar, which is the March quarter, is the start of that.

So, we have that impact that goes through the calendar year.

As we lower prices to customers, it's going to the volume.

At the same time, we're seeing more and more of a trend toward the higher fully-featured MSMs , which therefore have a better ASP.

If you combine those two factors, decreasing prices on chips as you go higher in volume, and also increased functionality in the chips, that's what gives us -- actually a 2003 over 2002, a little bit of an increase in total, but it's fairly flattish throughout the year.

Can you say approximately what percentage of the overall volume you expect is going to be the entry level MSM chips that you're already shipping in volume to emerging market areas?

It's a good question and I think -- it will become an ever-increasing number, I think right now it's probably going to be in the low -- low single teens.

Yeah.

I mean I think so far, I mean, even in India, the products are going with the 5105, which is not the lowest end chip in China, same thing.

So, we're not actually seeing that high a demand yet for the ultra low end.

But we're -- we're developing the products so that as I mentioned we will be able to compete effectively at the whole range against GSM.

Yeah, and clearly, in both those countries and in Latin America, there will be an increase in growth at that low end.

So, we're trying to factor that into our planning.

Thank you very much.

The next question is from Mike Wapling of RBC Capital markets.

Hi, Bill, maybe just a quick question on India, as we look to, you know, the $7 million unit guidance you've given us, how did we think about that here at the beginning of the year with Reliance having those hundred thousand agents they need to fill inventory with, would more than half be in the March quarter or is that too aggressive?

I think that would be aggressive.

I think they're building an inventory stock to prepare for their launch but I expect then that that launch will progress over time.

Okay.

Thank you.

Also, the manufacturer supplying them have to appropriately ramp up and be prepared for a continuing growth and so all of this has taken a little time.

Thank you.

The next question is from Nissan Emom of Thomas Weisel Partners.

Yes, thank you.

A couple of bookkeeping questions.

First of all, on the chipset business, the significant margin expansion, I'm assuming that's mostly volume-driven.

What should we expect going forward?

I think that for the March quarter, the 34 to 35% range is a reasonable expectation and then for the full fiscal year, 32 to 33%.

And that is very heavily volume-driven.

So, that's based upon their assumptions for revenue and chip -- unit shipments.

Uh-huh.

And then, Bill, on the BREW side, you finally achieved 3% margin this quarter.

How will that track going forward?

What's your expectation?

That -- the positive was actually for the whole QWI segment, BREW did help contribute to that improvement, but so did the other businesses in that segment.

I would say that our plans as in November were still forecasting good progress through the year and we're still expecting BREW to turn into the black before the end of the year.

Great.

And lastly, on the QTL revenues front, how much was from third parties and how much from licensing fees?

For the December quarter, a total of $255 million. $30 million was intersegment, so, within the company. $14 million was license fee and $212 million was third party royalties.

Great.

Thank you.

Pardon me, there is no more time for further questions.

Dr. Jacobs, do you have any further remarks?

Well, thank you.

Thank you all for the very good questions.

Obviously we're very pleased with the quarter.

We're very pleased with the outlook looking forward.

We think now that with 3G CDMA phones becoming more and more available, that more and more data applications will become popular with both users and businesses and that the BREW activity should, indeed, fuel a very interesting growth on the data side.

Position location, I think is going to become increasingly important, certainly here in the U.S. with E911.

We're well-positioned to support that and continue to grow that market and we expect to see a number of location-based services come into active use over the year.

I've been playing a little bit with videophones that are running on 1xEV-DO and I must say that they do certainly capture your attention and everybody's attention around you.

And so, it's going to be interesting to watch that expansion as we go forward.

And, finally, before the end of this year, we'll see our world phones, our multi-mode phones, and I think that's going to make a really substantial difference in the way the people view the wireless business, that it really isn't a business segmented among regions, but, indeed is one that supports customers no matter where they may go.

So, I think all of this is going to contribute to the wireless industry in general and the CDMA portion of it certainly through the rest of this year.

Thank you all very much.

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

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