高通 (QCOM) 2007 Q2 法說會逐字稿

Hi.

Welcome to the QUALCOMM first quarter conditions call.

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

Later, we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded, April 25th, 2007.

The playback number for today's call is 800-642-1687.

International callers, please dial 706-645-9291.

The playback reservation number is 1486859.

I would now like to turn the call over to John Gilbert, Vice President of Investor and Industry Analyst Relations.

John, please go ahead.

Thank you and good afternoon.

Today's call will include prepared remarks by Dr.

Paul Jacobs, Dr.

Sanjay Jha and Bill Keitel.

Steve Altman will not be joining the call today, due to previously scheduled business travel.

However, Lou Lupin will be available during the question-and-answer session.

An internet presentation and audio broadcast accompany this call, and you can access it by visiting www.qualcomm.com.

During this conference call, if we use any non-GAAP financial members 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 10Q and earnings release which are filed and furnished respectively with the SeC today and are available on our website.

We may make forward-looking statements relating to our expectations and other future events 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 and other important factors that may cause our actual results to differ from these forward-looking statements.

And now it is my pleasure to introduce QUALCOMM CEO, Dr.

Paul Jacobs.

Thank you, John and good afternoon, everyone.

Let me begin by highlighting a very successful second fiscal quarter at QUALCOMM.

Record CDMA based chip sets and hand sets delivered record revenue and earnings per share.

We continue to see a strong 3G CDMA market worldwide and are therefore increasing our full year financial guidance for fiscal year 2007.

I would like to thank the employees of QUALCOMM, our industry partners, and our licensees for continuing to achieve excellent results through an unwavering focus on execution.

This effort has resulted in many positive accomplishments for the industry, despite the attempts by a small number of competitors to disrupt our business.

I would now like to highlight some of our key achievements.

QCT delivered their seventh consecutive quarterly record for MSM shipments as CDMA based chip set shipments were up 24% year-over-year.

We continued the expansion of our single-chip product family by introducing the first 1xEV-DO Rev.

A single chip: the QSC 6085.

This increased level of integration will lower the cost of mobile broadband devices, providing greater than 10-x increase in uplink speed over 1xEV-DO [will read zero].

That's enabling user-generated content such as pictures and videos to be economically and rapidly uploaded from the phone.

We announced the early sampling of our universal broadcast modem or UBM chip, which supports three mobile television standards,FLO, DVBH, and ISDBT in a single chip.

The flexibility provided by the UBM chip allows hand set manufacturers to address three of the world's leading standards with one solution; thereby, enabling global mass market adoption of mobile TV.

QTL licensees reported a record number of CDMA-based hand set shipments for the December quarter, which was an increase of 36% year-over-year.

Our broad licensing program continues to fund the innovation that fuels mobile wireless broadband growth.

Our portfolio is the most licensed in the industry and we recently received a favorable arbitration decision related to Ericsson's royalty obligations to QUALCOMM.

The arbitrator agreed that QUALCOMM had been underpaid by Ericsson for more than two years, and Bill will cover this later in more detail.

In QW&I, the BREW developer community surpassed $1 billion in cumulative payments, generated from the BREW applications and services.

This is another example of how QUALCOMM's innovative business model in combination with the creativity of the Wireless developer community enabled a new value proposition that has become broadly successful throughout the Wireless ecosystem.

Our media FLO USA service, which brings brand-name TV Entertainment to wireless handsets, was launched by Verizon on March 1st and is commercially available in 27 markets in the U.S.

In addition, AT&T Cingular announced their plan to launch the media FLO service later this year.

We're also excited about potential media FLO expansion into international markets.

Together with KDDI, we announced that in an extensive consumer study for the Japanese market, 83% of the users who trial the media FLO service intended to use the service.

We also announced the successful completion of a second technical trial, with B Sky B in the United Kingdom where the media FLO system demonstrates considerable technical advantages over the competition.

Turning to the 3G CDMA market around the world, we're pleased to see the number of 3G CDMA based networks and subscribers continuing to grow rapidly.

Data from the CDMA development group and the GSM association shows that over 340 CDMA-based 3G networks have been launched as of April 2007; this includes more than 56 operators deploying the higher speeds of 1xEV-DO, including EV-DO Revision A launches in the United States, Japan, South Korea and New Zealand, among others.

In addition, more than 103 operators have launched high-speed HS DPA networks.

According to Wireless Intelligence, worldwide 3G subscribers, including CDMA 2000 and WCDMA, grew to approximately 460 million as of March 2007.

Looking at the success of 3G, an interesting reference point is to compare the 460 million 3G subscribers against the approximately 350 million estimated worldwide cable TV subscribers, and we're still in the early stage of deployment of 3G.

The stat also highlights the opportunity for mobile TV and multimedia.

According to Strategy Analytics, CDMA-based hand set shipments continue to grow faster than total worldwide hand set shipments and represented an estimated 31% of the total worldwide shipments in the December quarter.

This compares to 27% of the total worldwide shipments in the year-ago quarter.

I would now like to update you on what we are seeing in some of our markets around the world.

In Japan, multiple CDMA-based 3G networks and mobile number portability continues to drive competition and 3G subscriber growth.

The cumulative number of 3G subscribers reported at the end of March has grown to over 69 million or approximately 72% of total cellular subscribers.

The U.S.

market also experienced solid subscriber growth in both CDMA 2000 and WCDMA.

Sprint, Verizon and AT&T Cingular recently noted significant year-over-year increases in data-related average revenue per subscriber.

In addition, AT&T Cingular recently commented that their UMTS HSDPA coverage is in 165 cities and is on schedule to cover virtually all of the top 100 U.S.

markets this year.

CDMA growth in India continues as over 20 million of the cumulative 47 million CDMA subscribers have been added in the last 12 months.

QCTS chip set solutions continue to enable cost effective competition as Tata Teleservices launched the to Motofone F3C, based on our QSC 6010 single chip family and Rose Telecom introduced a sub $30 CDMA handset.

As an indication that the Indian market is broadening from an almost complete focus on low price, we're seeing multiple operator comman---campaign promoting color screens and more feature-rich devices to consumers.

In Korea, competition has intensified with the launch of HS DPA, driving increased CDMA-based hand set sales.

In addition, over 40% of the CDMA subscribers in Korea are now using the broadband benefits of 1xEV-DO.

Moving to Europe, according to our licensee reports for the period ending December 2006, we estimate WCDMA hand set shipments increased over 75% year-over-year while the estimated WCDMA ASP continues to decline.

Furthering our goals to enable 3G devices for the mass market, the GSM association selected LG's KU 250 hand set, powered a QUALCOMM chip set as the 3G for all winner to enable feature-rich WCDMA hand sets at lower prices.

This sets a new price benchmark for the marketplace, enabling affordable 3G devices for the mass market.

We're pleased to see the continued positive effects of our business model as our partners provide innovative and competitive devices and services to the European marketplace, and we continue to innovate and focus on improving the capability of wireless systems using both CDMA and other technologies.

We demonstrated voice-over internet protocol technology, resulting in significant capacity gains, providing up to 114 simultaneous calls in a single isolated sector and roughly 68 calls in an imbedded sector, which is more representative of a commercial deployment scenario.

In addition, we have shown 1xEV-DO Revision B enabling flexible allocation of bandwidth for both high performance and low-cost computing and communications devices.

Earlier this year, we announced the expansion of our chip set product road map to include HSP A Plus, which will deliver broadband mobility and a high quality user experience for applications such as internet browsing, realtime location services and multimedia sharing for WCDMA operators.

Our research and development investments in new broadband technologies such as OFDM, UMB, LTE and FLO remain key initiatives QUALCOMM as we continue to deliver enhanced capabilities to meet current and future market requirements.

We demonstrated the first-ever over-the-air ultramobile broadband, or UMB, demonstration at the CTIA industry conference this year.

UMB technology incorporates the benefits of OFDMA and CDMA with MIMO and advanced antenna technologies to offer future such as support for broadband speeds, greater capacity in coverage and an enhanced user experience for potential future mobile services.

In addition to UMB, our engineering teams are also working hard on another future OFDM-based technology, LTE.

We will continue to invest in these technologies to enable further broadband capabilities and compliment operators' 3G offerings as needed.

Before I close, I would like to touch briefly on two legal items.

It's important to note that recently there has been a lot of public information regarding the legal actions we're involved in.

Accordingly, the majority of my remarks have been focussed on the state of the business which we are very pleased with.

We're happy to answer legal questions during the question-and-answer session.

But, regarding the Broadcom ITC case, the full commission's decision on the scope of any potential exclusion order is currently due no later later than May 25th.

The commission can reject, adopt or modify the ALJ's recommendation.

We feel strongly that the right result in this case is for the commission to agree with the ALJ's recommendation against a so-called downstream remedy.

The commission's decision is subject to presidential review and appeal.

Presidential review, if any, must be completed 60 days from the commission's review.

Regarding Nokia, there is really nothing new to discuss.

As you know, we commenced arbitration a few weeks ago to resolve certain issues under our existing agreement.

Our patent infringement cases against Nokia's GSM products outside of the United States and our new cases against Nokia's GSM products in the United States are underway.

In closing, the record results we have delivered demonstrate that our business is executing successfully on both current and long term strategic goals.

I am very proud that we continue to deliver positive results to our shareholders despite various attempts distract us.

And we will continue to invest in innovative technologies and bring the highest quality solutions to benefit wireless consumers and our industry partners globally.

That concludes my comments.

I will now turn the call over to Dr.

Sanjay Jha.

Thank you, Paul.

QCT had a strong second quarter in fiscal 2007.

I would like to highlight some of our accomplishments.

In the second fiscal quarter, QCT generated revenue of $1.26 billion.

It was our fourth consecutive quarter of record revenue.

Year-over-year, this represents a growth of 24%.

We shipped approximately 61 million MSM chip sets in the second fiscal quarter.

This is the 7th consecutive record for shipment during the seasonally low quarter for mobile hand sets.

Year-over-year, this represents a growth of 25%.

A year ago, we committed to executing a new product that will lower the price of entry tier hand set segment to enable CDMA carriers to be competitive in emerging marketplace.

Today, CDMA 2000 hand sets have broken the [$30] price value in many developing markets and are now at a price [sparity with 2G GSM hand sets].

More than 10 hand set manufacturers that are launching thirt--over 35 models of stylish and affordable devices based in our QSC family of single chip products.

Emerging market hand set affordably and a dramatic growth in shipment of CDMA cell site modem solutions destined for developing markets over the past four quarters are encouraging signs that CDMA is growing and will compete effectively in these markets.

Finally, as Paul mentioned, LGE's KU250, the hand offering QUALCOMM's [UMTS] chip set was selected---that was selected for the treaty for all initiative is expected to start shipping in volume by June of this year.

As data rich mobile services become increasingly popular with consumers, KCT's portfolio is well-positioned to enable these services.

Year-over-year, our shipment of EV-DO chip sets increased 66% and contributed to the 21% growth year-over-year of our overall CDMA 2000 MSM shipments.

GCT's UMTS MSM shipments also increased 56% year-over-year, driven by HSPA enabled chip sets which now power over 70 HSPA devices that are either launched or in design.

Starting in the year-ago quarter of fiscal 2006, we saw significant acceleration in the shipment of our EV-DO Revision A capable [south side] modem solutions.

They constitute over half of our total channel elements shipped for the past year.

In North America, Japan and Korea.

we are now seeing the infrastructure deployment and device traction that historically follows an increase in CSM demand.

To further support the trend of mobile broadbands becoming available to mass market, we expanded the QSD family this past quarter to include Revision A.

This new solution will help accelerate the growth of mobile user generated content and social networking around the world.

Looking at our current product portfolio, we introduced two new chips sets to expand EV-DO and HSPS Smart Phones beyond the enterprise segment providing segment into mass market tiers.

MSM 7225 and 7525 will support multiple third party operating systems, as well as mobile broadband connectivity.

QCT continued to expand its road map for the future, introducing complete solutions for a number of next generation wireless technologies.

We device and base station chip sets for EV-DO Revision B on the 2G PP2 path and HSPA on the 3G PP path.

We also announced an end to end solution for ultramobile broadband RUMD which is the next stage of 3G PP2 evolution after EV-DO Revision B.

We continue to make strides in supporting new advanced services such mobile TV; this quarter we announced the early sampling of our universal broadcast modem which supports multiple leading mobile TV standards.

We were also able -- we were also the first to demonstrate MBMS technology which uses existing UMPS network to deliver mobile TV.

Expanding beyond the core wireless device market, QCT remains on track to sample our first Snap Dragon solution in the third quarter of this year.

We see strong demand for the type of devices that Snap Dragon products will enable, which we call pocket and docket.

The Snap Dragon [fire] devices will be small enough to fit into a pocket that will wirelessly dock into a TV or monitor in the home or office.

The Snap Dragon technology delivers mobile devices with the ability to run applications that PC's run today and support services such as navigation and mobile TV.

All with constant connectivity and up to 12 hours of active use.

QCT anticipates this type of device will hit the market by some time next year.

Thank you, and I will now turn the call over to Bill Keitel for an overview of our financial results.

Thank you, Sanjay, and good afternoon, everyone.

I will begin by highlighting a number of key items in our second fiscal quarter results.

Revenues increases 21% year-over-year to more than $2.2 billion and pro forma earnings increased 22% year-over-year to $0.50 per share.

GAAP diluted earnings for the second fiscal quarter were $0.43 per share, including a $0.05 loss for estimated share-based compensation, $0.01 loss for acquired in-process R&D and $0.01 loss attributable to the QSI segment.

Operating cash flow was almost $1 billion for the second fiscal quarter, up 11% year-over-year.

Pro forma precash flow was more than $1 billion and 49% of revenues.

During the quarter, we returned approximately 440 million of capital to our shareholders, including just under 400 million of cash dividends and 40 million to repurchase 1 million shares of our common stock.

We continue to believe in the repurchase program.

We were again limited by a closed trading window for most of the quarter; however, we are prepared to repurchase additional shares as appropriate.

Our pro forma estimated tax rate for fiscal 2007 is now 24%, compared to our prior estimate of 25%.

Primarily due to a change in the relative proportion of foreign versus domestic earnings.

QCT again had record MSM shipments and revenue during the quarter.

QCT's second quarter revenues increased 24% year-over-year to almost $1.3 billion on the strength of 61 million MSM shift.

Also a 24% increase, year-over-year.

QCT's operating margin increased to 29% from 26% in the first fiscal quarter.

QTL earned record revenue of $759 million this quarter as licensees reported a record of approximately 91 million of new hand set units shipped with an average selling price of approximately $214 per hand set.

These shipments occurred in the December quarter and were reported to us by our licensees in the March quarter.

We are pleased that CDMA is continuing to experience strong growth around the world, including sequential strength of WCDMA shipments in Europe, Japan and North America, as well as CDMA 2000 shipments in North America, China and Japan during the December quarter.

WCDMA royalties were approximately 49% of total royalties reported this quarter.

QTL's operating margin was 83% compared to 82% in the prior quarter.

In recent quarters we have commented on some of our special incentive programs to help drive the adoption of CDMA products and services around the world.

We are seeing positive early rules from these programs.

Positive both for our partnerships and for our own business.

We received cash payment from Pantech for the new royalty obligations they incurred during the second fiscal quarter.

Nonetheless, based on certain events, we fully reserved our remaining Pantech receivables of approximately $22 million in the second quarter.

For the calendar 2006 CDMA market, with the receipt of all licensee reports, we now estimate that CDMA hand set shipments were approximately 301 million units, including approximately 200 million CDMA 2000 units and approximately 101 million WCDMA units.

Turning to our guidance, we are raising our estimates for both revenue and earnings per share for fiscal 2007.

I want to be clear that our increased guidance does not include $0.04 to $0.05 earnings per share in related et---revenue which we estimate will be owed by Nokia for the fourth fiscal quarter of this year.

We expect fiscal 200---2007 revenues to be in the range of approximately $8.4 billion to $8.7 billion, an increase of 12% to 16% over fiscal 2006.

We anticipate pro forma earnings per share to be in the range of $1.84 to $1.88, an increase of 12 to 15% year-over-year.

As a reminder, our fiscal 2007 guidance also includes $0.04 earnings per share dilution related to the acquisitions we announced during the first fiscal quarter.

We are increasing our estimate for the calendar year 2007 CDMA-based hand set market; we now estimate shipments of approximately 373 to 393 million units in calendar 2007, an increase of 24% to 31% over our estimate for calendar 2006 shipment.

Based on the 383 million mid-point of this estimate for calendar 2007, we estimate shipments of approximately 208 million CDMA 2000 units and approximately 175 million WCMA units.

The regional breakdown of this market estimate is available on our website.

We now estimate the average selling price for CDMA 2000 and WCDMA phones combined will decrease approximately 3% in fiscal 2007, to approximately $208 per unit.

We are encouraged by the [SP] trends we are seeing for WCDMA hand sets, which continue to [climb] largely consistent with our expectations but encouraging for future market growth.

We expect a combination of pro forma, R&D and SG&A expense for fiscal 2007 to increase approximately 29% to 32% year-over-year driven by our continued investment in new products and services for our partners, as well as increased legal expense to defend our business.

We estimate GAAP diluted earnings per share will be approximately $1.57 to $1.61 for fiscal 2007.

This estimate includes a loss of approximately $0.20 per share for estimated share based compensation, a loss of approximately $0.9 per share attributable to QSI, $0.01loss for acquired in-processed R&D and a gain of $0.02 attributable to tax benefits related to prior years.

Turning to our guidance for the fiscal third quarter of 2007, we estimate revenues to be in the range of approximately $2.2 billion to $2.3 billion, a 13% to 18% increase year-over-year.

We estimate third quarter pro forma earnings per share to be approximately $0.50 to $0.52, a 19% to 24% increase year-over-year.

This estimates includes shipments of approximately 62 to 65 million MSM phone chips during the third fiscal quarter, reflecting gross---growth across multiple product segments, including EV-DO and WCDMA.

We expect chip ASP's to modestly decrease over the second half of the year due to planned pricing and anticipated mixed changes across our broad product offering.

We estimate that approximately 81 to 85 million CDMA based hand sets shipped in the March quarter at an average selling price of approximately $213.

Our hand set unit forecast reflects seasonally lower post holiday shipments, though still a very healthy 23% to 29% higher than the 66 million hand sets reported by licensees for the March quarter of last year.

Paul mentioned the recent favorable arbitration decision related to Ericsson and Sony Ericsson's royalty obligations under the license agreement.

By mid-June, Ericsson, Sony Ericsson must report their full obligation for prior underpayments.

Our forward guidance has appropriately and favorably been adjusted, including a one-time catch up in our third fiscal quarter.

We expect our third quarter pro forma gross margin to be approximately 73% and the combination of pro forma, R&D and SG&A expenses to be in the range of 1% decrease to a 2% increase as compared to the March quarter.

We believe total CDMA channel inventories are within the historically normal band of 15 to 20 weeks.

We do believe that they will get there at the upper end of that band.

In closing, we are very pleased with the continued strong financial results and improved outlook.

That concludes my comments.

I will now turn the call back to John Gilbert.

Thank you, bill.

Before we go into our question-and-answer session, I would like to remind our participants that our goal is to address as many questions as possible before we run out of time on the call today.

Therefore, I would like to ask our partici---participants to limit their questions to one per caller.

We're ready for calls.

(OPERATOR INSTRUCTIONS) One moment, please, for the first question.

Tim Long from Banc of America.

Please go ahead with your question.

Thank you.

Just a question related to some of the legal matters here.

Just---just from a higher level, you had the arbitration with Ericsson and -- Sony Ericsson where you were successful.

We have seen press releases from you and Nokia with different understandings of the royalty rate.

Could you talk to us a little bit about how it's possible that there are two different perceptions of that royalty rate?

And then related to that, do you think there is anything to learn from the--- is it a similar type of dynamic that happened or may have happened in the Ericsson, Sony Ericsson case that you think positions you better for a positive outcome and potentially some back payment from Nokia?

Thank you.

Tim, it's Lou Lupin.

With respect to the--the differing statements regarding royalty rates, we can only tell about it from QUALCOMM's perspective, and as we said publicly, the rate is not as Nokia has portrayed it, there is the rate set forth in the agreement and there's a way of calculating it and as far as we understand, Nokia has been paying us, according to what the agreement and in accordance with the rate that is set forth there and that is not consistent with their public statement, so I don't want to speculate on how they get to their numbers.

Okay, and then just relationship between the two potential arbitrations?

So, there really is no relationship between the two potential arbitrations.

The Ericsson arbitration was a disagreement over calculation of the royalties in certain ways for certain products.

The Nokia arbitration that we have recently commenced has to do with the question of whether Nokia can continue to use our patents without paying us the royalty rate that's set forth in the agreement and---without abiding by the other obligations that go along with Nokia's use of our patents.

And in the Nokia arbitration, we're asking the arbitrators to--to determine that in fact if they are using our patents there's---there are obligations that come along with it, most importantly the obligation to pay royalties at the contractual rate as well as the continuing obligation to honor the rights that they have granted us under their patent.

Okay, thank you.

Matthew Hoffman from Cowen and Company.

Please go ahead with your question.

Thanks, I'm going drill down and ask you another question on the royalty rates here, Lou.

Is there -- is it possible that some of the answer here is in the denominator, i.e., that Nokia's calculating the rate from a different base?

Is there some sort of cap on WCDMA handsets that Nokia thinks there might be in the higher ASP categories?

Thanks.

I---again I can't tell you really tell you what Nokia is doing.

Is it possible that they're using some different gross numbers?

Sure, I guess it's possible, but we have no insight into how they have gotten to the number that they have described.

So, I'm sorry I can't be, I really can't be more helpful on that.

We don't think that as between QUALCOMM and Nokia there is any dispute over how royalties should be calculated and, again, as I said before, we think they have been paying us in accordance with the agreement.

Okay, shifting gears back to Paul and---Paul and Bill, it looks like the combined [FODAY] ASP's were up in calendar for Q'06 and fiscal 1Q '07.

Was hoping you could describe some of the trends behind that.

Is it CDMA with the launch of Rev.

A or is it WCDMA that was driving the increase on the phone side?

Thanks.

Matt, we think that data's been going very strong and both DO and WCDMA.

So, we think that is driving a richer hand set across many markets.

Other than that, though, I think ASP's went pretty much in line with our expectations.

There were minor deviations but pretty much as we expected.

Ittai Kidron from CIBC.

Please go ahead with your question.

Thank you.

Good afternoon, gentlemen.

Bill, had a couple of questions for you, was trying to figure out and think about some of the matrix you provide on a quarterly basis, how they would look like without Nokia in the picture.

How should we think about your average ASP's when Nokia is not included.

How should we think about your tax rate given that I would assume they're paying a certain regions out---what's the impact on that on tax rates and can you give us -- you gave us the magnitude of the potential impact on EPS can you give us more on the math behind it and how you would think about that going forward?

On the -- first on the tax rate, I have updated the tax -- rate forecast from 25% previously down to 24%.

That reflects a number of shifts in the business.

But, obviously, one of the changes that we made was we took out a forecast that Nokia would pay us for the fourth fiscal quarter.

So, I think that is one change in the outlook amongst several others that's incorporated in that tax rate forecast I gave you.

On ASP's, we'll just have to wait until we get to the fourth quarter.

I am still hopeful that they would pay.

I'm not optimistic they will, but I'm hopeful they will, and so, we'll have to wait until we get to that quarter and see how we report ASP's at that time.

I'll certainly---we'll all continue to do the best job we can and disclose what you need to understand what is happening within our business.

Maynard Um from UBS, please go ahead with your question.

Hi.

Thank you.

Looked like revenues and margins in the QTL segment were a little bit lighter than what I expected.

Can you just help us reconcile the numbers, specifically what is the greatest impact between kind of the mix shift maybe because of Sony Ericsson, Pantech, [add that expense] or any carrier marketing costs and if it's the latter, should we assume that these run at those higher levels through the year?

The one item that I mentioned in my comments was we reserved our remaining exposure to the Pantech group.

We took a reserve of $22 million and that is recorded in SG&A.

That would be number one.

Number two, if you just take QTL revenues, use the items I disclosed, I mentioned last quarter that one could calculate an implicit royalty rate off that of 3.6%; it's not the true royalty rates but it's based on what we disclosed.

It's what you could calculate.

And using that same basis this quarter, the royalty rate would be 3.8%.

I do expect that rate to continue to increase in the next couple of quarters.

Hasan Imam from Thomas Weisel Partners.

Please go ahead with your question.

Thank you.

Congrats on the strong results.

I have a question on the WCDMA estimates.

If you look at the top 5 hand set vendors in terms of their comments on the WCDMA market this quarter, it kind of seems to be a bit weak versus you seem to have taken quite a positive stance on it still, so I'm just wondering has it got something to do with vendors outside of the top 5 gaining share in that particular segment?

Thank you.

Hasan, this is Bill.

One, of course, we're reporting in our QTL segment, we're reporting what shipped in the fourth quarter and recent reports, obviously, are people reporting what they shipped in the March quarter.

So, there could be a bit of a timing difference.

I am expecting total phone units to decrease into the March quarter, which may sync a little bit better with others but, having said that, with all of our licensees as they report, I tend not to look at the numbers until they're essentially all in.

Because the shift of share, one quarter to anther between the players can be pretty significant.

In the past, you have commented on, for example, [wa way] taking some share which uses your chip set.

My question was more related to kind of your full-year stance on WCDMA.

Well, as Sanjay mentioned, our WCDMA chip sets are growing at a very fast pace and so hopefully that is going to show through with our customers doing better in the market, but best we let them come through with their reports and not us jump ahead to where they might want to report.

Daryl Armstrong from Citigroup, please go ahead with your question.

Thank you very much, first of all in terms of the revision of the Nokia royalty [intact], could you talk a little bit about some of the factors that caused that change, are you assuming any change in Nokia's market share or what other factors played into that?

And then, second of all, there is a school of thought that Nokia by, attempting to make partial payments reduces your ability to be able to have a taxpayer extensions options.

From a legal standpoint, could you explain why this would or would not be the case?

Thanks.

Daryl, this is Bill, I will take your first question.

I think what you're referring to is the last two quarters, we've been estimating an impact if Nokia didn't pay in the fourth fiscal quarter, an impact of between $0.04 and $0.6 per share and this quarter, we tightened that up to say we now estimate it's between $0.04 and $0.05 per share.

Now we're just using the best information we can.

Both reports that we have from all of our licensees and trying just to narrow in a little bit more what we think that impact could be if they---- if they don't pay.

So I don't -- regard it as a major shift in our forecast; I would just say it's fine tuning what we previously gave you and narrowing it down which I feel comfortable with at this stage of the year.

This is Lou, and I will try to answer the second part of the question.

We don't think that the payment tendered by Nokia, which, I think you all know we rejected, impacts in any way our ability to press our claims in arbitration that if they fail to abide by the terms of the agreement that they're in violation, they're in breach, including a breach of their right to extend the agreement.

That's so for a couple of reasons.

The payment for one thing was not tendered as a payment of agreement, it was tendered as a payment offer with three pages of additional terms, new and additional terms and conditions attached to it that we were going to be asked to accept in connection with accepting the payments.

So, that's---that's one problem.

The other is---the other problem is as we have mentioned purely from a financial perspective, it's likely that that amount, the $20 million is a small fraction of what they will in fact owe at the end of the quarter and that is, of course, not knowable in precision until the end of the quarter, but if you assume they track anything along the lines of their current trends, that payment would hardly come close to fulfilling their obligation.

So, there is nothing about that payment that would immunize them from any claims.

Brian Modoff from Deutsche Bank.

Please go ahead with your question.

Yes, guys.

We talk on the chip set side, and we talk a little bit about market share.

Good numbers in guidance on that.

From our checks, looks like you're pretty much dominating the Korean market in LG and Samsung.

Any---can you talk about market share gains for [abset] and Motorola where you'd see that perhaps kicking in and any other vendors on your side doing well on the chip set side that would account for your strength.

Brian, I think on the CDMA side, we see the strength in EV-DO driving our numbers strongly, especially, I think in United States.

The strength that Verizon and the migration that we see at Sprint from -- to work the U of A, I think those two things are certainly key to our driving the numbers we have driven this quarter.

If we look at the Korean marketplace, we certainly see vast majority of hand set shipments being in CDMA there, of course, and LG and Samsung really driving that market also.

In terms UMTS again, I---I think we believe that we have gained some market share from the lows of the third quarter of 2006.

That we saw, we have increased our market share both last quarter as well as this quarter and that has been on the back of our Korean customers doing better in Europe.

I think that is fundamentally the most important thing, and second I think is that both Samsung and LG are doing extremely well on Cingular's network.

The BlackJack phone and some other phones are doing extremely well there.

Those two things are driving our growth in our market share also.

John Lau from Jefferies & Company.

Please go ahead with your question.

Thank you, I wanted to go back to the litigation issue, and I was wondering if you can clarify something on a more macro basis.

You mentioned that you were going into litigation with Nokia, I mean arbitration with Nokia, sorry.

How long do you think this can continue whereby the royalties are not being paid but that they continue shipments, and I know that you have accounted that for the fiscal before, but can that continue for the rest of the calendar year and beyond or is that decision now on shipments and royalty in the hands of the arbitration and the clock stops there?

Thank you.

We don't know for certain that there won't be payment, although all the indications are they don't plan to pay us, but as Bill mentioned, we really won't know for sure until the payment date arrives and we see whether or not there is payment.

If, in fact, there is not payment, then we will have to take that fact into account in terms of our future with plans and it would be premature now I think to speculate about what we might or might not do in light of an event that might or might not take place.

Satya Chillara from Pacific Growth Equity.

Please go ahead with your question.

Yes, hi, this question is for Sanjay.

Sanjay, you commented on some WCDMA market share.

I know you guys usually don't talk about market share numbers, but qualitatively can you talk about how much increase you had from the Q3 to the Q1 of, right now ,for the March quarter.

How many percentage points have you increased in market share?

Yes, we have not discussed the numbers with any precision.

I can tell that you our shipment quarter-over-quarter increasing at a rate higher than we see the market overall growing and I think that is really what gives us a level of confidence that our market share is increasing.

And beyond that, especially as we look to the current quarter, it's difficult with precision to say what our market share is until we know what the market was, and that usually takes a little longer to gather that information, so, I can only tell you that we feel comfortable that we're increasing our market share right now.

I can't---I can't really provide anymore precision around that.

David Wong from A.G.

Edwards, please go ahead with your question.

Thank you very much; on the subject of the arbitration you have with Nokia, is this a mutually agreed to binding arbitration or not?

Yes, it is, it's an arbitration relating to the existing agreement and that agreement specifies that any disputes about the agreement have to be arbitrated in a particular place under the rules of the American Arbitration Association.

Brantley Thompson from Goldman Sachs.

Please go ahead with your question.

Hi, was wondering if you could give us a little color on how we should think about operating margins in the chip business as we go---over the next year.

Clearly you had a nice step up sequentially this quarter and as Motorola ultimately ramps more and more production, I'm assuming that should also be a significant contributor, but should investors be thinking about this as something that gets it into the low 30s or mid-30s or, what -- how should we think about the long-term targets there?

Thanks.

Bradley, I think the guidance that I've provided over last probably 2.5 years, but in the long-term, our objective is to drive this business to an operating profit range of somewhere between 25% and 32%.

Clearly the last quarter we had an operating profit of 26% and we stepped it up nicely, I think, on back of good volume and good mix to 29%.

Our guidance for next year---for next quarter, shipment is 62 million to 65 million units.

We see that as a strong volume also and so, as long as we continue to increase our volume, I suspect that we will continue to deliver good operating profit.

But our long-term objective is to deliver in the range of 25% to 32%.

The days of delivering high 30% are difficult to recapture, but, obviously, we will try our best.

[Mark Vacechny from Twin Peaks Capital], please go ahead with your question.

My question has been asked and answered, thank you.

Larry Harris from Oppenheimer, please go ahead with your question.

Yes, thank you.

A clarification with respect to EV-DO, are you starting to see the impact of the next year's appointment of QChat at Sprint in your numbers or is this just the impact of data cards and also could we see the impact maybe in a quarter or two from the deployment of media FLO at AT&T Cingular?

Thank you.

In terms of EV-DO, I think the point that I made in my script was that we're seeing a very strong growth in the EV-DO Revision A CSM, Cell Site Modem, shipment.

And, typically that is--- leading indicator of demand in that technology.

We're beginning to see that even in emerging marketplaces a lot of the operators are building base stations which are cable of 1xEV-DO and DO Revision A, so that they can switch to either of the three technologies, at their option, so I think that that we see is a very positive thing for us in emerging marketplace and, of course, here in United States, both Cing---both Sprint and Verizon publicly indicated they're building EV-DO Revision A network.

So, we see this as a positive indication.

We also think that the QChat migration by Sprint from their traditional Nextel systems is going to be an attractive driver of our growth, particularly the dual mode hand set that they brought to the marketplace.

Just to add to that, the plan of record for Sprint for QChat deployment is the first calendar quarter of '08, so, that's when we ought to see that impact, although as Sanjay said, we are already seeing the impact of the dual mode items CDMA hand set.

Ladies and gentlemen, we have reached the end of the allotted time for question and answers.

Dr.

Jacobs, do you have any closing remarks?

I wanted to thank everyone for being with us today.

I am extremely pleased with the quarterly performance of our team, and I am very happy that we were able to raise our yearly guidance, factoring in all of these other impacts such as legal expenses, acquisitions, and Nokia's statements that they would not be paying us royalties.

Even though there is a lot of focus in your questions, in the market, about litigation and all that surrounds it, I think it's pretty clear from our results that our team is very focussed on innovation and execution, and our engineers are continuing to focus on breakthrough new technologies and services.

So, we continue to see the tremendous opportunity ahead of us and we expect to continue to execute to that opportunity.

Thanks very much.

This concludes today's conference call, you may now disconnect.