高通 (QCOM) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the QUALCOMM first quarter fiscal 2008 conference 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 January 23, 2008.

The playback number for today's call is 800-642-1687, international callers please dial 706-645-9291.

The playback reservation number is 28814084.

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, Steve Altman, Dr.

Sanjay Jha and Bill Keitel.

Dr.

Jacobs and Dr.

Jha are together at the World Economic Forum in Davos and will be dialing in to today's call.

In addition, Don Rosenberg will join in 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 measures as defined by the SEC and Regulation G, you can find the required reconciliations to GAAP on our web site.

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 web site.

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.

In addition, QUALCOMM has filed an application with the FCC to participate in the 700-megahertz auction.

Due to the FCC's rules we cannot make any additional comments about this matter.

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

Paul Jacobs.

Thank you, John, and good afternoon, everyone.

Let me begin by commenting on the leadership and organizational changes we announced last week.

With the continued growth of 3G worldwide, we've added regional leaders Jing Wang and Andrew Gilbert to the executive committee to better reflect that global diversification.

We've also moved the QUALCOMM Internet services business under Andrew, and he will lead QIS from the United Kingdom.

This new structure also consolidates all the services business under Len Lauer.

Innovative services, such as media flow and mobile commerce, represent significant growth potential for QUALCOMM and our partners, and this change will increase our focus on these emerging opportunities.

I'd like to acknowledge all of the leaders involved in these changes for their significant contributions to our business as well as for the positive impact they will have going forward.

Turning to our financial results, we delivered another strong quarter.

Record revenues were driven by another record quarter of CDMA-based MSM chip shipments.

Both revenues and pro forma earnings per share up 21% from a year ago quarter, and remember that this year's results do not include Nokia royalties.

It is the continued focus and execution by our employees that allows us to deliver such excellent results at the same time we are defending our business model.

I'm also pleased to reaffirm our fiscal 2008 pro forma earnings per share guidance.

We have continued to be active in repurchasing our shares, returning $1.6 billion of capital to our stockholders through our stock repurchase program since October 1.

We have now returned approximately $8.4 billion of capital through our stockholders through our cash dividend and stock repurchase program since fiscal 2003.

We have now utilized nearly all of the current $3 billion stock repurchase authorization announced last May and will consider additional authority, if any, with our board of directors in due course.

I'd now like to highlight some of our key business achievements.

QCT delivered their 10th consecutive quarterly record for MSM shipments as CDMA-based MSM chip shipments were up 34% year-over-year.

We've experienced significant year-over-year growth in WCDMA as well as growth in all tiers of CDMA 2000 as QCT continues to successfully meet the growing and diverse requirements of a global marketplace.

In our QW&I segment, the BREW platform continues to help our partners bring leading edge data applications to subscribers across all tiers.

Tata Teleservices recently launched the BREW Opera Mini browser on a sub-$50 handset based on our QSC single-chip solution.

This browser opens up true Internet access to many Indian subscribers at very affordable prices.

Tata now offers more than 500 BREW data applications to its subscribers.

Throughout Europe and Asia, Hutchison's [wampose] 30 Skype phone uses BREW to mobilize one of the Internet's most popular services on a low-cost mass market 3G handset.

Skype phone has seen strong uptake, driving lower acquisition costs and stronger retention for H3G.

In QSI, MediaFLO USA continues to set the standard for mobile TV.

The FLO TV service is now available in more than 50 cities in the U.S.

and consumers can choose devices from LG, Motorola and Samsung.

MediaFLO USA has assembled programming from more than 15 leading entertainment brands on eight channels.

In addition, we've aired close to 2,000 hours of live sports and at the recent CES show in Las Vegas, we announced that some of the spring's most popular primetime TV shows from CBS, Fox, MTV and NBC will make their mobile debuts on FLO TV.

Together with our partners, we're committed to delivering the content mobile consumers demand when and where they want it.

The QUALCOMM MEMs technology team continued their progress by announcing a relationship with Foxlink to incorporate the mirasol display in two upcoming product designs.

In addition, KT Freetel selected the mirasol display for its show WCDMA monitoring systems which enable consumers to monitor shows and location by video through their mobile handset.

KT Freetel anticipates products will be available to the Korean market in 2008.

The low power consumption and consistent display quality in a wide range of viewing conditions, including bright sunlight, were key factors in these new partnerships.

Our ability to commercialize extremely advanced technology, such as a mirasol display, is a key competency in opening up new markets.

This past November, we announced the acquisition of Firethorn, an industry leading mobile banking enabler, furthering our mobile commerce strategy.

In November, AT&T launched mobile banking nationwide in partnership with Firethorn.

Recently, Verizon and Firethorn announced an exciting advancement in our partnership.

Similar to AT&T, Verizon will preload the majority of their new handsets with the Firethorn mobile wallet.

Now customers of major financial institutions, such as Wachovia, SunTrust, First Bank and Bancorp South can have a secure, easy to use mobile banking experience, including viewing account balances, making transfers or paying bills on the go.

Enabling the highest quality end-to-end services for consumers is an integral part of our global service strategy and we look forward to continuing to grow this business.

Turning to the 3G CDMA market around the world, the number of 3G CDMA-based networks and subscribers continues to grow rapidly.

Data from the CDMA development group and the GSM Association indicates more than 435 CDMA-based 3G networks have been launched as of January 2008, representing approximately 33% growth year-over-year.

GMA 2000 network deployments grew 31% year-over-year and WCDMA networks grew 35% year-over-year, This includes more than 80 operators deploying the higher speeds of 1xEV-DO and more than 15 operators who have deployed EV-DO Rev.

A.

In addition, more than 165 operators have launched high speed HSDPA networks and more than 25 operators have deployed HSUPA.

According to Wireless Intelligence, worldwide 3G subscribers including CDMA 2000 and WCDMA grew to approximately 560 million as of September 2007 representing an increase of approximately 30% from the year-ago quarter.

CDMA-based device shipments continue to grow faster than total worldwide device shipments as reported by Strategy Analytics.

CDMA-based device shipments represented an estimated 33% of the total worldwide shipments in the third calendar quarter of 2007, up from 29% of the total worldwide shipments in the same period of 2006.

I'd now like to update you on what's going on in some of our regions around the world.

In the United States, wireless data continues to grow and have a positive impact on our operator partners.

In the third calendar quarter, Verizon noted their data revenues grew to $2 billion, a growth of 67% over the year-ago quarter, but also reporting the highest data ARPU in their history.

AT&T's wireless data revenues grew better than 60% year-over-year for the fifth consecutive quarter, and they commented that larger data revenue upside still remains.

The higher data speeds enabled by EV-DO Revision A and HSPA networks will continue to drive more compelling applications and services for subscribers and continue to drive increased competition and wireless data usage.

In Europe, based on our estimated device shipments for the quarter ending September 2007, WCDMA device shipments increased 40% year-over-year and 14% sequentially as 3G growth continues to accelerate.

As a result of this strong 3G growth, Wireless Intelligence reported GSM in western Europe experienced negative net additions in every quarter of calendar year 2007.

There are now over 100 3G networks across Europe including more than 90 commercial HSDPA networks.

The growth in 3G networks and the increasing availability of affordable 3G devices is making mobile broadband connectivity a reality for a growing portion of the subscriber base.

We're also seeing the benefits of attractive data pricing for high speed data only devices.

The simplicity of the plug-and-go USB [domgol] is driving widespread data usage for both consumers and business users.

For example, as of November, 3G mobile broadband cards and USB modems, the top selling devices at Telesonera for six straight months.

With multiple operators deploying the latest high speed 3G technologies, the strong migration to 3G in Japan continues with total cellular subscribers surpassing the 100 million mark this past December, of which 3G CDMA has over 80% penetration.

South Korea's device sales in 2007 was a record, and CDMA-based technologies continue to drive a high level of competition.

Total HSDPA subscribers grew to 5.7 million or 13% of total subscribers, and HSDPA continues to significantly outpace WiBro which has approximately 100,000 subscribers.

In India, CDMA expansion continues as BSNL recently commented that they would initially invest $500 million to roll out CDMA-based mobile services in all major cities and towns.

EV-DO service has been commercially launched in several circles and the EV-DO data cards are available.

We continue to see positive trends in India as CDMA device shipments increased approximately 11% year-over-year for the quarter ending September 2007.

Color screens replacing monochrome, increased availability of data applications, and the recent popularity of smart phones are several of the trends driving the market evolution in India.

Turning to China, in 2007 there were over 85 CDMA device models available as the Chinese OEMs increased their market share.

In addition, over 90% of CDMA devices sold in China in 2007 are BREW download enabled.

We remain cautious on when 3G licenses will be awarded, and we have excluded them from our 2008 forecast.

China is an exciting opportunity for additional CDMA growth and we are working closely with our Chinese OEM and operator partners.

The calendar year ended with positive trends for WCDMA in Latin America.

According to the GSM Association, there are more than 10 operators in Latin America that have launched commercial WCDMA HSDPA networks.

In addition, the Brazilian telecom regulator Anatel completed a successful 3G licensing auction in December, and we look forward to increased competitive dynamics in Latin America driving demand for 3G devices and services.

In closing, I would like to thank our employees and partners worldwide for another excellent quarter of results.

The benefits our unique business model provides the industry and our partners are reflected in the many innovative products, applications and services that are driving the vibrant and competitive 3G market.

We will continue to defend the business model that has made this possible, while at the same time pursuing the appropriate paths to resolve our current disputes in a reasonable manner.

Innovation is key to our businesses, and we will continue to make significant investments in research and development to expand 3G and next generation wireless technologies beyond traditional products, services and partners.

We remain committed to providing operators, manufacturers and subscribers the highest quality, most innovative devices, applications and services to meet the wireless needs of today and in the future.

That concludes my comments, and I will now turn the call over to Steve Altman.

Thank you, Paul, and good afternoon, everyone.

Through our innovation and continued execution, we, along with our many partners, continue to lead the industry with compelling solutions that benefit the diverse needs of the global wireless community.

There are now a vast number of 3G enabled products, services and applications ranging from very low price handsets to fully featured high end user terminals that are capable of meeting the needs of consumers around the world.

Many of these consumers now recognize the power and speed that 3G puts into the palm of their hands and are increasingly demanding it when purchasing new devices.

Unfortunately, as the market and our success in it continues to expand, we remain faced with a number of legal and regulatory challenges brought by a small number of companies intending to disrupt our business and further their own business interests.

I would now like to update you on some recent developments in our various legal actions.

In our continuing litigation with Broadcom, the federal court in Santa Ana issued an injunction on December 31.

The judge partially granted Broadcom's request for an injunction in the United States against certain QUALCOMM products that were found to infringe three Broadcom patents.

The '010 patent asserted against QChat, the '686 patent asserted against certain MSMs having certain video encoding capabilities, and the '317 patent asserted against certain MSMs that support multiple CDMA air interface technologies, specifically CDMA 2000 1x and 1xEV-DO.

We have filed a motion in the district court to stay the permanent injunction pending appeal, and the hearing date is January 28, 2008.

The injunction ruling provides a sunset provision that stays the injunction order until January 31, 2009 for QChat and 1xEV-DO products that were found to infringe any of the three patents and suits by providing QUALCOMM a limited license subject to the payment of royalties during that time.

This license is limited to products that were sold to customers on or before the jury verdict was delivered on May 29, 2007.

The '010 and the '317 patents were found to apply only to QUALCOMM's QChat and 1xEV-DO products and we are continuing development of work-around solutions for these products.

The order imposes an immediate injunction for the U.S.

market on certain WCDMA products that were found to infringe the '686 video encoding patent.

QUALCOMM has announced the availability of new chips that have already been sampled to customers.

These new chips do not include the accused function of '686 patents, and therefore, do not infringe that patent.

We expect to have these new chips available in handsets before the end of this calendar quarter.

In the Broadcom ITC case, Broadcom has also instituted an enforcement action with the ITC relating to the cease and desist order issued by the ITC in which Broadcom seeks to challenge the design around provided by QUALCOMM to our customers, as well as other activities such as advertising certain of our MSMs on QUALCOMM's external web site.

The ITC has set a hearing date of April 22, 2008, an initial determination date in July 2008, and a final determination date in November of 2008.

QUALCOMM believes that it has fully complied with the ITC order.

Turning now to Nokia.

Although we continue to engage in periodic discussions with Nokia, there has been no significant progress in our attempts to reach an amicable resolution.

On the litigation front with Nokia, as you know, we have filed arbitration claims in Los Angeles with respect to our 3G agreement, as well as counterclaims in Delaware relating to the party's rights and obligations under SC's IPR policies and the effects of the 2001 license agreement on discharging those obligations.

As a result of a hearing before the vice chancellor in Delaware, we are currently exploring the possibility of consolidating in the Delaware court our current arbitration claims with our Delaware claims.

While we have an esteemed arbitration panel in Los Angeles, and are fully prepared to proceed with that hearing, we recognize that certain efficiencies may be achieved in having the two matters heard in one location.

Let me reiterate that this is something under consideration, and we have not yet reached an agreement on consolidation of these matters.

In the event this consolidation moves forward, the first phase of that action may be heard as early as late spring or early summer.

If the claims currently in arbitration are not consolidated in Delaware, we expect that the first phase of those claims will be heard in July of 2008.

Looking forward, the next hearing in Delaware regarding these developments is Friday January 25.

In our ITC case against Nokia regarding GSM, GPRS and EDGE products, the administrative law judge issued an initial determination rejecting our claims, and finding that one of the asserted patents was invalid.

We still believe in the merits of our case and have sought review of that decision with the full Commission.

We expect that matter to be heard in the near future.

In our GSM/GPRS/EDGE action against Nokia in the United Kingdom, the first phase of the trial was held in November, and we anticipate a decision sometime in the near future.

In addition, and as we discussed at our analyst day in New York this past November, The Hague District Court in The Netherlands dismissed Nokia's patent exhaustion case against us, just as the Mannheim court did in Germany with respect to the patent exhaustion case that Nokia filed against us there.

Nokia has appealed the German case and may still appeal the case in The Netherlands.

In light of the arguments raised by Nokia in its patent exhaustion cases and the pending LG/Quanta case before the Supreme Court, I thought it might be useful to explain, as I did at the analyst conference in New York some of the things we have done to help ensure we have appropriately protected ourselves against any claims of patent exhaustion.

Our agreements with companies supplying ASICs are very clear that in every case, the ASIC supplier does not have the right to pass through any of our patent rights to their handset manufacturer customer or otherwise grant their customers the right to use any of our patents for their handsets.

In other words, the handset manufacturer can only obtain rights to QUALCOMM's patents by entering its own license agreement with QUALCOMM.

The agreements we have with ASICs suppliers are, therefore, in every case expressly non-exhaustive.

To provide further protection in the event that, despite our express disclaimer to the contrary, it is found in a particular jurisdiction that the provisions in our agreements with the companies supplying CDMA or WCDMA create exhaustion of our patents those agreements provide for termination of the provisions that were found to create the exhaustion in the particular jurisdiction.

In some cases, we have agreed that we would try to negotiate replacement provisions to prevent such terminations so long as the non-exhaustive intent can be implemented.

As Paul mentioned earlier, we continue to pursue all appropriate paths to resolve our various disputes while ensuring the significant investments we have made in our businesses are recognized and preserved.

That concludes my comments.

I'll now turn the call over to Sanjay Jha.

Thank you, Steve.

QCT had an excellent start to fiscal 2008, and I'd like to review the highlights.

We shipped approximately 79 million MSM chipsets, which represents our 10th consecutive record quarter.

This is approximately 16% more than the previous quarter, and represents a growth of 34% from the same quarter last year.

This increase in our shipment is driven by the continued growth in demand for our UMTS products as well as our products for entry tier products for emerging markets.

Our UMTS chipset shipments increased by 41% compared to the prior quarter and by nearly three-folds against the year-ago quarter.

Similarly, for QTC's entry tier products, we experienced growth of 23% compared to the previous quarter.

QTC generated revenue of $1.57 billion dollars this past quarter.

This was our seventh consecutive quarter of record revenue.

Compared to the first quarter of fiscal 2007, this represents a growth of 28%.

Our operating profit remains strong.

In the first quarter of fiscal 2008, we delivered earnings before tax of $470 million, an increase of 49% compared to the first quarter of fiscal 2007.

Earnings before tax as a percentage of revenue remain consistent from the previous quarter at 30%.

Last quarter, we began experiencing supply constraints on certain analog products as a result of accelerated demand for our products across multiple tiers.

We have substantially resolved the supply issue a quarter earlier than predicted because of an excellent support we received from our vendor partners.

Our customers have also been working with us to transition to new technologies that are far less affected by the supply constraints.

While we're still experiencing some supply issues with our low-end chipsets, given our current view of demand looking forward, we can meet our customer requirements in full after the first quarter of calendar 2008.

We are working to ensure full compliance with the recent injunction from the federal court in Santa Ana.

We introduced a new family of UMTS products designed to comply with the judge's ruling by removing the accused functionality.

Available now, we expect that the new chipsets will be in commercial handsets even earlier than we had previously anticipated due in large part to the cooperation of our OEM and carrier partners.

Regarding the other patents in the judgment, we are working quickly to find solutions as soon as possible.

Our aim is to minimize disruption to our partners while complying with the judge's ruling.

Today Motorola announced that we have expanded our relationship.

Their first 3G UMTS handsets based on our chipsets are expected to be commercial during this calendar year.

We have been working with Motorola for many years with great success on CDMA 2000.

We're pleased by this progress for the UMTS market and expect to see the results of our joint efforts this year.

Our solutions will enable users of Motorola devices to benefit from our industry leading levels of integration and cost competitiveness.

On the product side, we remain committed to driving advanced technology into mass market tiers.

This past quarter, we announced a new family of single-chip 45-nanometer solutions, designed to enable mass market smart phones with rich functionality.

The new single-chip solution features a dual core architecture to support third-party operating system with the highest level of integration in the industry.

Positive innovations translate to 80 hours of music playback and a full day of talk time.

The three solutions are scheduled to sample at the end of 2008.

We also continue to make strides in process technology advancements, and we completed the world's first 3G call using 45-nanometer chip.

The benefit of our integrated fabless manufacturing model are allowing us to offer more advanced products with the benefit of the smaller process geometry to our customers, all with a significant time to market advantage.

This past quarter, we acquired SoftMax and Open Interface.

Both companies bring audio enhancements technology to Qualcomm, strengthening our product capabilities for handsets and other wireless devices.

SoftMax specializes in noise cancellation technology for Bluetooth handsets and mobile handsets.

Open Interface brings us a complete set of Bluetooth profiles.

The engineering teams of SoftMax and Open Interface are currently being integrated into QCT.

We expect these acquisitions to have a $0.005 impact on our earnings through the year.

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

Thank you, Sanjay, and good afternoon, everyone.

We're very pleased to report another quarter of strong financial results as 3G CDMA adoption continues to accelerate around the world, and our businesses execute well.

I'll begin with highlighting a number of key items in our first quarter results.

Revenues increased 21% year-over-year to $2.44 billion, and pro forma earnings per share increased 21% to $0.52 per share.

As a result of the Santa Ana ruling, we recorded in the first quarter, approximately $0.01 per share greater expense than we had previously expected.

This is for the period May 29, 2007 to December 30, 2007.

QCT achieved new records with revenues increased year-over-year 28% to $1.57 billion and MSM shipments increased 34% to 79 million units.

QCT's operating margin was 30%, unchanged from the prior quarter.

QTL reported revenues of $650 million this quarter, with an operating margin of 83%.

We estimate that approximately 95 million new devices were shipped in the September quarter, a 28% increase compared to the year-ago quarter.

We estimate the average selling price of CDMA wireless devices was approximately $211 per unit, compared to $208 for the same quarter last year.

QWI segment revenues and operating profit increased 12% and 20% year-over-year respectively, driven by an expanding BREW customer base and QChat.

The tax rate for total QUALCOMM was 18% for the quarter, and our pro forma tax rate was 22%.

We estimate our pro forma tax rate for fiscal 2008 to be approximately 21%, consistent with our prior guidance.

Operating cash flow continued strong at $880 million for the first fiscal quarter, up 12% year-over-year.

Pro forma free cash flow was $908 million, 37% of revenue.

We have been actively repurchasing shares, including $900 million during the first quarter, and an additional $668 million of shares since the end of the quarter.

We have now substantially utilized the $3 billion repurchase authorization announced last May.

We announced dividends of $228 million, or $0.14 per share during the first quarter, which were paid on January 4.

And we announced another $0.14 per share dividend to be paid on March 28.

Now turning to our guidance.

For the calendar 2007 CDMA market, we now estimate that shipments were approximately 382 million to 388 million new devices.

Based on the 385 million mid-point of our new estimate, we anticipate approximately 208 million CDMA 2000 units, and 177 million WCDMA units were shipped worldwide in calendar 2007.

For the second quarter of fiscal 2008, we estimate revenues to be in the range of approximately $2.4 billion to $2.5 billion, an 8% to 13% increase year-over-year.

We estimate pro forma earnings per share to be $0.50 to $0.52.

We anticipate shipments of approximately 80 million to 85 million MSM chips during the March quarter.

We expect chip ASPs to decrease approximately 9% on a sequential basis, reflecting product mix shift in the quarter, aggressively driving the WCDMA low end, and annual price setting with our customers.

We expect QCT's operating margin to decrease to the mid-20% range for Q2.

We believe CDMA channel inventory levels increase during the quarter to be at the high end of the normal 15 to 20-week band, consistent with our prior expectation and the seasonality seen in prior years.

We anticipate inventory channels levels will decrease from December 2007 through September 2008, consistent with our prior forecast.

We estimate that approximately 112 million to 118 million CDMA-based devices shipped in the December quarter at an average selling price of approximately $216 per unit driven by increased sequential shipments in multiple regions around the world, notably Europe, China and North America.

We expect the increased investment in our QWI segment, including our Firethorn business, will reduce segment profitability in the second quarter by approximately $0.01 earnings per share.

We anticipate second fiscal quarter pro forma R&D and SG&A expenses combined will increase sequentially approximately 5%.

Turning to the full year, our estimate for the calendar year 2008 CDMA device market has not changed, and we continue to exclude a forecast for 3G licenses in China.

We estimate the calendar 2008 CDMA market will increase approximately 28% to 36% in 2007 with a midpoint of approximately 507 million units.

We are increasing our revenue guidance for fiscal 2008.

We now expect fiscal 2008 revenues to be in the range of approximately $9.6 billion to $10 billion, an increase of 8% to 13% over fiscal 2007.

We anticipate pro forma earnings per share to be in the range of $2.01 to $2.07, consistent with our prior guidance.

This includes additional cost of sales of approximately $0.03 per share as a result of the Santa Ana ruling, and also includes approximately $0.005 per share additional SG&A expense for the recent acquisitions that Sanjay mentioned.

We estimate average selling prices for CDMA 2000 and WCDMA phones combined will decrease approximately 5% in fiscal 2008 to approximately $203 per unit as compared to our prior estimate of $199.

We expect the combination of pro forma R&D and SG&A expense to increase approximately 14% year-over-year.

We estimate GAAP earnings per share will be approximately $1.67 to $1.73 for fiscal 2008.

This estimate including a loss of approximately $0.12 per share attributable to QSI and a loss of approximately $0.22 per share for estimated share-based compensation.

As a reminder, our full-year fiscal 2008 guidance excludes our estimate of royalties due from Nokia.

In closing, we are pleased with our continued business execution, strong financial results and our continued return of capital to our shareholders.

Our business is well diversified and growing with the majority of our revenues from overseas markets.

We see the broad CDMA market off to a strong start for 2008, and we are pleased with our new products and services that we expect to continue to drive accelerating adoption of 3G CDMA around the world.

That concludes my comments.

I will now turn the call back over 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.

Operator, we are ready for questions.

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

Mark McKechnie from Am Tech Research, please go ahead with your question.

Yes.

Thank you.

I appreciate it.

So I wanted to get a sense for the impact from Broadcom's injunction on your EV-DO activities.

It sounds like you suggested you're working pretty hard to comply with that, and you've got some good work-arounds, but I wanted to know if you're seeing any kind of an interruption at any of your larger customers' road maps.

Thanks.

Mark, this is Sanjay.

We have -- because of the sunset provision, in the short term, we've been able to avoid any interruption to our carriers on the EV-DO side, and as I indicated to you we are working on multiple different solutions on the '317 and '010 patents, and we're confident that we will find and deliver a solution which which avoids the accused functionality.

And we have not provided you a time line for that, but in providing you guidance for the next quarter, we have included some sunset royalty payment estimates within the QTC segment.

Great.

Thank you.

Any impact later on in the year, Q3, Q4 that you're seeing in design activities at all, or --

We are working very hard to avoid those impacts.

Great.

Thanks.

Mike Ounjian from Credit Suisse.

Please go ahead with your question.

Great.

Thank you very much.

Steve, I appreciate the update on some of the ongoing issues with Nokia.

I guess, with an arbitration hearing scheduled for July, I guess would you be able to walk us through sort of what the process would look like going from there in terms of when we might hear any responses to that, and I guess, similarly, to the extent that the Delaware case -- that you were to consolidate the cases in Delaware, what might the time line potentially look like if there were a hearing in late spring, early summer?

I'm going to let Don take that -- take that question.

Yes.

With respect to the arbitration, as Steve indicated in his remarks, there is a schedule that would bring us to July, assuming that this current discussion in Judge Strong's court doesn't take us into Delaware.

The arbitration, as you know, is a private proceeding, but we have indicated that there is probably -- there will be a phased approach to the arbitration.

And in July, there will be some preliminary issues that would be addressed, but not all of the issues.

And the next phase I don't recall, but I don't think anything has been decided precisely as to when what phase would begin.

So until -- until, A), we've figured out whether we will be in the arbitration or in Delaware and then until we get to July, there's really not much more to say at this point.

Great.

Thank you.

And just to clarify, in Santa Ana, with the work-around solutions, then, so it sounds like those are ahead of schedule.

Now, that means you are -- are you currently shipping the previous solutions of MSM chipsets, or have you stopped shipping the ones that infringe with the '686 patent and waiting to ramp up with the new MSM chipsets?

Well, we're -- we're abiding by the injunction, and so, with respect to shipments relating to WCDMA, we have stopped shipment.

As I think Sanjay mentioned, there is a sunset provision that applies to some of the injunction, and we're -- we're abiding by that.

We've also sought some clarification from the judge with respect to several items within the injunction itself, and we are scheduled for a hearing this coming Monday.

Brian Modoff from Deutsche Bank, please go ahead with your question.

Yes, Sanjay, a question for you.

On the guidance for 80 million to 85 million units in Q2, it seems like in order to get that number, we're assuming some share gain in the quarter as well as perhaps some catch-up.

Can you comment about that, and then can you give us kind of a run down of how you see the competitive environment in WCDMA chipsets at this time?

Thank you.

Brian, we are seeing strength in both the low end of CDMA 2000, and a little bit in UMTS quarter-over-quarter.

And I think that's -- that really is how we get to 80 million to 85 million.

And part of the reason the range there is a little larger this quarter is because of both supply uncertainty as well as uncertainty around how quickly we can get our customers to switch over to new work-around solutions.

In terms of the competitive environment, in UMTS, I think, with our 6000 series, the 6246 and 6290 chips, we feel like we have industry-leading products there, and with the announcement of our expansion of relationship with Motorola, we think that we have an opportunity in the long-term, medium to long-term to gain some market share.

Thank you.

James Faucette from Pacific Crest.

Please go ahead with your question.

Thank you.

I just had a question for Sanjay as it relates to product portfolio.

You'vre talked and introduced recently the Gobi talked about in the past about being Snapdragon.

Can you talk about design activity, or give an update as to how those products are being received and when we might start to see those commercially available in the market?

This is Sanjay.

The Gobi product we expect in second calendar quarter.

The first device is to launch with Gobi in the second calendar quarter, and Snapdragon, we expect the first devices to launch either in the fourth calendar quarter or first calendar quarter '09.

In terms of design traction, we think that lots of laptop OEMs find the dual mode nature of our Gobi solution quite attractive.

It allows them to ship one SKU as opposed to have a laptop (inaudible) designated for Verizon or AT&T or Sprint, and this ability to use one SKU is very attractive.

I also think that Verizon Vodafone will find the ability to either roam across the networks very attractive.

Sprint also can offer a roaming solution.

And above all, I think, by increasing the scale of solutions because of it being dual mode, we can drive the price of Gobi solutions down, and increase the attach rate in laptops, which, of course, is strategically important as broadband mobile data becomes available from other sources also.

So I think we're getting good traction from Gobi.

And Snapdragon, I think there are multiple devices based on Snapdragon, by our traditional OEMs as well as some new customers that we've been able to win.

Thank you very much.

Mike Walkley from Piper Jaffray, please go ahead with your question.

Great.

Thanks.

Just a clarification question for Bill.

In our modeling purposes, when you talk about the Santa Ana impact and the royalty payments to them, is that an increased gross margin charge or is it a contra revenue, how it flows through the models?

Hi, Mike.

That's a cost of sales.

So it's -- it impacts the gross margin.

Okay.

Great.

Thank you.

And then, just for Sanjay, again, great momentum on your chip business.

In terms of the ASP declines, how much of that is mix going to the low end versus your normal step-down in pricing at the beginning of the year?

Any way to help quantify that for us?

We've not broken that out before, Mike, but I would say both of them are fairly significant factors, and the third factor that Bill mentioned also is that we are actually being pretty aggressive in driving the low end of the UMTS marketplace, so those three factors do play into the price decline that you see in this quarter.

Ehud Gelblum from JPMorgan.

Please go ahead with your question.

Hi.

Thank you very much.

Also a clarification and a question, Bill.

Just to understand, the $0.03 impact there's no change to your full year EPS, so the $0.03 impact we should be in terms of trying to normalize what EPS would be if we didn't have all these impacts going around.

Should we assume this $0.03 impact adds to the previous $0.04 impact that you had previously given in the last conference call, plus the $200 million in extra legal expense, which sort of turns into around $0.15, my calculation of sort of foregone EPS right now?

That's -- my first question on the clarification, and then just a question on the update on the new WCDMA unit number for 2007.

We lowered it, I believe, to 177 million from 182 million.

I would imagine, because you're -- the numbers that you showed in this -- in this quarter you just reported were in line, I'd imagine that that 5 million change in WCDMA came from something you saw in calendar in Q4, and if you could elaborate to was the WCDMA market a little weaker in calendar Q4 and why does that not worry you at all about your WCDMA estimate for 2008?

Thank you.

Yes, Ehud, on your first question, the $0.03 that we've added this year for cost of sales for the Broadcom impact, that would be in addition to the explanation I gave last quarter on the total business model defense, and, as we explained that, it was a $0.04 increase over what we experienced in fiscal 2007, and we had explained that in fiscal 2007 the total of those expenses were well in excess of $200 million.

Yes, so the $0.03 is an increment to that, that's correct.

That's $0.03 plus $0.04 plus $200 million which I get is about an $0.08 impact for a total of $0.15 possibly, if that math is roughly right?

Well, yes, I mean, that's -- it's in the ballpark, but, as I said, more than $200 million last year, well in excess of more than $200 million, and year-over-year, a $0.04 cent increase, plus now we've added this extra $0.03.

Okay.

Then, on the -- on the WCDMA numbers, you are correct that we think that's a calendar Q4 of 2007.

We've seen that fairly dispersed across a number of markets per our best estimate.

So -- but given, particularly the point that Paul spoke to about the data demand and the kind of ARPU experiences that operators are experiencing, we're -- we remain quite optimistic on the WCDMA market as well as CDMA 2000 for '08.

And I would add to that, I think, as Sanjay mentioned, I think we're optimistic on driving a greater UMTS market simply by our efforts focused on the low end.

So we're quite optimistic on that front.

Thanks, Bill.

Tim Long from Banc of America, please go ahead with your question.

Thank you.

Two, if I could here.

First on the -- Bill Keitel, if you could help us reconcile a pretty steep chipset ASP decline this quarter coming up, but we've raised the overall handset ASPs and we haven't changed the CDMA/WCDMA mix, could you help us understand how just by the chipset mix getting worse the overall handset ASP is getting better?

And maybe talk a little bit about visibility into those numbers into the back half of the year?

And then could you also just update us on the status of Sony Ericsson as far as payments of catch-ups and ongoing royalty payments there in the December and March quarters and for the fiscal year?

Thank you.

Okay, Tim.

Yes, so I'll just speak to the changes -- try to summarize the changes we're seeing in our new outlook as opposed to what we've previously seen.

We do see ASPs just a nod better.

Previously, we thought $199 would be the average.

We're now seeing $203.

We're seeing -- with our decrease in the calendar 2008 WCDMA market, obviously, we're now in holding -- excuse me -- decrease in calendar 2007, and holding 2008, that obviously amounts to a bit stronger year-over-year growth that we're seeing in WCDMA.

That would be number one.

Number two, on the chipset ASPs, I mean, there were three factors we mentioned there, driving the WCDMA low end, just the overall mix of chipsets in the quarter, and then, thirdly, just was the price resets.

In total, we do expect to be shipping more MSMs in this current outlook for fiscal 2008 than what we previously expected, and so Sanjay's business is looking to be a bit better on that front.

The licensing business is looking to be a bit better, because of the higher ASPs, and Len Lauer's services business, we're expecting a bit higher profitability there than what we had previously expected.

So in sum, those all managed to offset the increment of $0.03 for the Santa Ana ruling, and an increment of about $0.00.5 for two nice little acquisitions that we've recently concluded.

Okay.

But, Bill, I understand that WCDMA is weaker last year, but the absolute ASP dollar amount goes higher as chipsets are going lower with no change of mix.

So does that mean just the per-phone CDMA and WCDMA ASPs have come in a little higher than you thought despite your own mix getting a little bit worse on the chipset side?

No.

I think it's -- I think our share of that business as a whole is continuing to do well.

We do expect to improve it on a year-over-year basis.

But we are targeting -- as we said, it's an annual time of year when we typically reduce our prices, and a combination of mix changes, and those price resets, we expect to be in the mid-20 percentile operating margin, which is a still very, very respectful margin.

And then we do expect to see some improvements coming out of the year on that operating margin as well.

So -- on the Sony Ericsson, we have included in our guidance for the year, an expectation that we do resolve that matter with Sony Ericsson, and Don, do you want to offer some comments on kind of where we stand now?

Yes.

Just briefly, we are -- after the arbitration ruling, we have had some issues of clarification there as well.

We have sought some clarification.

We are also talking to Ericsson.

There's some auditing going on.

But we expect and hope that it will be resolved this quarter.

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

Hi.

Thanks.

A question of clarification, if I could.

Sanjay, could you just give us a ballpark estimate of what your chipset market share in 3G in terms of percentages today and what that could grow to given Motorola?

And then for, Bill, sorry if I missed this, but was there any customer transition cost in the December quarter or embedded into the guidance this quarter, or was that included in the $0.03?

Thanks.

I have -- this is Sanjay.

I have actually not provided our market share guidance up to this point, and I think we will hold on providing that guidance, if you don't mind.

On the -- on the customer transition costs, as we said, we did provide, in our guidance for fiscal 2008 the presumption that we would be stepping up to help our customers and partners through this process.

That has begun.

We did record some contra revenue in the first fiscal quarter, and I expect we'll record some more in the second fiscal quarter.

Okay.

Do you anticipate that goes beyond the second fiscal quarter, or would that -- is that kind of the end and goes away after --

At this time, I'm -- my forecast has a provision for the full fiscal year.

Thank you.

Tim Luke from Lehman Brothers, please go ahead with your question.

I have just a couple of quick clarifications.

Bill, just on the chipset ASP, I think you said down 9% sequentially.

Do you have a sense of where we should look for that to be for the full year, and separately in the $0.03 Broadcom Santa Ana impact for the year, is that something that is sort of front loaded into the next two calendar quarters as in March and June, or is that something that's fairly evenly spread in terms of the impact over the year?

And lastly, just with respect to the payments of royalties to Broadcom and payments to a carrier relating to previous rulings, where would that show up in terms of the income statement and the expenses associated with that?

Thank you.

Okay.

On the chipset ASP, we previously said that we expect a modest decline for the average ASP of chipsets in fiscal '08 as compared to fiscal '07, and the year is unfolding, I would say, at this point, unfolding pretty close to our expectations that we guided to a quarter ago, with the exception we are looking for a bit higher volume and a bit more profitability from that volume.

But other than that, we're still in that range of a modest decline in the average ASPs of our MSMs.

On the Broadcom, you asked for the timing of that, given that -- the state we're at at this point, still looking for clarifications, and I would just say that a number of open items there.

I think it's best that we refrain from commenting at this time on on any timing aspects.

On the question about payments to partners to help them through this process, I expect that most, if not all of those would be contra revenue, and as I said in the first quarter, we did record some contra revenue, and I'm expecting to record some contra revenue in the second fiscal quarter.

If I could just follow up for Sanjay, on the Motorola news from today that you confirmed, when might one begin to see shipments to that partner in the UMTS arena?

Tim, I don't have good vision on that, but to the extent that we want to launch devices this year for -- presumably if Motorola, as they indicated in their press release want to launch this year, then it needs to be in early fourth calendar for sure.

It may be a little earlier than that, but it would have to be fourth calendar quarter that we would have to see some shipment.

Therefore, I doubt that we will see significant impact of that shipment in this fiscal year.

John Lau from Jefferies & Company.

Please go ahead with your question.

Great.

Thank you.

On a more macro view, there has been a lot of handset concerns with regards to inventory.

I was wondering if you could give us your commentary of what you see in the channel for inventory levels and the progression and pattern of demand pull for your MSM chipsets as we traverse into the new year?

Thank you.

I'll take a stab at that.

Maybe Sanjay or anybody else would want to add to it.

But on the channel inventory, first of all, I would say that, for over a year now, we've seen our estimates of that total channel at substantially higher than what we've seen in the past.

It's -- in the past, for several years now, we've seen it fluctuate within a 15 to 20-week band, and in the last year or so, we've seen it hang in at the higher end of that band somewhat as a surprise to us.

We're even beginning to wonder if we ought to adjust that band given the several quarters now that we've seen that, but we're not prepared to do that as of yet.

We think that the inventory level in equivalent weeks is at the upper end of that band, at the end of December, very typical to what we've seen in prior years coming off the Christmas selling season.

At this time, we're forecasting that -- we're anticipating that that inventory channel will bleed down pretty progressively between now and the end of September.

But we'll have to see how that goes.

Again, it's hung at a little higher level than what I'm projecting at this point for this fiscal year, but I think that's probably the prudent basis to plan our business on.

The demand, obviously, on the MSM side is quite strong, looking for 80 million to 85 million unit shipment this quarter.

That's -- that's a bit unlike what we've seen in some prior years going from the December quarter to the March quarter.

But we think we've got that pretty well dialed in, and -- but we'll see how that progresses here.

The inventory levels, toward the higher end of the range, but staying at that level consistently for the year, and a consistent pull from your chipset business, is this indicative of a more steady state condition that's going to last this way, given the strong pull in chipsets?

That -- that's exactly the question we're pondering.

We think it's too early to presume that that channel will hang in at the higher level of what we've seen over the last several quarters.

I think it's better at this point -- more prudent to be prepared to assume that it will decrease, but if the demand ends up higher, obviously, we want to be prepared to supply it.

But at this point, I think it's the prudent way to go.

David Wong from Wachovia, please go ahead with your question.

Thanks.

A couple of clarifications of the legal stuff.

The arbitration, when you're talking about wanting to consolidate in Delaware, what is the impediment to this?

Does Nokia have to agree to it, or does the Delaware court have to take it on?

How is the decision made?

And, secondly, on the Santa Ana hit you said $0.03 to this year.

Is this something that fades by the end of this year because of work-arounds, or does it continue into next fiscal year?

With respect to the first question, what has occurred is we had a hearing in Delaware in the court there, and it was Judge Strine who first offered the possibility of combining the issues in the arbitration and the issues in the Delaware court.

We understood that Nokia was, at least initially, agreeable to that concept.

We proposed for the court and for Nokia a process by which we would, in fact, move all of the arbitration issues into the Delaware court for Judge Strine to decide along with the issues that are already before him.

There has now been some discussion in a subsequent hearing with Judge Strine and with Nokia, and we and Nokia are in further discussion now, and we will have to get back to Judge Strine by the 25th.

So ultimately, it will be the judge who decides, but we are trying to work with Nokia to see if they will agree to the process that we've proposed.

I'm not sure I followed the second question.

You were talking about the $0.03 hit to your EPS from the Santa Ana ruling.

That is for this current fiscal year, is that correct?

That is for fiscal -- we recorded the expense.

We're anticipating to record that expense in fiscal 2008.

I said approximately $0.01 was recorded in the fiscal first quarter, but that $0.01 was an increment over what we've previously had been estimating, and it covered the period of May 29, 2007 through December 30, 2007.

I just -- this is Don.

Just to clarify something I said -- I may have slightly misspoken.

The judge will decide, assuming that both parties are agreeable to moving the arbitration issues to the Delaware court, I suspect that if -- I don't suspect.

If both parties are not agreeable to that, then the judge will have to determine whether he will proceed with the issues in his court, and we will have to continue to -- with the arbitration, in which, in either case, we are certainly happy to do -- do it either way.

We just want to try to get to as quick a resolution as possible.

If I could also add -- if I could also add one point.

I think the point of your question was, if these royalties could continue into the next fiscal year, January '09 is when the sunset finishes.

So in the absolute worst case, it could continue for four more months.

Obviously, as I indicated to you earlier, we're working extremely hard to avoid that scenario, but the worst case that these royalties could extend to is four months after the end of the fiscal year this year.

That was my question.

Thank you very much.

Our final question comes from Avi Silver with Bear Stearns.

Please go ahead.

Hi.

Thank you.

First of all, congratulations on the Motorola deal.

I feel like I said that once, like 18 months ago.

But just a couple of questions.

First of all, on QCT, a spin-off, there's been a lot of noise recently in the market.

So just wondering where you stand on this, whether there's any event out there that's occurred in the last couple of months or so that have made you reconsider this in one way or another.

Second of all, I just want to clarify, on QCT margins, do the mid-20s guidance reflect basically your longer-term perspective, or it's more the combination of the price reduction, Broadcom payment, maybe some work-around in helping some customers and whatever other short-term issues?

And then one last one just on Delaware, is if you decide to move forward there on Friday -- and I hope you will -- would there be any material EPS benefit if you decide to stay and dismiss all or most of your other proceedings with Nokia?

Let me start with the spin-off.

This is Paul.

So I've said, I think, many times that it is a potential.

We have it as a path on the decision tree.

I hope also that you've seen through all of the litigation and the various back and forths and work-arounds and design-outs and all these things that when we set our minds on making sure that we have a path, we're very serious about it.

And so we continue to look seriously at the implications of a spin-off, and as I said before, there is some probability that we would make that decision.

But there is no -- no decision made right now.

Okay.

To be perfectly clear, that mid-20 percentile operating margin guidance was specific to our fiscal second quarter.

I just added some color, that 30% operating margin we've seen for two quarters, I think, is exceptional when you look across any number of semiconductor companies.

And I think 25% even looking across a family of companies is very respectable.

That was -- those were the context of my comments on that.

And, this is Don.

Obviously, with respect to the Delaware case, as I said, we are perfectly willing to -- we have already decided we are perfectly willing to move the arbitration issues before Judge Strine in Delaware.

We are negotiating what that would look like with Nokia.

And we expect resolution one way or the other of that issue by the 25th.

With respect to what it will portend at this point, I can't say.

Okay.

I know you're spending a lot of your incremental legal expense on Nokia, and obviously there are like 12 cases out there.

I'm not asking to update guidance, but just directionally, I mean, is it unreasonable to assume that there would be some sort of benefit given the amount that you're spending in all of the other cases if this were to happen?

Needless to say, if a certain number of proceedings were stayed, you can assume that there would be some -- some degree of lowering of some costs, but how to quantify that and whether to compare it to everything else going on, I think we can't say at this point.

And Dr.

Jacobs, that was our final question.

Do you have anything further you'd like to add today?

Yes.

I wanted to say thanks to everybody, because I have to say I was very happy to hear so many questions focused on our business as opposed to solely on the legal issues.

And I hope that's because you see that we're continuing to really focus and execute extremely well despite some of those impacts that we discussed earlier in terms of impact to EPS.

You know, I think we're doing a pretty good job of delivering some nice growth.

I think also I'm very happy about the way that the whole team has worked to mitigate any impacts of the litigation on our partners and customers.

So that's, I think, been very positive for us.

The other thing that I'm really happy about is for the 10th year in a row, we were put on the Fortune "Best Company To Work For" list and, in fact, we're in the top 10 at number 8 this year.

So I'm happy to see that employees see us as one of the best companies to work for.

It's also our goal to be the best Company to partner with and the best Company to invest in.

I just wanted to thank you for your support.

This concludes the QUALCOMM first quarter fiscal 2008 conference call.

You may now disconnect.