高通 (QCOM) 2003 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by.

Welcome to the QUALCOMM second 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 1 followed by the 4 on your push button phone.

As a reminder, this conference is being recorded, April 23, 2003.

The playback number for today's call is 1-800-633-8284.

International callers, please dial 415-537-1988.

The playback reservation number is 210-950-97.

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, everyone.

I'm joined by Dr. Irwin Jacobs, Tony Thornley, Bill Keitel, Dr. Paul Jacobs, and Dr. Sanjay Jha.

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.

During this conference call, if we use any non-GAAP financial measures, as defined by the SEC and regulation G, you will find the required reconciliations to GAAP on our Website.

I would also direct you to our 10-Q, which was filed today.

During this conference call, we may make forward-looking statements 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.

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

Revenues were $1 billion, up 50% year over year.

Net income on a GAAP basis was $103 million, up 135% year over year, and GAAP earnings per share were 13 cents, up 160% year over year.

Net income excluding the QUALCOMM strategic initiatives, or QSI segment, was $314 million, up 95% year over year.

Earnings per share, excluding the QSI segment, were 38 cents, up 90% year over year.

And now I'll introduce Dr. Irwin Jacobs, Chairman and CEO.

Thank you, Julie.

And good afternoon.

Our second fiscal quarter results show substantial year over year improvements in both revenues and net income in our core businesses.

This growth reflects increased demand for CDMA products and services worldwide.

According to the CDMA development group, there were nearly 147 million CDMA subscribers around the world by the end of 2002.

CDMA subscribers grew 32%, compared to a 24% growth rate for the overall industry, making CDMA the fastest growing wireless communications technology in 2002.

In terms of total handset sales, we can now confirm that 87 million CDMA phones were sold in calendar 2002.

This was 2 million units higher than our 85 million estimate, and 18% higher than total CDMA phones sold in 2001.

Clearly, the current demand for 3G CDMA is fueled by CDMA2000 1X and 1X EDVO, and the applications which are being provided on these platforms.

There are more than 280 CDMA2000 commercial devices on the market today, and we've shipped a cumulative total of nearly 94 million MSM phone chips to support 1X and 1X EVDO devices by the end of March, 2003.

Forty-two operators and 23 countries have deployed 3G CDMA, including two 1X EVDO networks in South Korea, one 1X-EVDO network in the U.S., and five WCDMA networks in Japan, Australia, and Europe.

We're very pleased with the success of new CDMA2000 1X networks and are also working hard to enable the commercial rollout of WCDMA.

There are many markets around the world that are focused on the economic benefits of a rapid migration to 3G CDMA.

China is a prime example of what can be accomplished in a short span of time.

On April 1, China Unicom announced the formal launch of its CDMA 2000 1X network, just over one year after successfully launching its first IS-95A CDMA network.

We've been continually impressed by Unicom's commitment and dedication.

The upgrade to 1X was no exception.

Unicom achieved its rollout in record time and now offers 1X service nationwide.

By the end of March, 2003, China Unicom had approximately 9.6 million CDMA subscribers.

They're offering nearly 60 phone models with half of those being color screen 1X models.

Unicom plans to launch its full-blown data service with BREW in GPS1 in May.

Also, during the June quarter, China Unicom will begin its GSM 1X trial, and we're working closely with them to get the trial system in place.

I believe that China offers great opportunity and has the potential to drive the economies of scale to accelerate full adoption of 3G CDMA around the world.

In India, Reliance Infocom announced that CDMA service, called Reliance India Mobile, on January 15.

Since that time, Reliance has begun signing up subscribers during a soft-launch period.

Reliance plans to begin charging subscribers on May 1, 2003, once all of the interconnections with the public network are complete.

Reliance is currently optimizing its network and distribution channels, and we believe Reliance will be a major force in driving dramatically improved communications in India, using CDMA technology.

The ongoing dispute between the cellular operators and the limited mobility operators continues.

Tre, the Indian telecommunications regulatory authority, is working with the two groups to resolve the disputes over the tower structure and interconnect charges.

We continue to believe this will be resolved in a reasonable manner.

In Brazil, we have had good news with the joint venture between Ttelefonica of Spain and Portugal Telecom expanding its CDMA footprint, which includes Sao Paolo and Rio di Janeiro, by acquiring Tco, an existing TDMA operator with over 2 million subscribers.

The joint venture, called Vibo, has declared its intention to deploy CDMA in the Tco regions, including Brasilia, as well as in its own operating region in the south of Brazil.Vibo has also launched a commercial BREW service and announced plans to deploy GPS1 and 1X EDVO.

However, we experienced a major setback with Vesper in Brazil.

Anatel, the Brazilian regulator, has denied Vesper the right to offer mobile services in the 1900 band, despite having earlier published Resolution 314, allowing mobility as a secondary operation on top of fixed wireless services.

As we have noted in the past, without mobility, the value of Vesper is diminished.

As a result, we have recorded a $160 million asset impairment charge related to Vesper and have initiated efforts to exit the venture and sell Vesper's assets.

On our last conference call, we reported that CDMA2000 1X EVDO was gaining momentum in the market, and this momentum continued to build in the March quarter with increased traction at SKT and KTF in South Korea.

In addition, we are very pleased with the Verizon's announcement, at the CTIA wireless show last month, that it will launch commercial 1X EVDO networks in Washington, D.C., and San Diego this summer.We believe this service, with wide area fixed and mobile coverage at peak data rates of 2.4 mega bits per second, will prove very popular with individuals and enterprises.

Before I turn the call over to Tony Thornley, I should mention that we initiated a stock repurchase program during the March quarter, and have now bought approximately 3.6 million shares at a cost of approximately $124 million.

This from the $1 billion authorized by our board and announced in February.

In addition, we paid our first ever quarterly dividend on March 31.

We're confident that we're in a good position to return cash to stockholders without restricting our future strategic opportunities or financial performance, as evidenced by the growth in cash and marketable securities of $460 million during the March quarter.

And now Tony.

Thank you, Irwin.

Our results in the first half of fiscal 2003 have been truly outstanding.

As in previous forecasts, we anticipate lower revenues and earnings in the second half than in the first half, but with excellent growth, both compared with the second half of fiscal '02 and with the full year '02.

We view the strong yearly growth as being quite sustainable, as the underlying forces in our business remain very positive, and our execution continues to be excellent.

This week we completed an updated CDMA market forecast, and now expect 103 to 110 million new CDMA devices to be sold in calendar '03, which is an increase of 18 to 26% year over year, demonstrating CDMA's increasing share of the overall market.

This is, in fact, a small decrease from our previous estimate, largely resulting from a decrease in the number of WCDMA hand sets now expected to be sold in '03, as well as some regional puts and takes.

If you take the mid-point estimate of $106 million, it breaks down as follows.

The large markets in Asia, $46 million, with $13 million in China and $6 million in India.

North America, $45 million, Latin America, $10 million, and other, which includes WCDMA, $5 million.

North American market is continuing to be strong for us; we are slightly increasing our forecast for device sales in this region, based on the early information we've gathered from operator earnings reports.

Despite the overall highly competitive margin in North America, the CDMA operators are making gains and improving their financial status, directly as a result of having adopted CDMA2000 1X.

The upgrading of devices is still at an early stage in this market and we're very excited to see the potential which is ahead of us with new devices which have been launched in South Korea and Japan, and will be even further enhanced with our new MSM 6000 family of chipsets.

Latin America is doing well, too, and we are maintaining our estimate device shipments of 10 million in this market.

BellSouth International continues to rollout CDMA overlays for their CDMA networks, as does Vibo in Brazil, as Irwin mentioned.

1X EVDO is being trialed in a number of countries in Latin America and should greatly enhance the competitiveness of CDMA operators in the region.

The operators who have converted from CDMA to GSM are having a much tougher time in making their conversions, and will have far less to offer when they get there.

We've reduced our estimate of device sales in China to $13 million, consistent with China Unicom's estimates for subscriber growth.

With the launch of 1X, followed by BREW and GPS 1, we remain highly confident that Unicom will achieve its target.

The big picture in China is very promising.

CDMA is only at the very beginning of its growth curve, and we believe the market will grow substantially in the coming years.

In India, we've reduced our estimate to 6 million devices recognizing the delayed start of operations by Reliance.

VSNL and Tartar are also aggressively targeting substantial growth in this market.

And as in China, the Indian market is at the beginning of a totally new era, with dramatically reduced prices of service, promising to drive penetration to much higher levels than previously experienced.

The South Korean market has been hit by a slow economy, but the introduction of 1X EVDO and the potential relaxing of the subsidy ban leave us optimistic on the total year.

We've only marginally reduced our forecast for devices at approximately 15 million.

In Japan, KDVI continues to perform very well, and is preparing to roll out 1X EVDO later this year.

WCDMA is also beginning to gain traction with Delkomo gaining more than 100,000 subscribers in March alone.

Jphone has also launched WCDMA service and is the first user device without chip in commercial service.

In the rest of Asia and Australasia, CDMA is also gaining momentum, Hutchinson launched service in Thailand, networks in Vietnam and Indonesia are about to launch, we have potential to serve the large populations of these countries, which so far have not been afforded low price service.

Telstra and Telecom New Zealand are making good progress with 1X networks, and Hutchinson recently launched WCDMA service in Australia.

In Europe, Hutchinson has launched WCDMA service in the U.K. and Italy while others continue planning and testing for launches later this year.

We have reduced our estimated WCDMA device shipments for this year, but the momentum is building, and we're optimistic for 2004.

We also continue to develop CDMA 450 in Europe through [Inquom], with good progress in Romania and plans for other markets in Western Europe.

Separately, CDMA 450 is doing well in Russia and is being considered in several other markets around the world.

Data devices for CDMA are growing steadily.

And those who use them are uniformly excited by the service.

The introduction of 1X EVDO takes this experience to a new level that will allow for far better price performance.

So we expect to see rapid growth in this segment of the market.

Overall, then, the CDMA markets all have great potential.

And while quarterly results do fluctuate, with near term regional circumstances, the results smoothed over several quarters remain on a strong upward path.

Our strategy of driving new Markets, particularly with low cost networks and devices, combined with an aggressive upgrading of devices on a regular basis in more mature markets, is working very well.

Working very closely with our customers, manufacturers, and their customers, the wireless operators, and then delivering on our commitment, continue to be the cornerstones of our success.

I will close with one comment on our QSI segment.

The financial markets for telecommunications companies, particularly in emerging markets, have been extraordinarily tough in the last two years.

And this has, indeed, hit the value of our investments.

However, these investments have achieved their strategic goals in driving the CDMA market in Latin America, Europe and other parts of the world.

We believe that the need to make new investments is diminishing rapidly, and this is reflected in our estimate of net cash outflow for QSI of $150 million for fiscal '03.

Now I'll turn the call over to Paul Jacobs for QUALCOMM wireless and Internet.

Thanks, Tony.

And hello, everybody.

Technology licensing segment posted strong results and the wireless and internet segments posted its second consecutive profitable quarter.

Beginning with the QTL segment, we achieved record revenues in technology licensing.

And this reflects the increased worldwide demand for CDMA products from our licensees.

Royalty revenues from third-party licensees were $217 million, up 31% from the year ago quarter.

License fees, which are amortized over a five to seven year period, were $15 million in the March quarter compared to $13 million in the year ago quarter.

The actual average selling price or ASP, of all CDMA phones sold in December 2002 calendar quarter increased approximately 8% over ASPs in the year ago quarter.

Total CDMA phones shipped in the December quarter was 27 million, and total CDMA phones shipped in the March quarter is estimated to be 25 million.

We signed a total of 10 CDMA license agreements, including six new licenses and four amendments to existing licenses.

Forty-five licensees reported sales of CDMA 2000 1X products and 17 licensees reported sales of WCDMA products through the March quarter of 2003.

The QWI segment achieved its second consecutive profitable, quarter due to improved profitability in the wireless business solutions division, and new development contracts in the digital media division.

The Internet services division is progressing towards profitability as BREW revenues continue to grow.

I'll begin with QUALCOMM Internet Services Division where the momentum for BREW is increasing.

There have been five commercial launches in calendar 2003, bringing us to a total of seven operators in six countries that have commercially launched BREW.

The two most recent are Vibo in Brazil, the largest wireless operator in Latin America, with its service called Download, and Telstra in Australia with its service called Mobile Loop.

Operators and developers are being attracted to BREW because unlike other platforms, BREW is bringing on new users and driving their revenue.

It was just over a year ago that Verizon wireless announced its initial rollout of BREW based services in San Diego.

Verizon then expanded its BREW service called ”Get It Now” nationwide with an aggressive marketing campaign in November of 2002.

Verizon recently announced their Get it Now service has grown to about 2 million downloads a month in this short span of time.

This supports our contention that U.S. consumers are just as interested in compelling wireless data applications as consumers elsewhere in the world.

We're excited to host our third annual BREW developers conference here in San Diego next week.

We've had tremendous response and are expecting more than 1200 attendees.

More than 40 device manufacturers have indicated their interest in the BREW platform, and many have announced their plans for supporting the BREW platform with robust new devices.

More than 45 BREW enabled hand set models have been made available to consumers worldwide.

A number of leading game and entertainment companies have recently announced the development of content for the BREW platform, including Sega Mobile, Sony Online Entertainment, and Sony Pictures Digital Entertainment, BONDI, THQ, Sorent, and Informa.

These companies are bringing popular brands to BREW operators, including Everquest, Hero's Call, Q-bert, Yao Ming Basketball, X-Files, Fox Sports, StarTrek and Top Gun.

We've expanded BREW to support wireless PDAs in addition to phones.

At the CTIA show last month we announced BREW shop software that enables BREW operators to use the BREW distribution system to offer PDA apps to their subscribers for wireless purchase and download.

This is a significant milestone for opening the global application virtual marketplace that BREW is building to more developers, giving them more opportunities to make money.

Alltel will be the first operator to offer BREW Shop via its access service, a native PDA application that allows them to use the BREW distribution system to offer the -- over their PDA application download services.

The QSR35 smart phone with Smart Sources, Palm OS, will be the first device in Alltel’s product portfolio to use BREW shop.

To close with QAS, we've seen almost 27 million individual BREW-based application downloads globally.

We've seen a significant increase in download activity in March, and there were well over 3 million downloads, and this trend is continuing.

Turning to our wireless business solutions division, QWBS shipped approximately 8,400 OmniTRACS unit during the March quarter, for a cumulative total of over 470,000 units worldwide.

Shipments decreased in the March quarter compared to December due to lower sales in Brazil.

Over half of the OmniTRACS units are on air in the United States, with average messaging revenues of $55 per month per vehicle.

We also recently announced our Global Tracks product which has been in beta tests since January with very positive results.

Global Tracks system manages and transmits engine -- equipment engine hours and location data.

This data can be accessed via a web application or integrated into software applications

We also announced several new enhancements for fleet management, including high data rate technology, which will enable transmission rates of up to 200 times faster than current rates, and a portable computing solution capable of transmitting electronic signature via satellite.

And finally, we are actively supporting the U.S.

Department of Transportation’s hazardous materials field tests, [we’ll] use over 100 vehicles with ten different shippers.

Now I'll turn the call over to Sanjay Jha for the QCT overview.

Thanks, Paul.

I'm very pleased to be joining you for the first time, and I look forward to meeting many of you next month at our analysts meeting in New York.

I'd like to briefly review the highlights from the March quarter, and then I'll discuss our expectations going forward.

During the March quarter, we shipped approximately 28 million MSM phone chips, which represents a doubling over a year ago shipment, and the second largest volume quarter in our history.

At the same time, we increased our market share to record levels.

Of the 28 million MSM total, approximately 90% were 3G CDMA2000 1X and 1X EVDO chips.

We were also very pleased to be able to announce during the quarter that once again, QUALCOMM has been ranked as the number one [inaudible] semiconductor company for 2002, based on 2002 revenues.

We shipped CSM infrastructure chips to support approximately 1.5 million equivalent voice channels during the March quarter, down from 2.2 million shipped in the December quarter, and approximately 2.5 million in the year ago quarter.

The upgrade to 1X in China combined with the CDMA market -- CDMA network deployment in India were the primary contributors.

The decrease in the March quarter relative to 2002 reflects the cyclical nature of infrastructure deployment, as we indicated at the beginning of this fiscal year.

We shipped approximately 1.4 million MSM 5500 1X EVDO chips in the March quarter, a doubling of December quarter volumes.

Both SKT and KTS began realtime TV service through streaming video on their EVDO phones, and are targeting a service offering of ten TV channels, four public and six cable TV soon.

We are very encouraged by the demand for EVDO devices and expect volumes to continue to grow during the year.

We announced strong market demand for our MSM 6100, a 1X design that features integrated GPS 1 and a wide variety of advanced multimedia capabilities, including video recording and playback, 3D graphics acceleration for sophisticated gaming applications, and a built-in camera interface.

The MSM 6100 has been designed into over 20 new phone models with eight customers, including Samsung, LG, Motorola, Kyocera, Sharp, Innertech, Curtel and Toshiba.

We look forward to seeing a large number of these models on the market by the fourth quarter.

Samsung announced the first Multimode, multiband GSM 1X phone based on our MSM 6300 chip.

This chip combines 1X and GSMGPRS technology and we have several additional customers already signed as well.

Our entry-level MSM 6000 chip is gaining traction, and we expect to see the first commercial phones based on this chip in Latin America by mid-year.

We also expect to see the first commercial phones based on our MSM 6050 in North America very soon, and we have many customers currently evaluating this chip for the low end, including some of our Chinese customers for China Unicom.

Progress in our wide band CDMA program continues to receive a strong positive response from both carriers as well as phone manufacturers.

As these companies gear up for product and service launches later this year and early in 2004.

As of the March quarter, we have tested our wideband CDMA chipset with all of the major infrastructure vendors in Europe, using our MSM 6200 base test mobiles, of which there are more than 2,000 in distribution for interoperability testing.

To date we have successfully completed voice calls, plus circuit and packet data transmissions with a total of 12 infrastructure providers.

Our GSM solution, integrated into the MSM 6200 chipset, received global certification forum, or GCF, certification, an important milestone in recognizing our ability to support GSM and GPRS.

Worldwide, our MSM 6200 has been tested in more than 30 networks.

Beyond our testing program, we're also seeing progress in enabling commercial launches.

Sanyo hand sets based on the MSM 6200 chipset are currently on sale in Japan to support the Jphone wide band CDMA service launch.

From the perspective of our launch pad application platform, one of QCT’s significant product differentiators has been our integrated GPS1 positioning capability.

GPS1 continues to be both the most widely deployed positioning technology in the world and importantly, for new CDMA carriers, is proving to be a catalyst for the development of wireless data services.

More than 10 million GPS1 enabled devices are now in use in Japan, South Korea and the United States.

Looking forward, we expect to ship approximately 23 million MSM phone chips in the June quarter.

This sequential decrease takes into account the lower subscriber additions during the March quarter in China as consumers anticipate China Unicom's 1X launch and soon the launch of BREW and GPS 1, the early stages of network launches in India, and some slowing in South Korea for the reasons Tony discussed earlier.

So I'm pleased to report that QCT is continuing to deliver leading edge technology solutions to its customers and that our business is benefiting not only from the strong take-up rate for our newest generation of chips, but also in serving one of the largest customer bases of any chipset provider, more than 50 companies in total.

Let me also say our relationship with Samsung continues to be very strong.

Samsung has committed to all of our MSM 5000 series and five out of six of our 6000 series chipsets their feature phone models.

Samsung relies on us to deliver fully featured reliable and cost effective CDMA chipsets, so much so that this week they named us as their supplier of the year in recognition of our close partnership.

I would also add that Samsung and several of our customers are quite energized by Nokia's presence in the CDMA market.

I will now turn the call over to Bill Keitel for the financial overview.

Thanks, Sanjay.

And good afternoon, everyone.

We're very pleased with our second quarter results, despite difficulties with Vesper, which is reported in QUALCOMM's strategic initiatives, or the QSI segment.

QSI is made up of strategic Investments, and includes realized gains and losses, unrealized losses, and QUALCOMM's share of income or losses from certain subsidiaries.

We continue to believe that it is appropriate to evaluate strategic investments on a different basis than our core operations, which is why we report QSI as a separate segment.

For the March quarter, QSI reported revenues of $26 million and a loss before tax of $246 million.

Vesper related losses were $188 million, including $160 million of asset impairment charges, and $22 million of losses from operations, net of minority interest.

The balance of the QSI losses before taxes is primarily $33 million for our share of equity losses from our investment in Inquom, and other than temporary losses on other investments of $24 million.

We're actively taking steps to reduce our involvement in strategic investments this year.

We plan to exit Vesper and decrease net new cash investment into QSI to approximately $150 million in fiscal 2003.

This is significantly lower than the $350 million estimate we gave back in January, and a substantial reduction from last year.

Our core businesses performed well in second quarter.

Revenues excluding QSI were $1 billion, down 5% sequentially, and up 54% year over year.

Earnings per share were 38 cents in the second fiscal quarter, down 10% sequentially, and up 90% year over year.

We exceeded the high end of our previous earnings guidance by 3 cents per share, primarily due to higher demand for MSM chips, higher than expected average selling prices of CDMA handsets worldwide, and a decrease in the tax rate of our core business.

QCT had its second largest quarter on record, shipping 28 million MSM phone chips, and reporting revenues 90% higher than the prior year quarter.

QCT operating income rates returned to the mid-30% level.

QCT earnings before taxes were the second highest on record at $224 million, or 188% higher than the year-ago quarter.

QTL reported record quarterly revenues and earnings before tax of $260 million, and $236 million respectively.

Year over year revenues grew 34% and earnings before tax grew 38%.

QTL's operating margin improved to 91% of revenue.

Based on royalty reports for the December quarter, the average selling price of CDMA phones increased sequentially from the September quarter by 4%, to approximately $197 per phone.

QUALCOMM Wireless and Internet, or QWI, reported revenues of $119 million in the March quarter, an increase of 9% sequentially, and 8% year over year.

QWI earnings before taxes increased 167% sequentially and 286% year over year.

Our estimated GAAP effective tax rate for fiscal 2003 is 43%.

Excluding the QSI segment, our fiscal 2003 effective tax rate is now estimated to be 33%, improved from the 34% estimate last quarter due to increased foreign sales at lower tax rates.

Cash flow continues to be strong.

Cash and marketable securities increased approximately $460 million in the March quarter to $4.4 billion.

Excluding QSI, earnings before taxes, depreciation, amortization and impairments contributed $498 million of cash, and working capital improvements, less taxes paid, contributed an additional $86 million of cash, primarily from reduced receivables as we realized continued excellence billing-to- collection intervals.

Inventories increased this Quarter, consistent with the plan we mentioned to you in January.

At that time, MSM chip demand exceeded our guidance.

We increased MSM chip inventory during the March quarter in the event the higher demand turned into firm orders.

Our inventory continues to be well managed at approximately 10 turns per year, and less than 2% of total assets.

This quarter we reversed approximately $1.1 billion of valuation allowance on substantially all of our U.S. deferred tax assets, as a credit to stockholders' equity.

As part of an ongoing analysis, we have concluded that it is more likely than not that we will not experience the same level of stock option exercises and related tax deductions that we saw in the past, and when coupled with our belief and the company's capacity to earn substantial taxable income, we now believe that we will be able to fully utilize the deferred tax asset.

During the second quarter, we purchased approximately 3.6 million shares as part of our previously announced stock repurchase program, at an aggregate cost of $124 million.

We also declared our first quarterly cash dividend of 5 cents per share during the quarter, which was paid on March 31, 2003, to stockholders of record at close of business on March 14, 2003.

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

We anticipate the June quarter revenues, excluding the QSI segment, will increase approximately 27% year over year.

This represents a decrease of 10% sequentially compared to the second quarter of fiscal 2003.

We anticipate that earnings per Share, excluding QSI, will be approximately 30 to 31 cents.

This estimate is based upon shipments of approximately 23 million MSM phone chips, of which approximately 96% are expected to be 3G 1X and 1X EVDO MSM phone chips.

We believe that total CDMA Channels, from chip shipment to the retail phone sale, currently contains approximately four weeks of higher than normal MSM chip inventory, and we expect this situation to correct itself over the next few quarters.

We anticipate a sequential increase in R & D and SG&A expenses of approximately 5% in the June quarter.

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

We anticipate revenue growth for the full fiscal year, excluding QSI, to be approximately 30 to 33%.

We anticipate the earnings per share will be in the range of $1.38 to $1.41, which represents an increase of 41 to 44% over last year.

We continue to plan for average selling prices of CDMA phones to decline approximately 10% for the year, and we estimate an effective tax rate for operations, excluding QSI, to be 33% compared to 35% in fiscal 2002.

That concludes our remarks.

Operator, we're ready for questions.

Ladies and gentlemen we'll now begin question and answer session.

To queue a question, press one-four.

To retract a question, press one-three.

If you're using a speaker phone, please pick up your hand set before pressing the numbers.

One moment, please, for the first question.

Louis Gerhardy from Morgan Stanley Dean Witter.

Please go ahead with your question.

Good afternoon.

Nice quarter.

A couple questions, if I could.

First on profit before taxes, in QCT it was at 34%, is that driven mostly by the increased operating expenses, and are those going to stay at those levels, or were some of them one time?

Louis, this is Bill Keitel.

It was partially increase in our operating expenses.

As you're aware, we've been increasing our engineering resources in QCT, and we expect to continue to do that.

But it was also the effect of the mix of our chips which we've been also indicating, particularly increased percentage of the 1x and particularly the 5000 series chipsets.

So it was a combination of the two.

Going forward, the guidance that we've given you is based on a slight decrease in our operating margins, driven primarily by the increase in operating expenses, specifically R & D, that I mentioned before.

Okay.

Great.

And just as a follow-up, you mentioned the four weeks of channel inventory.

Is that specific to any regions, and finally, could you just comment on how well you -- how well you're booked to the 23 million MSM estimate for June.

I'll answer the inventory one.

I'll let Sanjay speak to the bookings.

On the inventory one, of course, it's an area that's difficult to be exact on.

But we did complete a fairly thorough analysis this week.

The way we estimate that, Louis, is by tracking our MSM shipments and, of course, adjusting for other people's share.

And then compare that to what is happening with phone shipments.

And we monitor that over time.

We have seen that increase, as have others, that inventory in the channel is increased.

To say specifically by region is very difficult.

I think it's more of a global estimate with pockets of excess varying depending on region of the world.

On the specific question of how comfortable we are with the 23 million number for next quarter, this is Sanjay, we feel pretty comfortable with that figure for this quarter.

We traditionally don't break out the booking ratio this early in the quarter.

Thank you.

Hasan Amam with Thomas Weisel Partners Please go ahead with your questions.

Yes, a couple questions.

The first one was related to market share.

There's been a lot of chatter about that.

Nokia seems to be getting some traction in China and India, everything, low price Points, and then Samsung beginning its chipset production.

Could you maybe comment on where you see QUALCOMM for the full year in terms of market share, versus the plus 90% today?

And then related to that, could you give us an update on your partnership program with Flextronics, to offer a low-cost phone, presumably as a blocking strategy to stem some of the share loss?

Thanks.

This is Sanjay again.

Nokia has been in the CDMA marketplace for around five years.

And they recently announced that they have shipped about 25 million phones.

In that period, we have shipped over 300 million chipsets to our broad base of customers.

While it's very good to see Nokia entering and increasing their market share of CDMA in the wireless industry, we continue to feel that our customers using our segmented road map and leading edge technology, will compete very effectively with Nokia in the marketplace.

To bring another perspective to this discussion, CDMA is a growing technology in the wireless industry, and in the last quarter we increased our market share in CDMA.

Going forward, we typically don't provide market share predictions, but we have planned for slight decrease in our market share going forward.

On the Flextronics question, I think that program's going very well.

Flextronics has signed up a couple of our licensees to our phones, and we expect to see a variety of modifications to that phone at the low end in Latin America, India and probably in China as well.

In the coming months.

So when would you expect shipments to begin?

I think in the middle of the year, June time frame.

Okay.

Thanks.

Our next question comes from Kristin Armacost from SG Cowen.

Please go ahead with your question.

Yes, thank you.

I wanted to ask you a question about pricing.

You were the most conservative in forecasting ASP declines this year of about 10%.

During the first quarter, we've seen some of the ASP erosion, if you look at an annual basis from some of the handset manufacturers, granted some of them are GSM, that would imply that the ASP erosion could be greater.

Wanted to get your feeling on perhaps bracketing that 10% number, what will contribute to the ASP declines being a little bit better, or maybe some factors that would make DSP erosion a little bit worse than your forecast.

Thank you.

We have been forecasting 10% decline for some time.

We're continuing to that forecast despite the positive ASP increase that I mentioned that we saw in our December royalty report.

What we see as the key driver here in our forecasts is that we've seen a very nice increasing percentage of 1X.

And that increasing percentage of 1x, we think, has helped CDMA ASPs.

However, the rate of increase of 1X relative to the drop off now, the 95A, will lessen.

And so we'll see it a little bit more price pressure on that front.

That's number one.

Number two, the higher inventory in the channel plays well to the carriers, gives them better opportunity for pricing flexibility.

So I expect a bit more pressure on the handset manufacturers given that situation.

Thirdly, the other variable we have is that what could turn out to be a positive, but we're not counting on it, is this increasing proportion of color screens, extra memory, cameras in the phones.

So I'm hopeful that that would be the case, but I think the best estimate, based on all I can see, would be a continued 10% decline.

And I would just add one thing to that.

I think when you compare CDMA with the total market, then it really is quite a different view.

And certainly we've had a much larger mix of high-end phones relative to GSM.

And continue that way.

Phil Betten from William Blair.

Please proceed with your question.

All right.

Just another follow-up, I guess, on the ASP question.

Would you just mention whether you're more or less confident with regard to that 10% ASP decline?

And if you could just comment quickly on what you see happening in terms of 3-2 network delays as a result of YFY deployments, if anything?

I'll comment on the ASP.

And Irwin will take the second one.

Obviously, I'm a bit more confident.

I have one quarter of actual from the royalty reports.

And as I've mentioned in the past, we link our ASP forecast to the mix of chips that we expect to ship.

And we've got better visibility on that as well.

So the confidence in that forecast is a bit higher than what I had last quarter.

With respect to QFY, clearly there will be an increasing number of handsets -- I'm sorry, of mobiles and of laptops sold with YFY, and I think we widely used, particularly homes, campuses, some hot spots.

However, as 1X EVDO becomes more and more available, and people sign up then for a almost all you can eat monthly fee that can be used with their laptops, with their palm tops almost anywhere, then I think that the business case for having hot spots that you pay for will, in fact, be difficult to achieve.

And so I don't really see it delaying the rollout.

I think it will be complementry.

I think there will be cases where one does combine a connection to the Internet with the higher data rate wireless capability and YFY.

But I see the -- from everything that we've experienced to date, that the high data rates will be well received and will move out quickly.

Thank you.

Mike Walkley from RBC Capital Markets.

Please go ahead with your question.

Thanks.

This question's for Bill.

The pretax margins for QWI were better than I expected.

How should I think about modeling that going forward?

They were slightly better.

You'll notice in our 10-Q which, by the way, we filed again today simultaneous with the day of our earnings release, you'll notice in our 10-Q, that there was a release of a warranty reserve in QWBS of about $4 million.

If you recall a couple of years ago, we mentioned establishing a reserve for a product issue that came up.

That came to completion in the March quarter, and there was a $4 million release.

So the pretax was about $7 million, about $4 million of that was a somewhat extraordinary item.

Having said that, though, all of those businesses are performing well.

I expect to see continued QWI profitability in the June quarter.

All right.

Thanks.

Maybe a follow-up question just on your own inventory, would you expect -- it would take several quarters to get back towards a more normal level of the sub $100 million on your balance sheet?

We expect that within two to three quarters we'll be back to lower inventories, but we continue to believe that the inventory level even today is very good with respect to our annual revenues.

I agree, Sanjay.

And in fact, I would add at sub $100 million, that's probably more the exception, and probably a little too tight for what we need to be able to do to service our customers.

Okay.

Great.

Thank you.

Ken Luke from Lehman Brothers, please proceed with your question.

Bill, I was wondering if you could give some color on how you see the visibility as you move forward into September.

I feel that it seems like your guidance is for a fairly flattish September.

Could you maybe Sanjay could give some color on that.

Yes, Tim.

You're right by doing the arithmetic on the earnings.

So I think what we're doing is we don't have, as usual, we don't have great visibility into the September quarter.

So we're being cautious about it at this point in time.

But there are a significant number of new phone models coming into the market as Sanjay described based around our 6000 chipset family.

And we think that markets around the world are, like China, for instance, will be picking up, and India will be really starting to move.

So you know, I think that the trends going into the second half of the calendar year are really quite good.

So do you think that number, then, is a conservative number and you could illustrate some of the things that could provide upside, or how do you see that?

And also if you could just clarify, what's the normalized inventory level, if you have an extra four weeks that you think is in the channel currently?

Well, our lawyers wouldn't like me to.

What's the range, then, Tony, just so we have a framework for looking at it?

So I can't really comment.

I think I've described that we're being cautious.

But in terms of normal inventories, we've said 13 weeks from us shipping to lap phone getting into consumers' hands.

That's the basis of why we're saying right now there's four weeks more than that.

Um-hm.

And just as a number, do you have the WCDMA licensing, that -- the WCDMA royalties as a piece of your royalties in the quarter and how do you see that developing maybe for the fiscal year and next year?

How do you see that ramping?

So there are WCDMA royalties in the numbers, but they're still relatively small, relative to the CDMA2000.

We said we hope to see the market start to take off next year so that they will start to become more significant.

Okay.

Thank you very much.

Brian Modoff from Deutsche Banc Alex Brown.

Please go ahead with your question.

Hi, guys.

Couple questions.

One, given based on your own numbers, it looks like you've shipped 5 million units of [VASX] in excess of 100% of hand sets shipped in the last two quarters.

How do you see that kind of working itself down and, you know, what time frame do you see that kind of rebalancing?

And then what are ASP trends like in the chip business, and how does this excess inventory impact that?

And then finally, one last question for Irwin, could you give us a rundown on WCDMA and of the recorder, when do you see it is it still 2005 for volumes?

Comments on that, please.

Brian, Bill Keitel.

I'll take your first two questions.

On the inventories situation, we expect this to work out over the next few quarters.

So between the June-September quarter, we're hopeful of seeing most of the workout, but some of it could extend into the December quarter.

That would be number one.

On ASPs, on chips, as we mentioned, we've got our proportion of 1X increasing relative to the 95A, the 95A is dropping off pretty quickly.

So that's been a positive for us.

As Irwin mentioned and Sanjay mentioned, DO is accelerating at a fast rate.

So that's been a positive for us as well.

What somewhat offsets that is our efforts to improve the low end market for CDMA because we think that will help our growth of the market quite significantly.

So overall, ASPs -- we've not seen much change in average ASPs in total.

By the way, I think some of that inventory is in some of the 95A phones.

And so we probably will be seeing some significant cost cutting since people are moving rapidly now to the CDMA2000 1X.

And so hopefully it will help move that inventory out.

That's China, then, I assume, the 95A inventory, sounds like this is more China, India stuff we're seeing here?

Probably a considerable part of that, yes.

And then Irwin, on the question on WCDMA, real quickly also, you guys indicated you said here on the call 27% sequent -- or year over year growth in the following quarter, yet in your press release it says 24.

What's the right number?

Well, on WCDMA, it's always a little hard to predict.

We now have some operators that have launched commercial service.

There are some models of phones out there, and we will now begin to see that begin to pick up.

But I think it will take a number of months to work through some of the complications of starting new networks.

And so my guess is that it will be sometime between '04 and '05, late '04, early '05, that hopefully we move through that 10 million subscriber number.

But there's a lot yet to be accomplished to get there.

Okay.

And then the last question on 24 - 27?

It -- the 24% is the GAAP consistent with reg G now, you now have in our earnings release guidance on a GAAP basis, although I would caveat that very importantly for everybody that it does not include any impairments or any other unusual activities such as, you know, an FCC licensed voucher sale.

The 24% is the GAAP number that we're required to provide per reg G.

7% is excluding QSI?

That's right.

Thank you very much.

Tim Long with Credit Suisse First Boston.

Please proceed with your question.

Thank you.

Two questions, if I could.

Number one, on the -- on China, taking the numbers down a little bit, I think last quarter you did talk about Unicom hitting its subscriber target.

So could you just let us know the 2 million unit change there?

Was that, a change in your view on the replacement rates in that region, or did you have some order cancellations from customers there or anywhere on the MSM side, for that matter?

And then the second question, Tony, back to the ASPs, or Bill, sorry, you gave some numbers for September and December.

Could you let us know what you accrued for in the March quarter for ASPs?

And also, the 85 to 87 million units, did that 2 million excess units in '02 result in a benefit in the March quarter for the royalty line?

Thank you.

We think China will hit their goal, China Unicom, their goal of 13 million new subscribers.

The question is, how many new handsets will be sold there?

And there we're running into a little bit of an issue between some, perhaps, used handsets coming into the country and, perhaps, some additional sim card type subscribers as opposed to phones being sold.

So there's a little bit of confusion over the exact numbers.

But, again, we haven't reduced our belief that they will hit their target number of subscribers.

So Irwin, no cancellation there in China from the chipset side?

No, this is Sanjay.

No.

Okay.

Thanks.

Tim, on your question on the royalty accounting, if you recall, what Paul Jacobs said was that our estimate for the March quarter, that 25 million phone units, new phones will be sold in that quarter, that was the basis of our royalty accrual.

And then as I mentioned, we're planning a 10% ASP decline for the year, and a portion of that 10% ASP decline was included in the accrual estimate.

Okay.

And then was there a benefit in the quarter from those 2 million extra units in '02?

That it was -- yes.

You now think 87 versus 85?

So 2 million?

Some of that was included in our December estimate and the balance, the majority of it, would have been in our March estimate.

Correct.

I'd just like to clarify that answer of no -- with regards to no cancellations in China.

We've reduced our forecast, but we don't have enough clarity that any of the pushout or cancellation that we've seen has been specifically for China.

So we have not seen any specific pushout related to China.

Okay.

And just Sanjay, so follow up, so there have been order cancellations somewhere?

In your chipset business?

That's why we've reduced our forecast for next -- we've guided you to the lower end of the forecast that we've provided earlier.

Okay.

Thank you.

Mark Roberts from Wachovia Securities.

Please go ahead with your question.

Yes.

Thank you.

Good afternoon.

I notice that it appears that your chip ASPs declined sequentially.

Sanjay, can you talk a little bit about what was causing that?

Was it a mix shift towards lower in chips, or was it a change between the mix in CSM and MSM chips?

There was a very marginal decline of -- in the ASP from -- sequentially from previous quarter.

And largely that is because of the mix going a little more towards low end to drive emerging markets.

Okay.

And the CSM, as I said in my initial comments, were down, as we have guided you on that before also.

Okay.

And if I could follow up with one other question, there appears to be a pretty significant increase in the number of manufacturers in Asia, specifically China, who are starting to manufacture CDMA phones.

Could you give us -- could you give us a count, Sanjay, of how many new customers in China that you're shipping chips to year over year?

Sanjay Jha I don't have that number in front of me.

We'll make that available to you.

Okay.

Thank you.

That's all the time we have for questions.

Dr. Jacobs, please proceed with your presentation or any closing remarks.

Thank you.

I'd like to thank everyone for your attention and for your questions.

This has been a very good quarter for us.

It should be, also, an interesting remainder of the calendar year.

We do anticipate that China and India will significantly ramp their CDMA 2000 1X subscribers.

We believe 1X EVDO will continue to grow in South Korea, Japan, U.S. and elsewhere.

We expect that our 6200 multimode chips will help facilitate the migration to 3G CDMA2000 – I’m sorry, 3G CDMA, WCDMA in Europe, beginning late this year.

We do look forward to shortly sampling our MSM 6500, which supports feature rich devices operating with CDMA2000 1X, 1X EVDO, GSM and GPRS, as well as increasingly powerful BREW applications.

We now look forward to seeing some of you at our New York analysts meeting next month.

Thank you very much for participating in this call.

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

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