高通 (QCOM) 2004 Q3 法說會逐字稿

Welcome to the QUALCOMM 3rd 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 telephone.

As a reminder, this conference is being recorded July 21, 2004.

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

International callers please dial (402) 977-9140.

Playback reservation number is 21199227.

I would now like to turn the conference over to Bill Davidson, Vice President of Investor Relations.

Bill, please go ahead.

Thank you and good afternoon.

Today's call will include comments by Dr. Irwin Jacobs, Tony Thornley, Dr. Paul Jacobs, Dr. Sanjay Jha. and Bill Keitel.

An Internet presentation and audio broadcast accompanies this call and you can access it by visiting www.QUALCOMM.com.

During this conference call, if we use any nonGAAP financial measures as defined by the SEC and Regulation G, you can find the required reconciliations to GAAP on our website.

I would also direct you to our 10(Q) and earnings release which were filed and furnished respectively with the SEC today and are available on our website.

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 3rd fiscal quarter financial results.

Revenues were $1.3 billion in the 3rd quarter of fiscal 2004, up 50% year-over-year and 10% sequentially.

The 3rd quarter fiscal 2004 net income was $486 million, up 154% year-over-year and unchanged sequentially.

Diluted earnings per share were 58 cents, up 152% year-over-year, and unchanged sequentially.

The 3rd quarter fiscal 2004 net income, excluding the QSI segment was $483 million, up 81% year-over-year and 9% sequentially.

The 3rd quarter fiscal 2004 diluted earnings per share, excluding the QSI segment were 57 cents, up 73% year-over- year, and 8% sequentially.

Following opening remarks from Dr. Jacobs, the speakers will address anticipated questions for their particular discussion areas.

Bill Keitel will conclude with a summary of financial highlights for 3rd quarter fiscal 2004 as well as guidance metrics.

We will then open the discussion to your questions.

And now it's my pleasure to introduce Dr. Irwin Jacobs, Chairman and CEO.

Thank you, Bill.

And good afternoon, everyone.

Our revenues and earnings growth this quarter reflect a strong and accelerating acceptance of 3rd generation CDMA cellular technology among operators and subscribers worldwide.

CDMA 2000 was the 1st 3G technology to market with features and pricing that have sparked a rapid transition from CDMA 1 2G CDMA technology, stimulating rapid growth of 3rd generation CDMA.

CDG, the CDMA development group reported in May of 2004 that in one year, from March 2003 to March 2004, the CDMA 1 and CDMA 2000 subscriber base grew by a record 43 million users, or 31 percent, to over 200 million.

This represents the highest growth rate in one year for any cellular technology, significantly higher than the 21% gain for the whole industry.

CDMA handset sales have gained significant share and represent approximately 25% of the total handset sales reported in the March quarter.

The next evolution of CDMA 2000 technology, 1X EVDO is providing wireless broadband connectivity over wide areas and has generated a vigorous multimedia download business from South Korea where it was first launched.

Video and audio downloads and multi-player games with 3D graphics appear to be the next big things for consumers.

The high-speed wide area coverage provided by EVDO supporting laptops as well as a range of smart devices has spurred growing interest among enterprises.

We have now demonstrated very low latency, push to talk service using voiceover internet protocol, VOIP, taking advantage of new features including quality of service, QOS, being introduced in the next version of EVDO.

This revision, revision A., has completed standards and CSM and MSM chips are in development.

After successful market trials in San Diego County the Washington, D.C. area, Verizon is now deploying EVDO nationwide.

In June, Sprint announced plans for a system-wide roll-out, and other regional operators are also moving ahead rapidly.

For other Singular and AT&T wireless, our accelerating plans to offer WCDMA, including the high datarate version, HSDPA, recognizing the importance of high datarate mobile service to the enterprise and consumer markets.

There are now over 30,000,000 3G subscribers in South Korea, including over 7 million EVDO subscribers.

Operating reports indicate that South Korea added over 5 million CDMA 2000 1X subscribers and 3.4 million 1X EVDO subscribers in the last six months. 3G subscribers in South Korea represented approximately 74% of total subscribers in December of 2003, and grew to 84% in June of 2004.

In a recent press release from the CDG, it was noted that in March, KDDI, the second largest Japanese operator, reported a doubling of net profit from the prior year, mainly due to a strong increase in mobile subscribers.

The subscriber base expanded by nearly 21% to reach 17 million, including 13.5 million 3G CDMA subscribers.

Additionally data RPU for KDDI has grown by over 27% in the past year.

Nearly 90% of KDDI CDMA 2000 subscribers use data.

KDDI is rapidly expanding its EVDO network and is now introducing devices based on our MSM 6500 chipset.

KDDI is also rapidly transitioning to BREW from Java for application downloads.

Our performance is this quarter was greatly aided by the accelerating adoption of WCDMA, particularly in Japan and Europe, but also beginning in Australia and Hong Kong and now the United States.

Docomo, the largest Japanese operator has approximately 5 million fomar , or WCDMA subscribers and is experiencing rapid growth.

WCDMA worldpiece contributes to approximately 25% of total royalties reported by licensees in the June quarter, but sales in the March quarter of 2004.

We work closely with these WCDMA operators worldwide to support successful launches and with manufacturers to insure a supply of compelling phones and devices.

Our deep familiarity with CDMA and our ability to share powerful features among both our CDMA 2000 and our WCDMA chipsets is proving to be an effective edge in quickly enabling advanced and competitively priced WCDMA equipment. 21 device manufacturers have now selected QUALCOMM's WCDMA chipsets and systems software, giving us the largest customer base in the industry.

We expect ten handsets to be launched by the end of the calendar year, including several based on our powerful MSM 6250 chipset and look forward to multiple teams of products rapidly entering the market.

The Samsung Z105 based on our MSM 6200 chipset has now commercially launched with votaphone in several of its markets.

We believe WCDMA will sustain a rapid increase worldwide with handsets competitive in size and battery life but with significantly richer features including multimedia delivery that have proven to be compelling to subscribers when properly priced.

We further expect that new offerings like the 1X EVDO Gold multicast and MediaFlo will significantly expand the 3G subscriber base and operator revenues.

Operators recognize the importance to the consumer of a rich variety of downloadable applications.

They also increasingly stress the importance of differentiating their service with customized user interface in common applications across their handset offerings and across 2G and 3G technologies.

Our BREW end to end system is tailored to provide a comprehensive end tailored operator support securely in a mobile environment.

In this quarter, five additional operators launched BREW services, bringing the total number to 32 cents since the commercial introduction in 2001.

The developer community and the breadth of applications continue to expand rapidly driven by the power and openness of BREW and, of course, by the demonstrated earnings realized by existing applications.

Spectrum policy and regulation is now evolving in Europe with movement towards market selection of technology and less constraints on the use of Spectrum.

Early movements including several Scandinavian countries, for example, are examining the use of CDMA 2000 in the 450 MegaHertz band following its early deployment in Romania and more recently in Russia.

An easing of Spectrum policy could reduce the cost of deploying third generation services in existing 2G Spectrum.

The continuing growth in worldwide adoption of CDMA technology has significantly increased the cash-flow and earnings of QUALCOMM and we are pleased to share this success with our stockholders.

On July 13th, the QUALCOMM Board of Directors declared a 2 for 1 stock split to be effected in the form of a stock dividend.

The board also authorized a 40% increase of our quarterly dividends from 10 to 14 cents per quarter pre split.

I will now turn the call over to Tony Thornley for the global business overview.

Thank you, Irwin, and good afternoon.

I will address questions that we've been receiving regarding our global business operations.

The first one is, can you provide an update on the U.S. market?

Specifically, how does QUALCOMM view the competitive landscape for 3G CDMA in the region and what does that mean for the rest of the world?

The recent decision in favor of WCDMA technology made by Cingular Wireless and Sprint PCS's announcement to deploy 1X CVDO in North America serve as compelling examples of operators realizing the competitive edge that 3G CDMA provides.

The enormous drive that operators are making towards 3rd generation networks clearly demonstrates that belief in high datarate services.

We expect the competitive landscape to broaden, thus driving market prices to levels that will allow for broad adoption of 3rd generation services.

This is not a U.S. phenomenon.

Rather this market dynamic is taking place around the world.

Verizon's original announcement of its intention to deploy DO made a major impact in the global market.

QUALCOMM has licensed more than 50 companies to manufacture WCDMA equipment.

As an increasing number of wireless operators around the world migrate from legacy networks to CDMA systems, the total addressable market for QUALCOMM will expand.

And QUALCOMM will benefit through a growing royalty stream in chipset sales.

Further, the recent announcement by AT&T Corporation that it plans to reenter the market to the mobile virtual network operator, or MBNO, utilizing the Sprint network, demonstrates the recognition that CDMA based networks are the logical choice for providing 3rd generation services.

The MBNO model has shown success in Europe and is showing great promise in the United States.

The next question is, can you provide an update on the Japan market?

And the competition for subscribers there.

KDDI announced new fixed rate data plans for AU, their data service which will be effective starting August 1st of this year.

It's an $18 plan that includes 40,000 packets which is basically equivalent to the ability to send 3,600 e-mail messages via cellphone.

Docomo started offering a fixed rate unlimited data plan for $35 a month on June 1st of this year.

Also Docomo plans to release low end handset models with limited functions sometime next spring.

These models will sell for approximately $185 dollars, compared to current Fomar handsets model which sell for $275.

Additionally, Docomo is reducing their video service fees.

Looking forward, by March 2006, Docomo plans to boost its former 3G subscription 6 times from the current 4 million to 25 million.

Next question is, QUALCOMM is rapidly moving towards the development of multi-band, multimode solutions that address a single emerging worldwide market.

As we know this is especially critical for the enterprise market.

Can you provide an update on commercial deployments for the worldphone?

In June Verizon Wireless announced that it is now selling corporate travelers the Samsung SCHA 790, a multimode phone, which is the first time to incorporate 2CTs MSM 6300 chipset.

The phone allows Verizon Wireless customers to use votaphone's network in more than 100 countries in regions such as Europe and Asia.

Separately China Unicom plans to launch its dual mode handset Whirlwind in Shanghai at the end of July, 2004.

These new services will not only attract potential new subscribers, it can also bring current GSM users of China mobile more value-added services by utilizing their simcard in a China Unicom multimode handset.

The availability of global roaming with 3G CMA-based products should enable CDMA operators to capture a larger portion of the enterprise market, whether its capability is so needed.

Next question is there are many claims made in the market the wireless local area network technology is targeted at the wireless broadband market, both do 1X CVDO does, only faster and more cost-effectively.

Can you comment on that?

I think specifically relating to Wire Max, which is receiving a lot of press recently, Wire Max may provide wireless back hall connectivity which could reduce operator network cost.

The current Wire Max technology is supposedly designed to provide only stationery point-to-point connectivity.

Under ideal conditions but not on the portability and mobility conditions for metro area or wide area use.

In addition, performance numbers sited apply to line-of-sight condition, 20-megahertz allocations and early field trials, not loaded systems. 3G CDMA with over 100 million subscribers globally will continue to enable robust wireless wide area coverage for voice and high-speed data services.

Next question is, what's the status of CDMA 450 deployments and where does the opportunity lie for future growth?

Teller Mobile launched the first commercial CDMA 450 network in Romania in December, 2001, under the brand name Zap.

Today their subscribers are paying an average of 33 to $34 per month for voice and 3G data services, considerably more than the GSM average revenue.

Their planning to upgrade their network later this year to begin offering high-speed mobile broadband services using 1X CVDO technology.

After the Russian Ministry of Telecommunications adopted CDMA 450 as a Federal Mobile Communications standard in early 2002, several operators have deployed CDMA 450 networks throughout the Russian federation under the skylink initiative.

These operators are collecting up to 60 to $70 in RPU.

The China Commercial Times reported in Tibet the CDMA 450 commercial trial network operated by China Telecom and China Netcom dramatically increased rural teller density.

China remains the largest potential opportunity for CDMA 450.

It is our belief that a decision on the 450 Megahertz Spectrum may not occur until the 3rd generation licenses it at 2.1 Gigahertz are awarded which we expect sometime next year.

A number of countries in Europe, Latin America, Africa and India are also evaluating the possibility of deploying CDMA 450.

To support these commercial deployments, 7 leading infrastructure vendors including Avana, Erikkson, Walway, Lucents, Nordtel, UT Starcomm and ZTE provide commercial CDMA 450 equipment and services.

Each of these vendors have integrated CDMA 2001 1X and 1X EVDO into their bay stations to provide operators with the ability to customize their mix of coverage and costs and reduce site acquisition costs.

There are more than 20 commercially available CDMA 450 subscriber devices from more than 12 manufacturers.

The last question is, can you provide an update on India and what might drive future growth in the market?

The mobile base in India continues to grow, and CDMA 2000 is enabling operators with key advantages.

Telecom carrier Tata Indicomm launched push to chat services based on QUALCOMM's BREW chat technology for CDMA subscribers and in so doing became the first telecom firm to offer the new technology.

Tata's coverage is increasing at a rapid price.

Tata group plans to invest an additional $2 billion in the next two years to expands its service into new circles.

On July 19, Business Line reported that Tata's June 2004 subscriber figures presented by the Association of Unified Telecom Providers of India show that Tata registered a growth of over 10% in the subscriber base which spans 8 telecom circles.

In the last three months that coverage has grown from 50 towns to nearly 200, all in the existing circles.

The report further stated by March 2005, Tata plans to be in over 1,000 towns in 20 circles.

If Tata ramps it's deployments reliance continues to invest, India will have two strong nationwide CDMA networks.

Initially, these operators are evaluating 1X CVDO.

Reliance has been offering 1X data services since their commercial introduction of CDMA so migrating to DO would be a logical choice for them.

In fact, from Akeshan Barney, Chairman and .Mmanaging director of Reliance Infocom presented to analysts in February that Reliance will offer 1X CVDO.

To enable services that CDMA operators strive to provide with Telecom Regulator Authority of India, we'll have to finalize a Spectrum policy.

Currently CDMA operators have access to 10 Megahertz of Spectrum.

The operators have been working with TRAI to secure additional Spectrum which will be needed to grow their subscriber base in metro areas and to offer data services with DO.

We encourage TRAI to adopt technology neutral spectrum policy as the operators is averged.

It is anticipated that resolution will come this fall.

Now I will turn the call over to Paul for the QWNI and QTL overview.

Thank you, Tony, and good afternoon everyone.

I will address questions that we've been receiving regarding our QWNI and QTL businesses.

What is driving WCDMA growth in handset ASPs, or average selling prices?

We saw a significant jump in the shipment of WCDMA handsets from the December and March quarters.

In Japan Docomo's latest handsets, the popular 900I Series, has seen strong uptake with an enhanced service area covering 99.7% of the population including much improved indoor and subway service. 900I handsets offer three times the original phone standby time, or 20% later.

In Europe, there were three launches of WCDMA services in the March quarter and 16 additional operators on WCDMA in the June quarter each needing to build inventory in support of those launches.

These increases in WCDMA handset volumes had average ASPs more than double the CDMA 2000 handset pricing, a positively impacting royalties.

WCDMA handset royalties combined with the growing networks translates into one quarter of all of our royalties coming from WCDMA products.

The WCDMA handset ASPs are still multiples above the CDMA average due to current high-end features and lower relative volume, but as we have discussed, we are working to provide a broad range of chips and software to offer a fully segmented market to even further accelerate growth with WCDMA.

An optimum balance of technology, attractive services and compelling devices will drive WCDMA technology transition forward.

Next question: How does QUALCOMM's royalty business enable the growth of CDMA markets?

QUALCOMM's technology leadership and success in the 3G market is derived in part from the strength of our ever-growing patent portfolio.

QUALCOMM's royalty business provides customers and carrier partners worldwide an advantage for proven solutions because QUALCOMM is able to reinvest revenues from the royalty business into continuing research and development, resulting in market drivers such as BREW, 1X EVDO, HS DPA, QTV, QCamcorder and videophone, to name just a few.

And we will continue to reinvest our revenues in the new upcoming products and solutions that enable our customers to remain ahead of their competition and build new revenue streams.

Next question: what is the status of TDS CDMA and WCDMA in China?

QUALCOMM looks forward to the commercial deployment of WCDMA and TDS CDMA systems in China along with the expanding CDMA 2000 networks currently being used by millions of Chinese consumers.

In order to provide the maximum benefit to Chinese wireless telecommunications manufacturers, QUALCOMM would encourage the relevant Chinese regulatory agencies to issue 3G Spectrum licenses at the earliest possible time.

While these companies may gain experience and revenues from their domestic market.

QUALCOMM will support the implementation of all 3G technologies licensed for use in China whether they be TDS CDMA, WCDMA, and/or CDMA 2000, with technical and marketing support and technology such as CDMA chipsets and software.

Question: Can you provide an update on QUALCOMM's GPS 1 solution and the implementation of E-911.

Wireless location-based services are a key driver for the growth of wireless data services and QUALCOMM's GPS 1 technology features industry-leading accuracy and reliability in virtually any environment.

There are more than 50 million GPS 1 enabled devices available today.

And in May of this year, Sprint reported that they sold over 21 million GPS enabled handsets cumulatively.

Additionally in April of this year, Verizon Wireless reported that they are now providing phase two E-911 service to 1,000, roughly 1,200 public safety answering points or PSAPS, serving an estimated population of over 100 million people.

Many wireless network operators across the United States are using QUALCOMM's location based services to deliver E-911.

Furthermore QUALCOMM offers it's Qpoint solution to operators interested in offering location based services to their subscribers.

With Qpoint QUALCOMM's provides operators with flexible delivery operation for location based services.

Operators in the Americas have the option to launch Qpoint as a hosted solution, meaning a service operated by QUALCOMM, or via channel partner solutions.

In other regions of the world, operators can deploy Qpoint through channel partner solutions.

Question: can you provide a quick recap of the BREW 2004 conference that was held last month?

Our 4th annual developers conference served as an opportunity to highlight the global success and widespread adoption of the BREW solution.

The event was sold out with nearly 1,600 individuals in attendance representing key BREW publishers, developers, operators and handset manufacturers from around the world.

A comparison of the latest numbers with those from last year's BREW conference serve as the most compelling evidence of BREW's continued growth.

Consumers worldwide are downloading more than 140 million BREW applications, up from 28 million at the time of last year's conference.

As compared to our numbers from last year, there are now 32 commercial operators in 22 countries operating BREW services, which is up from 7 operators in 6 countries.

There are over 31 million BREW enabled devices available on the market, up from 8 million.

In addition, there are 27 device manufacturers collectively operating 148 commercial BREW device models, up from 10 manufacturers and 50 models respectively.

Now that Tata has become -- next question: Now that Tata has become the first operator to launch BREW chat, what's next for QUALCOMM'S push to chat product?

We continue to market the BREW chat solution around the world.

In addition to increasing adoption for BREW chat services, continue to move forward also with our Qchat offering which is currently in trials around the world.

Qchat's availability on CDMA 2000 1X EVDO optimizes this offering and will allow end users to experience a world class push to chat experience with significantly reduced latency between the press of the button and the beep signaling that the person on the other end is listening.

As more CDMA operators move to EVDO, chew chat will become a critical offering in a portfolio of value-added services.

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

Thank you, Paul.

I will now address several questions regarding QCT.

First question, can you provide an update on QCT's financial performance be overall customer demand for your chipset solutions?

Demand for our chipset solutions continue to be very strong and we achieved a record $790 million revenue for our June quarter, up nearly 43% compared to the same quarter last year.

During the June quarter we also saw a marginal increase in ESPs versus March quarter, due primarily to favorable product mix as we ramp volume in the next-generation 6000 series chips.

For fiscal year 2004 consistent with our previous guidance we expect to see a modest decrease in ESP compared with the previous year.

Operating margin for the June quarter was approximately 32% of revenue, up from 30% in 3rd quarter of last year, and down from 36% sequentially.

Earnings before tax for the June quarter was 254 million, up 54% versus 3rd quarter of last year, and down by approximately 1% sequentially.

We continue to be successful in our ability to aggressively grow our work force on both the technical and business fronts and at the same time retain a strong profit margin for our business.

June quarter QCT shipped approximately 35 million MSMs, compared to approximately 32 million units in the 2nd quarter of fiscal '04, and up from 52% from, up more than 52% from approximately 23 million units in the 3rd quarter of fiscal 2003.

Demand across our entire product line of devices remains very healthy and we continue to be, continue to see strong bookings going forward.

As a result in our fiscal Q4, the September quarter, we expect to ship between 36 and 38 million MSM chips, up from our previous guidance of between 32 and 36 million.

We are seeing growth driven by such factors as wireless number portability in the U.S., customer multimedia devices in Japan and Korea and solid CDMA subscriber growth for a number of emerging markets including China, India and Brazil.

We also see robust demand for our infrastructure products, a leading indicator of future growth for our businesses and industry.

During the June quarter, we shipped CSM infrastructure chips supporting nearly 4.6 million equivalent voice channels with a very strong backlog looking forward.

Next question: Can you comment on the QCT's plan to address customer demand for future chipset volume growth?

I've noted that we have been able to increase shipments from quarter to quarter this year and we are working very hard to support our customers in taking advantage of such strong demand.

Our ability to address this increasing demand has improved over the previous quarter.

To ensure better delivery of parts and components from our suppliers we have increased and extended our firm orders to our suppliers.

Additionally we continue to add capacity at existing suppliers and we are working closely with customers to expedite their process for evaluating products from potentially new foundries and suppliers.

Next question: How large a factor have DO and multimedia become for QCT's business?

We see strong demand across our full product line for both value and multimedia platform chips. 1X CVDO is an important driving force by behind our strong result this quarter.

There are approximately 7 million DO subscribers in Korea and KDDI in Japan has successfully launched its DO service.

In the U.S., Verizon and now Sprint have announced their plans to provide nationwide service in the U.S.

In India, Reliance and Tata have announced plans for DO as have Unicom in China and Bipo in Brazil.

In the June quarter we delivered in excess of 3 million DO chipsets for devices, a record level for the division.

For fiscal '04, we are on track to more than double or DO chipset shipments compared to fiscal '03.

We also see a sharp increase in the DO portion of CSM infrastructure chips sold in support of these expanding networks.

In multimedia, we sampled on time the enhanced platform 6150 and 6550 chipset solutions that enable greater performance for audio, video and gaming capabilities and devices.

For multimedia and microprocessor performance of these chips eliminate the need for any abject processors thereby reducing cost, board area and par consumption in our customers handsets.

We have announced over 30 customer design wins for our fully integrated QTV decoder,Qcamcorder encoder and Qvideophone telephone solutions for the first time and for the first time we have begun recognizing revenue for QTV during this quarter.

A number of 6100 multimedia platform phones are already in the marketplace in U.S., Korea and Japan, and we expect over 12 phones to be commercially available by the end of this year.

With Motorola's V710 being the latest to be announced.

Samsung, Motorola and LG either have commercially available work phone in the marketplace or will have them available shortly.

These phones are based on our 6300 multimedia platform solutions.

Next question: What progress have we made in developing a market for wideband CDMA and retaining our leading position going forward?

We remain very bullish about both the overall market group opportunity as well as our competitive position.

In the June quarter we announced that we had the largest customer base of any chipset provider and we continue to hold this position as we enter the latter half of 2004.

We are pushing hard to capitalize on our leading position with the development of a 50PA chipsets.

We will sample our first HSTPA chip, MSM 6275 in the 4th quarter this year.

In the June quarter we announced the development of a new radio one receive diversity chip, the RF 6275, that further increases network capacity and data throughput for HSTPA systems.

We are in discussion with major wideband CDMA carriers in Japan and U.S. regarding their plans and believe a 50PA will have strong traction going forward.

Carriers such as NTT, Docomo, Motorphone, KKNA and ATTM Singular in the U.S. are all eager to deploy HSTPA partly as it responds to competitive carriers deploying EVDO.

We would expect to see the same competitive pressures on Chinese GSM carriers going forward as China Unicom proceeds with it's planned DO deployment.

Final question: Can you provide an update on QCT's R&D program and hiring status?

In May we announced the details of specific products covering four specific tiers, the value platform, multimedia and handset convergence platforms.

Hiring to support these programs is progressing well.

During the June quarter we hired a record 200 additional engineers for our hardware and software programs.

We foresee additional aggressive hiring to support our industry-leading roadmap.

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

Thanks, Sanjay.

Good afternoon, everyone.

We are very pleased to be reporting to you another quarter with excellent financial results.

I'll begin with a brief review of the QUALCOMM strategic initiatives segment.

Our QSI investments continue to decrease as planned.

QSI's $4 million loss before tax this quarter consists largely of equity losses related to our investment in Inquomm nearly offset by realized investment gains, investment income and income from the transfer of a portion of our FCC auction discount voucher to a wireless operator.

Turning to our core business, which excludes QSI, revenues for the June quarter were 1.3 billion, earnings before-tax were 672 million, and earnings per share were 57 cents.

We exceeded the high-end of our prior earnings guidance by 4 cents per share, due primarily to greater WCDMA royalties.

WCDMA royalties represented 25% of all reported royalties in the June quarter for sales in the March quarter.

QCT, our chip business, shipped a record 35 million MSM phone chips in the June quarter, up 12 million units year-over-year and up 3 million units sequentially.

QCT's revenues of 790 million increased 43% year-over-year and 11% sequentially.

QCT earning before tax were 254 million, QTCs operating margin of 32% decreased sequentially, largely due to increased R&D expenses.

QW&I reported 150 million in revenues and 4 million in earnings before taxes in the June quarter, compared to 145,000,000 and 4,000,000 respectively in the previous quarter.

QTO reported revenues of 436 million, up 80% year-over-year, and 12% sequentially.

QTO's operating margin was 91% for the quarter.

The 436 million of QTO revenue is comprised of 33 million of intercompany royalties, 15 million of license fees, and 389 million of royalties from external licensees.

Based on royalty reports from our licensees, worldwide CDMA handsets shipped in the March quarter were approximately 38 million units, or 1 million units above our expectation at the outset of the quarter.

We expect our handset licensees to report shipments of approximately 41 million units for the June quarter.

June quarter royalty revenues from external licensees of 389 million are made up of three components.

First, 27 million is the difference between our estimated royalties for certain licensees, 237 million in the 2nd fiscal quarter and the actual royalties of 264 million reported by those licensees in the 3rd fiscal quarter.

The 2nd component is 109 million, representing royalties not accrued in the March quarter which were reported and recognized as revenue in the June quarter.

The last component is our estimate of 253 million, representing the portion of earned royalties that we can estimate for June.

The average selling price of CDMA handsets was approximately $224 for the March quarter, a 19% sequential increase driven by increased volumes in WCDMA handsets.

WCDMA handset ASPs decreased in the high single-digit percentage range from the prior quarter.

CDMA 2000 handset ASPs increased modestly due to geographic mix.

Cash, cash equivalents and marketable securities totaled 7 billion at the end of June, an increase of 366 million from the March quarter.

Free cash-flow in the current quarter defined as net cash provided by operating activities less capital expenditures was 79% of GAAP net income, and 29% of revenue.

I will now update our guidance.

For the calendar 2004 CDMA market, we now expect approximately 161 to 168 million CDMA handsets to be shipped, compared to our prior estimate of 152 million to 160 million units.

Based upon the 164 million midpoint of our increased estimate, calendar 2004 CDMA worldwide handset shipments are expected to grow approximately 40% year-over-year.

We have increased our guidance for WCDMA by 3 million units as we seek continued momentum with existing WCDMA operators and additional progress toward our planned new service launches, notably in Europe.

We decreased our guidance for India by 1 million units and China by 2 million units due to a slower first half of calendar 2004.

But we expect various promotions to increase handset demand in the 2nd half of the calendar year.

South Korea, Japan and Southeast Asia increased by 2 million units with the compelling EVDO handsets and CDMA market share gains.

We have seen strength in new CDMA subscriber additions and increased handset replacement rates in the Americas and have increased our estimate for North America by 4 million units and Latin America by 2 million units.

The QUALCOMM Investor Relations website contains a presentation with our new 2004 market estimate in comparison to our prior estimate and 2003.

Looking forward on fiscal 2004 average selling prices of CDMA handsets, we expect increased sales of high-end CDMA 2000 and WCDMA handsets, and increased penetration of color screens, cameras, extra memory, other features in mid tier CDMA 2000 handsets, which in combination will more than offset the average selling price impact of the substantial and growing shipments of the low end CDMA 2000 handsets.

We now expect CDMA handset ASPs in fiscal 2004 to average approximately $209, an increase of 8% over fiscal 2003's average of approximately $194.

For the September quarter as Sanjay mentioned, we expect to ship approximately 36 to 38 MSM phone chips up from our previous estimate of 32 to 36 million.

We anticipate September quarter revenues excluding QSI, will increase approximately 57 to 65% year-over-year, and 2 to 7% sequentially.

We anticipate that earnings per share excluding QSI will be approximately 54 to 57 cents in the September quarter.

For fiscal 2004, we anticipate revenues excluding QSI to increase approximately 33 to 35% over fiscal 2003.

We anticipate earnings per share excluding QSI will be in the range of $2.15 to $2.18, an increase of 51 to 54% year-over-year.

Our annual effective tax rate for fiscal 2004 is estimated to be approximately 30% for the core business and 29% for total QUALCOMM.

This is a decrease from fiscal 2003 due primarily to greater expected foreign earnings subject to a rate.

We continue to focus cautiously on making new QSI investments.

We now an pace that monthization on existing QSI investments will exceed new investments by approximately $120 million in fiscal 2004.

I will close my comments with a perspective on worldwide CDMA channel inventory which for our estimates begins with the shipment of a base band or MSM phone chip and ends when the manufacturer handset is purchased by a consumer.

We believe that a worldwide channel has had insufficient CDMA inventory in recent quarters.

We believe that CDMA channel inventory modestly increased in the June quarter and further improvement is expected in the coming months.

That completes our remarks.

Operator, we are ready for questions.

Thank you.

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

If you have a question, please press the 1, 4.

To retract a question, press 1,3.

If you're using a speakerphone, please pick up your handsets before pressing the numbers.

One moment please, for the first question.

The first question comes from the line of Darryl Armstrong with Smith Barney Citigroup.

Please proceed with your question.

Thank you very much.

Two questions.

The first one, I apologize if I missed it, could you give the guidance again in terms of what you expect for the price decline on the sequential basis for WCDMA handsets?

And then second of all, I was wondering if you could give some additional color in terms of the capacity expansions that you guys were able to garner this quarter?

Do you guys still think that it will take through the end of September before supply and demand comes into sync?

Thanks.

Sure, Daryl, on the ASP guidance we gave, again we finished March with a worldwide average of $224, and we expect full fiscal year 2004 to average 209.

In the split between WCDMA and CDMA 2000, I'm expecting modest declines in both the following two quarters on both those technologies.

This is Sanjay.

Hi , in terms of supply and demand, we have in this quarter, we expect that we will have some shortage of parts in our 5000 series because really largely due to increasing demand.

And we've had one supplier, some quality issues which have made it difficult for us to deliver all the parts that we had hoped to deliver.

Going forward, though, as there is greater migration from 5000 to 6000 series, we expect that there will be some tightness in supply in our RF zif bars for the fourth quarter.

But as we continue to see very strong demand we will work very, very effectively, I believe, with our suppliers to increase their commitment to us but we continue to see strong demand and we believe that there will be some tightness in supply, perhaps through this year.

Thank you very much.

Thank you.

The next question comes from the line of Endar Sang [ph] with Prudential Securities.

Please proceed.

Thank you very much.

I just had a quick question on how your tailoring deal rev A and how you look at that vis-a-vis DV and do you see that at lease for the foreseeable future rev A will be sufficient to meet the demands in the market and therefore DV would be unnecessary for awhile?

We are continually working on DO and the rev A standard is complete.

We are working on the chips.

And software, of course.

And it does provide a number of improvements, particularly on the uplink data rates.

And further improvements in throughput.

We think that that will solve a number of issues having to do with what we believe will be rapidly increasing data usage.

DV we continue to work on as well, and it will, of course, depend on operator timing and requirements as to when the DV equipment may become available.

Interestingly, voice-over internet protocol is also looking more and more promising and so the possibility of making further use of packet-only carriers as opposed to packet plus circuit switch carriers is looking quite promising.

So we continue to work on both, DO rev A does provide a number of advantages we will try to bring it to market as early as possible.

Thank you.

The next question comes from the line of Hasan Imam with Thomas Weisel.

Please proceed with your question.

Yes, thank you, could you give us the mix of handset versus infrastructure in your WCDMA royalties?

And also there have been some competitive wins by TI and Erikkson and some major WCDMA handset vendors.

In light of these do you still expect a 40% share of chips as realistic in 2004?

Thanks.

Hasan, I will take your first question on the mix of handsets versus infrastructure.

We still hold pretty steady.

We said previously that our royalties are a great majority of our royalties come from the handsets relative to infrastructure, test equipment et cetera.

That holds true with both technologies.

We are still in that 90% plus range looking forward.

In terms of the wide band CDMA market share, I believe the statement that we made is that we expect we're strategically targeting 50% market share.

I don't believe that we have provided a timeline for that.

Most specifically for 2004, we expect that 40% will indeed be difficult for us to get to; though we have as we indicated 21 customers on our chipset and certainly Samsung, LG, Toshiba, Sanyo and others are becoming more and more successful in the marketplace.

We expect that we will compete very effectively with our 6250 integrated solution and continue to enhance our lead with 6275 HSDVA solutions.

So to summarize again, in 2004, 40% will indeed be a tough proposition.

I don't believe we have set that target for ourselves.

Thank you.

Thank you.

The next question comes from the line of Tim Luke with Lehman Brothers.

Please proceed.

Thank you.

Congratulations on the quarter.

I was wondering when, if you could give us a sense of how you see the outlook in China for securing the negotiation on royalty rates for WCDMA, or TDS CDMA going forward?

And I was also wondering, Bill, if you might be able to clarify your comments with respect to channel inventory levels?

You said that they went up a little bit.

I was targeted in the June quarter and where you would like them to go to in September?

Thank you.

This is Paul.

I will cover the WCDMA and TDS CDMA.

And so far we've licensed more than 20 Chinese companies to manufacture and sell CDMA 2000 subscriber and infrastructure products and we are in negotiations to expand the number of those licenses to include other CDMA standards.

But we do have but we do have an interim licensing arrangement covering all of the commercial sales of WCDMA equipment by Chinese manufacturers of which we are aware.

How does that the interim deal?

What are you going to do?

Exuse me?

Is it a blanket negotiation for all the vendors as an interim solution or how do you see that?

No, it's an interim solution, meaning that it covers, you know, current sales and it's ongoing until we reach any other agreement or we terminate that agreement.

And it covers all of the commercial sales that we know of to this point.

I wish you for modeling purposes the same rates as existing CDMA technologies?

It's the same, it's our standard rate.

Perfect.

Good progress on the China royalty there.

And then, Tim, on the channel inventory, we've seen I believe a slight increase in channel inventory in the June quarter, maybe just a little bit less than the equivalent of a weeks' increase in channel inventory.

What I would like to see is a couple more weeks in that channel before the channel is going to be more satisfied.

And we have that we view we would be there by September but frankly, demand has continued to increase and so now I think it's going to continue to be tight through the end of this year.

Just to clarify, the rate in China, is it the standard rate or at the rate that was, preferred rate that the Chinese vendors had previously had relative to -- from international vendors for 3 to 4M WMCDMA?

That's at our standard rate.

World standard rates.

And is that relatively recent, the interim position, that interim deal?

Yes.

Thank you.

Thank you.

The next question comes from the line of John Buford with Harris Smith and Gerard.

Please proceed.

Thank you.

Question for Sanjay.

Do you expect that some of the North American CDMA carriers may start emphasizing, perhaps even specifying receive diversity-capable chipsets given their synchonous GPS capability?

Thank you.

And so once we have the RFR 6500 chipset would support both synchronous GPS and receive diversity.

Wen I say we'll have it, we'll have it in the 4th quarter this year.

We've announced that, and a number of handset manufacturers have shown interest in certainly at least one operator is seriously interested in exploring receive diversity.

The combination of receive diversity and enhanced vocoder for next-generation will significantly improve the voice capacity and alleviate some of the Spectrum constraints that some of our operators have, particularly in specific geographies.

So we believe that this is a very cost-effective way to further increase the voice capacity and data capacity of CDMA networks and once GPS becomes standard the cost of receive diversity is very marginal beyond that.

Does that represent a significant shift in ASPs, other things being equal?

We are working very hard to deliver that solution for as small an ASP increase as possible so that it becomes a competitive advantage for CDMA operators.

Thank you very much.

Thank you.

The next question comes from the line of Tim Long of Banc of America.

Please proceed.

Thank you.

Just back on to the 3G chip side, could you give us a sense of when you think the shipments for QUALCOMM, irregardless of market share, will be a meaningful portion of your chipset sales, if you can give us some kind of benchmark there?

And then secondly along the 3G chip line, can you comment on the Texas Instrument Docomo deal that was announced a few weeks ago?

Does that represent a loss at this time or just what are your views on that and what does that mean as far as the potential to break further into the Japanese 3G market?

Thank you.

For wideband CDMA there are two markets which are developing in parallel.

One is the data card market, the UMTS and HSDPA card market.

As of right now, the four data cards available in wideband CDMA markets, UMTS markets, are all based on our chipset and we see increased traction of these devices.

I understand that Votaphone recently reduced the price of their data card to one Euro and is making, has had tremendous success with their marketing campaign with that solution.

So we see increasing traction in that.

The second thing we see is that by about 4th quarter this year we expect around 10 handsets in the marketplace based on our chipset.

Some of them based on our single chip 6250 integrated solution.

So combining all of this by about 4th quarter this year we expect that we will begin to see increase in our volume.

In terms of when we expect for it to be significant -- of, I expect 4th quarter, the beginning of that.

With regards to your second question, did we see the new announcement of TI as a loss for us?

TI Docomo announced a similar deal with the rennaissance technology and it's my understanding that Docomo has come to the view that they need to reduce the cost of their handset and they are looking to enable a number of integrated solutions and secondly we have a very good working relationship with Docomo and I don't see that as a loss at all.

And continue to believe that we will have handsets on Docomo network next year.

We have at least one possibly two of our customers very interested in dliferg handsets handsets to I see that as a sign of increasingly robust competition in this marketplace with [inaudible] particularly with regards to HSTPA.

You might know that we have announced MSM 6280, which is a 7.2 megabit second solution which we'll deliver to the marketplace toward the end of next year.

We believe that we are ahead in HSTPA and we are very well placed in the competitive landscape of wideband CDMA.

Just a quick follow up.

Is there anything inherent in the data cards that allows QUALCOMM to have such a more dominant position there rather than handsets?

Thank you.

I think one is our business model of delivering complete solutions.

Second is we've done more interim testing than anybody else and third part is that we are focused on that market.

We see that as an important marketplace for wideband CDMA.

Plus a level of integration that we offer has also been very attractive to our customers.

Thank you.

The next question comes from the line of Louis Gerhardy with Morgan Stanley.

Please proceed with your question.

Good afternoon.

Great job, again.

Just want to check if you are updating your '05 CDMA handset forecast?

And then second part would be if you could give us your WCDMA forecast, if you could just breakdown the new number by region that would be helpful.

Thanks.

Yea, hi, Louis.

It's Bill here.

We are working on our 2005 update and we have not given it here but we are working on it for November.

Stay tuned for that.

On WCDMA, our estimate now is 20 million for this calendar year, and we've got that split about evenly between Europe and then the second category being Japan and the rest of the world.

So 10 million for Europe, 10 million for Japan and the rest of the world.

In Japan, rest of the world, the great majority of that is Japan.

Okay, great.

Bill if I could just also ask you about OPEX, it's growing a lot, I think it was 15% sequentially last quarte.

What should we think about not just for September but, you know, maybe for the next fiscal year and what you are planning there?

For September OPEX a combination of SG&A and R&D should be fairly flat.

We grew a bit more in the June quarter than we had initially expected and so there is going to be a little less growth in the September quarter as a result.

For next year as Sanjay noted and across the company we have been growing our resources substantially and so next year you will have a full year effect of the growth we incurred this year.

And I think with the opportunities in front of us I expect to grow our population through next year.

So I would look for -- people should be expecting a healthy growth in our OPEX, SG&A, but more notably in R&D.

Thank you.

Thank you.

Ladies and gentlemen, unfortunately due to the time restraints this will be our last question.

And the last question comes from Paul Liany [ph] with Merrill Lynch.

Please proceed.

Hi, one question is most -- on Nokia and EVDO, have you had any discussions with Nokia regarding the usage of your chips and do you think there's any progress on that front?

We continually have discussions with Nokia on various parts of our business.

We do not have anything to report that's any different on the issue of the chip sales to them because of the DO developments.

And so we will have to all wait and see.

As you know they are very focused on their own strategic plan of using their own chips.

We are working hard to continue to increase our deal business and we hope we could do business with them at some point.

Thank you.

Well, thank you all for spending time with us this afternoon.

It has been a very exciting quarter.

We are pleased to report these results.

It certainly looks as if it's going to be a very exciting next quarter and year going forward given the strong growth worldwide on 3G and the fact that a lot of the capabilities being provided by 3G are proving very attractive.

The higher data rates we think will spur new business and new uses of handset.

So looking forward to being a strong part of this growing market.

Thank you all very much.

Thank you, 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.

Thank you, and have a great day.