高通 (QCOM) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the QUALCOMM second 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 April 23rd, 2008.

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

International callers, please dial 706-645-9291.

The playback reservation number is 41658202.

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

Mr.

Gilbert, 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.

In addition, Don Rosenberg and Len Lauer will join the question-and-answer session.

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

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

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

We may make forward-looking statements relating to our expectations and 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 results to differ from these forward-looking statements.

I would mark our listeners to mark their calendars for QUALCOMM's Annual Analyst Day, which takes place in New York on November 13th of this year.

Now it is my pleasure to introduce QUALCOMM's CEO, Dr.

Paul Jacobs.

Thank you, John and good afternoon, everyone.

Let me begin by highlighting our second quarter financial results.

Another record quarter of shipments for both CDMA based chipsets and devices, enabled us again to deliver excellent results to our stockholders.

Revenues were up 17% year-over-year, and pro forma earnings per share were up 8% from the year ago quarter, but it is important to remember that this year's results do not include Nokia royalties.

I would like to thank our employees and partners, for continuing to execute and deliver the most innovative and highest quality products and solutions to consumers worldwide.

There has been recent concern surrounding the U.S.

economy.

While we can't predict the futures, QUALCOMM's business and geographically diversified, and a significant portion of our revenues are from international customers.

In other words, much of our growth is linked to global markets, and I am pleased to report that based on the current business outlook, we are raising fiscal 2008 revenue and earnings per share guidance.

We remain committed to returning capital to our stockholders, through our cash dividend and stock repurchase programs.

Our Board of Directors recently approved a 14% increase in our quarterly cash dividend, and a new $2 billion stock repurchase program.

We have now returned approximately $8.8 billion of capital to our stockholders since fiscal 2003.

There are many exciting developments in our business.

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

QCT delivered their 11th consecutive quarterly record for MSM volumes, as CDMA-based chip shipments were up 39% year-over-year, and we experienced strong year-over-year growth in both W-CDMA and CDMA2000 chipsets.

QCT achieved significant progress this past quarter on key growth initiatives, and continues to execute at a very high level.

Sanjay will provide more details later in the call.

In our QW&I segment, the BREW platform continues to expand worldwide, and drive mobile data services revenue for our partners.

The largest Russian CDMA operator, Sky Link, saw it's 2007 profits from data services grow to 35% of annual revenues, after launching BREW at the end of 2006.

Sky Link recently announced it will launch BREW services to over 30 regions in the Russian federation, and other eastern European regions.

I would also like to remind everyone, that the BREW 2008 Conference will be held May 28th through 30th in San Diego, we are anticipating an exciting conference showcasing the latest innovations in wireless applications and services.

We hope we will see you there.

In addition, Sprint recently launched the commercial launch of, recently announced the commercial launch of Q-Chat, Q-Chat push to talk service leverages the higher data speeds of EVDO Revision A, and provides sub-1-second call set up latency, providing an excellent user experience.

In March, Firethorn announced a strategic relationship with Citi Cards to enable City Card's members realtime easy and secure access to their account information, anytime, anywhere, on their wireless handset.

Four of the Top 10 banks in the U.S.

are now taking advantage of the Firethorn solution, and we are committed to working with leading operators and financial institutions, to grow the adoption of mobile banking.

Our MediaFLO USA business passed several key milestone this past quarter.

We are very pleased with the results of our bidding in the recent 700-megahertz auction.

In the E Block spectrum, or channel 56, we purchased key licenses on both the East and West Coast, representing 5 of the Top 7 economic area regions, doubling the amount of spectrum for MediaFLO USA's use in those strategic areas.

In addition, AT&T recently announced that Mobile TV with FLO will launch in May of this year, and MediaFLO is now available in 58 cities, finally including San Diego, and we will continue to work closely with both AT&T and Verizon to bring industry leading content and the highest quality Mobile TV experience to consumers nationwide.

In addition, at the National Associated Broadcasters Show last week, our media technology group, demonstrated the first-ever MediaFLO broadcast, to an in-vehicle entertainment system, highlighting the broad range of MediaFLO's business potential.

In the QUALCOMM MEMS Technologies division, our Mirasol reflective displays, continue to gain traction in the marketplace.

Cal-Comp Electronics has chosen the mirasol display, for mobile phones targeted for emerging markets, and Ventech announced it will incorporate mirasol displays into high-end smart phones, and together with Hisense, we announced the C108, the first handset utilizing the mirasol display.

That C108 is based on our single-chip QSC6010 chipset, and is scheduled to begin shipping to China, and other emerging markets in 2008.

Turning to the 3G CDMA market, increasing demand for mobile broadband is driving the growth of 3G CDMA based networks and subscribers around the world.

Data from the CDMA Development Group, and the GSM Association, indicates that more than 465 CDMA-based 3G networks have been launched as of April 2008.

This includes more than 95 operators deploying the higher speeds of 1X EVDO, including over 30 operators that have deployed EVDO Revision A.

In addition, more than 180 operators have launched high speed HSDPA networks, and more than 30 operators have deployed HSUPA.

According to wireless intelligence, worldwide 3G subscribers grew to approximately 625 million as of March 2008, an increase of approximately 36% from the year ago quarter.

By 2012, 3G subscribers are forecast to grow to 1.6 billion, representing an exciting opportunity ahead for our partners and us.

According to Strategy Analytics, CDMA-based handset shipments continue to outpace the competition, as they grew 26% year-over-year, compared to only 12% year-over-year growth across all technologies.

I would now like to update you on what is going on in some key regions around the world.

In the United States we continue to see operators generate significant revenues from their 3G data services.

Recently Verizon noted that their average data revenue per user in the fourth quarter of 2007 increased 36% year-over-year, and that approximately 74% of their retail customers are data users.

AT&T commented on it's earnings call yesterday that wireless data grew 57% year-over-year, and that data now represents 21.5% of total wireless service revenues.

And Sprint's fourth quarter data ARPU on the post-paid CDMA base, increased 21% from the year ago quarter.

In Europe, based on our estimated device shipments for the quarter ending December 2007.

W-CDMA shipments increased approximately 70% year-over-year.

According to Wireless Intelligence at the end of March, W-CDMA subscribers in western Europe, increased 98% year-over-year, compared to a 2% decline year-over-year in GSM subscribers.

In addition this past March, Vodafone noted that subscriber data consumption jumped four-fold in the past 12 months, and increases in mobile broadband usage are supported by over 100 HSPA networks across Europe, including more than 20 commercial HSUPA networks.

In Japan, strong migration to 3G continued, and as of January 2008, for the first time there were no longer any shipments of 2G phones.

As of March, 3G CDMA subscribers in Japan represent approximately 85% of the total cellular population.

South Korea continues to deliver robust growth as estimated device sales for the December quarter increased 24% year-over-year.

And in April, LGT launched it's nationwide EVDO Revision A service, under the brand name OZ.

OZ allows users to brows full webpages, offering a PC-like user interface, such as high resolution and wide screen, for a full mobile internet experience.

In addition, HSDPA subscribers continue to grow rapidly, and now represent over 20% of the 44 million Korean mobile subscribers.

The CDMA market in India continues to grow, as the appetite for data gains traction, and more operators adopt CDMA.

According to the Telecom Regulatory Authority of India, approximately 58 million users access the internet on their handsets by the end of December 2007, up 26% from the end of October 2007.

DSNL recently announced plans for a nationwide full mobility CDMA2000 network, and Sistema, in cooperation with Shyam Telecom, announced plans for a new pan-India CDMA2000 network.

The CDMA2000 subscriber base is currently 26% of the India wireless market.

CDMA net adds have been averaging 2 million per month.

Continue to drive India, innovation in the India market, as 12 new devices based on our single chip have already launched in 2008, including six BREW-enabled handsets.

Our Chinese partners continue to have success in the global marketplace, and we continue to work closely with them on many fronts.

China is a large and exciting opportunity for 3G growth, however we remain cautious on when 3G licenses will be awarded, and continue to exclude them from our 2008 forecast.

W-CDMA growth in Latin America continues to trend positively, with more than 20 operators having launched HSDPA, according to operator announcements.

In Brazil, as we have seen in other parts of the world, demand for HSDPA-enabled broadband service delivered by USB dongle is robust.

Before I close, I would like to touch briefly on the current state of our litigation with Nokia.

We are pleased with the consolidation in Delaware, and believe that this case will revolve many of the important issues between Nokia and us.

We are working hard to prepare for Phase 1 of the trial which begins in late July, and look forward to resolving these issues in the most expeditious manner possible.

In closing, we remain committed to our unique business model, and the benefits it provides to the industry, our partners, and consumers worldwide.

We will continue to make the significant investments in research and development required to drive competition and expand 3G, and next generation wireless technologies, beyond traditional products and services.

That concludes my comments.

I will now turn the call over to Steve Altman.

Thank you, Paul and good afternoon, everyone.

We had another strong quarter, as 3G device sales continue to grow rapidly, and consumers worldwide are taking advantage of the innovative and compelling products, services, and applications, enabled by CDMA-based technologies.

Subscribers continue to benefit from a vibrant and competitive market, providing a broad range of devices, from the very low end to fully-featured smart phones.

For example the GSMA recently noted that over 635 HSPA devices have been launched worldwide by 110 suppliers.

This represents a 150% year-over-year growth in devices available to consumers, and a 75% annual increase in the number of participating device manufacturers.

As the industry transitions around the world to 3G systems, the range of W-CDMA and CDMA2000 products and prices continue to broaden, including further reductions in pricing at the low end.

In fact, according to reports from our licensees, the lowest priced W-CDMA handsets sold in quantities of more than 50,000 in the December quarter, was less than $80, breaking the $100 price barrier for the first time at these volumes.

On the other hand, the average selling price of the bottom 10% of all CDMA2000 handsets remain well under $30.

As CDMA prices continues their decline, we expect they will continue to displace the lower end sales of GSM handsets, and we expect an increasing percentage of OEM R&D spending will continue to move away from GSM handsets, and towards developing new CDMA handsets and functionality.

As we have mentioned before, as the wireless industry and our success in it continues to expand, we remain faced with 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 matters.

In our continuing litigation with Broadcom, we filed our Appeal of the Santa Ana case on March 21 to the Federal Circuit, and although the Federal Circuit denied our motion for a stay, it granted our motion for an expedited schedule.

We expect that the Federal Circuit will hear oral argument on this matter in July of this year.

In addition, we filed a request for reexamination of Broadcom's 317 and O1O patents with the Patent and Trademark Office.

These were two of the patents litigated in the Santa Ana case.

The PTO has now issued first office actions for both of these patents, and has preliminarily rejected all of the claims asserted against us in both patents.

While there is more to come in the reexamination process, we are encouraged by these initial results, which support our position that these patents are invalid.

The ITC hearing began yesterday with respect to the enforcement action Broadcom instituted, relating to the cease and desist order issued by the ITC.

Broadcom is challenging the design around provided by QUALCOMM to its customers, as well as other activities, such as advertising certain of our MSMs on our external website.

We believe that we have fully complied with the ITC order.

The initial determination date by the Administrative Law Judge in the case is expected in July 2008, and a final determination date by the full ITC Commission is expected in November 2008.

With respect to each of the four Broadcom patents that we have been found to have infringed, we have either modified our chips and software to eliminate the activity found to be infringing, or we believe that we have a sufficient amount of time to provide our customers with design arounds to these patents.

Turning to Nokia, we believe that the consolidation of the arbitration of the case in Delaware will resolve many of the important disputes between Nokia and ourselves, in a quick and efficient manner.

In addition, QUALCOMM and Nokia have agreed to seek stays of all the existing patent infringement litigation between the companies, with the exception of the GSM cases in the ITC and U.K., through at least the completion of the Phase 1 of the Delaware case.

We believe this standstill is positive, as it will allow both companies to focus their full attention on many of the key 3G issues, including many of the FRAND-related issues between the parties.

The Delaware case will be tried in two phases, with Phase 1 beginning in July of this year.

While Judge Strine may elect to make additional modifications to Phase 1, we anticipate Phase 1 to be focused more on clarification, and setting of ground rules with respect to the party's rights and obligations, under ETSI's IPR policy, whether the 2001 license agreement discharged those obligations, and whether or not QUALCOMM may prove that Nokia extends it's license by electing to continue to ship products utilizing our intellectual property, leaving the question of whether the license was actually extended to later.

We anticipate that Phase 2 will be focused on remedies based on the outcome of Phase 1.

Although it is important to note that the parties and the Court have not had specific discussions regarding Phase 2.

We look forward to the start of Phase 1.

As I have stated before, we believe that QUALCOMM's compliance with our FRAND commitment to standards bodies worldwide, is demonstrated by our Open licensing policy, the success of our bilateral arms length negotiations with more than 150 licensees, the continuing success of those licensees, in selling products implementing both CDMA and W-CDMA, and the activities of others in the industry, including Nokia, when they are acting as licensors of their own patent portfolios.

It is unfortunate that Nokia and QUALCOMM have so far been unable to resolve our differences.

We remain committed to receiving fair value for our patent portfolio, as we have from the rest of the industry that has entered into agreements with us.

Although we continue to have settlement discussions with Nokia, we have made very little progress.

I have been asked many times when I think our dispute with Nokia will be resolved.

It is very difficult to know the timing, as it depends on so many different factors.

However I believe now, just as strongly as I believed in the past, that our dispute with Nokia will ultimately be resolved, in a way that recognizes the value of our intellectual property, and that Nokia will pay us for the continued use of our valuable patent portfolio.

That concludes my comments.

I will now turn the call over to Sanjay Jha.

Thank you, Steve.

The second fiscal quarter of 2008 was very successful for QCT, and I will share some highlights.

We shipped approximately 85 million MSM chipsets, which represents our 11th consecutive record quarter of shipments.

This is 8% higher than the previous quarter, and represents a growth of 39% over the same quarter last year.

QCT generated revenue of $1.62 billion in the second fiscal quarter of 2008.

This was our eighth consecutive quarter of record revenue, and represents growth of 29% year-over-year.

We can attribute much of this shipment growth, to the increased demand for our entry level products, which are destined for emerging markets.

Over the past quarter, we have experienced approximately 60% growth in the delivery of our single chip platform, that is targeted for this segment.

In the mature 3G markets, demand for high speed mobile broadband has continued to drive growth in shipments, for both our EVDO and HSDA data card chipsets.

One of the primary trends driving this growth, is the availability of flat rate data plans from more 3G operators, as greater numbers of users begin to rely on cellular data capabilities to stay connected.

We also experiencing healthy UMTS demand.

While quarter-over-quarter growth was seasonally flat, our overall shipment continues to grow at a rate of more than 2.5 times year-over-year.

RASP has held up better than our previous guidance of a 9% decline, coming in at approximately 4% decline, due to stronger demand in our enhanced multimedia tier.

This trend is expected to enable a consistent weighted ASP entering the current fiscal third quarter.

Depending on the mix of emerging and mature market shipment, we expect a moderate decline in weighted ASP in the fourth quarter.

Our operating profit margin of 26% in light of our continued investment to improve our leading technology position relative to our competitor, continues to be among the industry's highest operating profit.

We continue to invest into our CDMA2000 product line, meeting the industry demand for evolutions and enhancement to that technology path.

Our latest enhancements to CDMA2000 technology, will more than double the capacity of CDMA2000 1X.

By supporting more than twice the number of voice calls in a single channel, network operators can free up their spectrum to deploy addition data services, and maximize their investment into their CDMA2000 network.

This new capacity is supported by products ready for commercialization in 2010.

QTC's UMTS products continue to gain traction in the marketplace, and HSPA Plus is gathering support from numerous network operators.

Five major international operators have publicly announced their plans to trial HSPA Plus with us this year, and others expected to follow.

HSPA Plus provides operators with a seamless efficient upgrade, to dramatically improve the performance of their HSPA network, including MIMO capability, and maybe deploy commercially as early as next year.

This enables consumers experience of 28 megabits per second download, reduced latency, and longer battery life.

This past quarter we announced that QCT added LTE to our product roadmap, we anticipate that network operators who chose to deploy LTE, will need multimode 3G LTE devices for quite some time, and we have added chipsets supporting LTE and 3GP standard, as well as products supporting LTE and 3GPP2 standards to our portfolio.

We anticipate that we will first begin to see demand for LTE device solutions no earlier than 2010, and are planning to sample our multimode LTE chipsets in the second quarter of 2009.

Currently there are over 15 designed based on our Snapdragon platform for mobile computing, with the first scheduled to launch before the end of this calendar year.

We have also announced a new family at QUALCOMM SnapStar solution, also know as QSC solutions, which is targeted towards consumer electronics.

Complimenting our low power, high performance Snapdragon chipset, the QSC solution brings GPS, wireless connectivity, multimedia, and broadcast TV, to consumer oriented devices, such as personal navigation and mobile entertainment devices.

Mio Technology Corporation has already announced a connected PND based on QSC solutions, scheduled to launch this year.

We are seeing strong momentum for our Gobi solution, bringing embedded mobile internet to laptop computers.

To date, five major notebook OEMs have announced that they will use Gobi for numerous laptop models, and several leading network operators around the world, have certified Gobi technology on their network.

The first Gobi laptops are on-track to ship with the PC companies spring refresh platform, anticipated in the June timeframe.

All of our products introduced since 2006, have been in 65-nanometer, and the volumes are ramping rapidly.

In fact, we are responsible for approximately 40% of worldwide demand from the foundries by their fabless companies or IDMs.

Starting in June, we will accelerate the migration to 45-nanometer, and most of our tape outs will be in this technology.

To deliver on this migration, we are working with multiple foundries, to make sure we have capacity to meet customer upside.

Looking at the wireless semiconductor industry, we have long held the view that consolidation, especially in the UMTS marketplace is inevitable.

We are positioned well to compete in this changing market, with our technology leadership enabling a competitive product roadmap, time to market advantage, and broad customer base for our continued growth.

QTC's core business trends include a large number of customers, covering all geographic regions, and a strong segmented product portfolio covering all tiers.

We believe this customer geographic and product diversification is a good benefit to QCT, to QUALCOMM.

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.

I will begin with a few matters that are important to our results and our forward guidance.

First, we resolved our royalty payment dispute with Sony Ericsson, covering all current and future periods, and consistent with our prior guidance.

Second, we continue to exclude our estimate of royalties we believe Nokia is required to pay us.

Third, we are raising our estimates for fiscal 2008 revenue and earnings.

We expect operating earnings to grow at a greater rate than earnings per share, due to prevailing lower interest rates for cash and marketable securities investments.

Turning now to our second fiscal quarter results.

Year-over-year revenues increased 17%, operating income increased 9%, and pro forma earnings per share increased 8%.

QCT second quarter revenues increased 29% year-over-year, to more than $1.6 billion.

We shipped 85 million MSM units, a 39% increase year-over-year.

QCT's operating margin was a healthy 26%.

QTL earned record revenues of $795 million this quarter, and we estimate approximately 112 million new CDMA devices were shipped, with an average selling price of approximately $222 per unit.

QTL's operating margin increased to 86%.

Operating cash flow was approximately $950 million, pro forma free cash flow was $775 million, or 30% of revenues.

During the quarter we returned approximately $1.2 billion of capital to our shareholders, including $455 million of cash dividends, and $769 million to repurchase more than 20 million shares of our common stock.

Cash and marketable securities now total $10.6 billion, with $6.3 billion offshore, and $4.3 billion domestic.

Our pro forma estimated tax rate for fiscal 2008 is now 20%, compared to our prior estimate of 21%, reflecting our estimate of additional foreign earnings taxed at a lower rate for the fiscal year.

Turning to our guidance, we are raising our estimates for fiscal 2008 revenues, to between 10 and $10.4 billion, an increase of 13 to 17% over fiscal 2007.

We expect pro forma operating income to increase year-over-year between 5 and 10%.

We are also raising our estimates for fiscal 2008 pro forma earnings per share, to a range of $2.04 to $2.09, an increase of 1 to 4% year-over-year.

For the calendar 2007 CDMA market, we now estimate device shipments were approximately 382 million units.

At the outset of fiscal 2007, we estimated new CDMA device shipments of approximately 378 million units, a difference of only 4 million units.

For calendar year 2008, we are slightly adjusting our estimate for the CDMA based device market.

We now estimate shipments of approximately 488 to 518 million units in calendar 2008, an increase of 28 to 36% over our estimate for calendar 2007 shipments.

Based on the 503 million midpoint of this estimate for calendar 2008, we anticipate shipments of approximately 223 million CDMA2000 units, and approximately 280 million W-CDMA units.

The regional break down of this market estimate is available on our Investor Relations website.

As a reminder, we continue to exclude from our forecasts, the increase from expected 3G licenses in China.

We now estimate the average selling price for CDMA2000 and W-CDMA phones combined, will increase approximately 1% in fiscal 2008, to approximately $217 per unit.

This estimate is above our prior expectations, reflecting demand for more capable devices, and favorable exchange rates.

We expect the combination of pro forma R&D and SG&A expense for fiscal 2008 to increase approximately 19% year-over-year.

Driven by continued QCT investment in new chipset products and capabilities, as well as costs for patent applications.

We now anticipate a very significant year-over-year increase in U.S.

and international patent applications, including a large quantity of OFDM inventions and innovations.

We continue to budget in fiscal 2008 more than $300 million for defense of our business model, the majority of which are legal expenses.

Turning to our year-over-year guidance for the fiscal third quarter of 2008, we estimate revenue growth of approximately 8 to 16%, and pro forma earnings per share to be approximately $0.50 to $0.52.

This estimate includes shipment of approximately 85 to 88 million MSM chipsets during the third fiscal quarter, reflecting growth across multiple product segments, including EVDO and W-CDMA.

We continue to expect chip ASPs to modestly decrease over the second half of the year, moreso in the fourth fiscal quarter, due to anticipated mix changes across our broad range of chipset product offerings.

We estimate that approximately 105 to 109 million CDMA devices shipped in the March quarter, at an average selling price of approximately $223.

Our unit forecast reflects seasonally lower post-holiday shipments, though still a very healthy 22 to 27% increase, over the 86 million devices reported by licensees in the same period last year.

We expect the combination of pro forma R&D and SG&A expenses, to grow approximately 2% compared to the March quarter.

We believe total CDMA channel inventories, continue at the higher end of the historically normal band of 15 to 20 weeks.

The channel has been at the upper end of the historical band for over a year, and we continue to monitor closely.

Our forward guidance assumes a decrease in equivalent weeks of channel inventory, through the remainder of the this fiscal year.

In closing, we are pleased with our business execution, and the continued demand for third generation CDMA products and services around the globe.

That concludes my comments.

I will now turn the call back to John Gilbert.

Thank you, Bill.

As always, 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 now ready for questions.

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

Our first question is from James Faucette from Pacific Crest.

Please go ahead with your question.

Thanks very much.

Sanjay, I guess my questions are primarily to you.

It sounds like while chipset mix was a little better than you had expected in the March quarter, that you expect it to look pretty similar then for the June quarter, and then decline in the September quarter.

I am wondering how we should think about what the puts and takes are that are driving ASPs right now, and how much earnings we could see potentially on that ASP, and then my second question, I guess as part of that, I am just wondering when we should start to think about timing of contributions from incremental products, like Gobi, Snapdragon, and QSC?

Thank you very much.

Hi.

This is Sanjay Jha.

I think as you say this quarter we saw an increase in both low end emerging market chipset demand, but also we saw commensurate, not completely commensurate, our ASP was down 4%, but slightly higher than expected increase in our higher tier products, and we expect that similar mix, similar factors will prevail in the June quarter.

In the September quarter I think a couple of things may occur.

One of them is anticipated greater demand for low-end wideband-CDMA chips.

Part of the reason why we have been, we have invested heavily in the low-end MSM 6246 with an integrated RF-CMOS solution, as well as our QSC 6240, is to drive faster migration from GSM to CDMA.

We anticipate that will occur, but nonetheless that will have some impact on our overall ASP.

In terms of Gobi, we will see first devices launch in the June timeframe, but we expect the majority of the volume shipments, probably has minimal impact in this fiscal year, most of the financial implication of Gobi shipment actually comes in fiscal '09, because we will have only one quarter of shipment of a few models in this year.

And I guess just a follow up on that sense, Sanjay, is that when with you look at fiscal year '09, I mean, is there something we should be thinking about in like 5 to 7 million units a quarter, or could it be more substantial than that for Gobi?

We, as you know, 5 laptop manufacturers have adopted it, and most of them are thinking about using Gobi initially for their enterprise devices.

We of course are working diligently with them, to ensure we can deliver consumer grade laptops with Gobi embedded in them also.

So at this point I don't think we have clarity as to exactly what the shipment there will be.

But the traction has been very good so far.

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

Thanks.

A question for Bill on the guidance.

I know there are a lot of moving parts here, could you maybe walk us through the EPS change from Q2 to Q3, and how we should think about things like taxes, interest income, and Santa Ana-type charges?

Sure, Mike.

Q2 to Q3, I would look at it in this way.

I will give it to the midpoint of your $0.50 to $0.52, midpoint is obviously $0.51.

That would be a $0.03 decline from our Q2 actuals.

About $0.02 of that would be in the licensing business, as we expect a slightly lower volume of units to have shipped in the March quarter, compared to the December quarter.

The other $0.01 is split between expected increase in operating expenses, and then also as we lowered the tax rate expectation for the full year, we lowered it in the second fiscal quarter results, there was a bit of a Q1 impact that rolled into Q2, it was about a $0.005, interestingly that half penny would not have rounded the March results down to $0.53, it still would round to $0.54, but nonetheless, that $0.005 you won't see follow-through into Q3.

So $0.005 of tax, $0.005 of operating expenses, and about $0.02 of QTL.

Why don't I just give you a similar walk on how we are looking for the current outlook for the fiscal year '08, as compared to our prior estimate.

Previously the midpoint of our estimate was about $2.04 a share, and our current midpoint is $2.07.

There is about a $0.05 pick-up on the licensing business, from the stronger ASPs we now see.

There is about an $0.08 pick up in the chipset business from greater MSM volume, and a bit higher average pricing through the year.

And then there is about a $0.02 pick-up in the tax rate for the full year, and between the operating expenses that I mentioned, some increased R&D for the chip business, and increased expenses for us we think is a strong portfolio of new applications coming forward with that patents, it is about a $0.06 decrease from that.

That comes down to the operating income line.

Below operating income, we reduced our forecast for the full year about $0.06, again to this lower environment for interest rates.

So that maps to that $2.04 to $2.07 guidance for the full year.

Thanks.

That was very helpful in building our models.

If I could ask just one follow-up question, I saw you lowered your W-CDMA forecast slightly, and there were some worries of some inventory or slow down in western Europe.

Could you guys maybe discuss on anything you are seeing in inventory build more than others.

I know your inventory is kind of stable at the higher end of your range, are there any regions where you are seeing any inventory builds?

We did decrease W-CDMA Europe just modestly, 3 million units for the full year.

From a channel inventory perspective, our best information is that there is an uptick in W-CDMA channel inventory, CDMA2000 we think is going pretty much with our expectations.

Again it is that higher end of the channel, and of the average that we have seen over the past few years.

But it has hung in at that higher average for the good last year or more.

It could be inconsistent with what we have done in the past, we are assuming that that channel will decrease in equivalent weeks, over the remaining quarters here of fiscal 2008.

But we will see how that goes.

The other, we have put a lot of attention on to this forecast, given concerns from others and ourselves, is there an economic slowdown impact, and we carefully considered that, and I think we are being appropriately cautious with our forward guidance, nonetheless we feel pretty good about the guidance we are giving here today.

I would just remind people, we consistently build a reduction in replacement rate into our forward forecasts.

We ended '07 we think the replacement rates of total CDMA was around 6%, and you probably recall that we previously guided '08 we thought would come in around 43%.

So we have already baked in a reduction in the replacement rate, which is logically to the extent there is an impact, you would see it.

The other area that I think likely to see it in prepay for QUALCOMM CDMA technologies, we are not as exposed to prepay as some of the [sugi] technologies are, and where we are being successful CDMA into prepay, it is economies that I think are people are pretty optimistic about.

So all-in-all, we are being cautious, we are being careful, but all-in-all, we have a good plan ahead of us.

Tim Long from Banc of America, please go ahead.

Bill probably another one for you.

Could you talk a little bit about the royalty rate, and kind of any puts and takes in the quarter from a straight calculated basis, looked like it was down again for the second or third quarter in a row, just curious how Sony Ericsson plays into that, and if Sony Ericsson resolved just a straight calculation, would that mean we are going to see an uptick in the calculated royalty rate for June, or would other mix effects, or any other color you could give there, that would be great.

Thank you.

Sure, Tim.

We continue to see a lot of factors that come into the royalty rates, based on the information that we put out, not the least of which is that Nokia is not reporting royalties to us today.

So I think that is a not small factor, as well as quarter to quarter we get ups and downs based on the audits the we perform of our licensees.

So that drives a little variability into it.

A little color on the Sony Ericsson.

We previously said we thought the Sony Ericsson impact on our royalty rates, had they been paying us the rate we thought they should have been paying, would have been in the range of between 5 and 25 basis points.

And based on our settlement looking forward, that prior guidance is still good.

So it is that kind of impact specifically on Sony Ericsson.

Okay.

Just to be clear, that would mean we would see that in the March quarter calculated above the December quarter.

Is that when we would see the 5 to 25% basis point impact?

Yes, right.

All else equal you would, of course that depends on the relative volumes and ASPs that Sony Ericsson is shipping, relative to other licensees.

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

Thanks so much.

Congratulations on the March quarter numbers.

Bill, could you just clarify regionally in tweaking the W-CDMA global number from 284 to 280, where was the difference there?

I think you said it was somewhat seasonally slower.

Was it western Europe?

Could you give any color there, and I was also wondering it looked like your R&D was up 9%, and sequentially higher than what you had guided.

What were some of the factors that contributed to that, and then it looked like your inventory on hand was also up a little bit.

If you have any color on how you would expect that to trend going forward?

And I have a follow-up.

Okay.

Tim, on the W-CDMA 4 million unit adjustment in our forward guidance for the year, that was 3 million for western Europe W-CDMA.

So predominantly western Europe, we all saw a little softness being reported in the recent quarter here.

On the R&D, we are continuing to grow our resources so I have been, we have been expecting a steady increase in our R&D expenses, and thus far I think we are quite pleased with the programs we have got ahead of us, and quite a wide range of products and platforms that we are going after there.

So actually I think R&D year-to-date is performing pretty closely to our original plan.

And then on the inventory, we are increasing inventory in the QCT business.

We are moving toward the model where we hold more with product at our fab partners, which we expect is going to improve our delivery performance to our customers, and overall reduce the total cost between us and our fab partners.

With respect to the interest income it went from 160 million down to 80, should we be thinking that's will sort of lower than that in the 60 to 70 range going forward, or any color there would be very helpful.

And then with the ASPs, we seem to go up sharply in terms of the guidance from 203 to 217, how much of that is the currency, and how much is the impact?

Lastly, just for Steve.

I was wondering what's Phase 2 of the process litigation in Delaware, is that something that you would expect to begin in calendar '08?

ASP it is less so currency, because as you are aware, each licensees rate resets each quarter end.

So less so currency, moreso I think the increasing demand for more functionality in the devices.

Steve.

Don, you can elaborate.

Yes.

If you would like.

Sure, Steve.

Tim, this is Don Rosenberg.

We can't predict whether Phase 2 will begin in '08.

As things are scheduled now, the Phase 1 hearing is supposed to take place in July, there is a lot of discovery and back end motions going back and forth.

If that were to occur in July, the likelihood of by chance us trying deciding issues of Phase 1 reasonably soon after that, I think by the fall is probably high, and so yes, Phase 2 could begin in '08 certainly.

But at this point I think we are just focusing on the start of Phase 1 at the end of July.

Matthew Hoffman from Cowen and Company.

Please go ahead with your question.

Yes, a question for Bill you made a comment about expecting to see inventory reduced as the year goes on.

Is that in anticipation of more conservative behavior by the handset OEMs in a softer macro environment, or do you think it is a result of OEMs carrying less inventory in a more settled legal environment?

It is really based, Matt, on other, going back a little bit more than a year, 15 to 20 weeks was the true band and inventory we saw average more in the middle of that band, and then in the last year or so, we have seen it uptick to consistently be closer to the high end of the band.

So I am hesitant to assume that that is going to be a fact of life going forward, and we don't want to be surprised by that channel decreasing.

Every OEM, everybody in the channel wants to hold less inventory, so I expect that is just a natural drop.

And the question is, is the greater diversity, the greater range of product that is available to consumers is that going to put pressure to hold more in the channel.

The question is, are we going to be wrong here, and there is going to be an uptick here, because the channel will continue the at the higher end.

Okay.

And second question for you here on linearity, monthly linearity in the calendar first quarter, did you see any legals, in terms of the demand from the OEMs, January, February March, and then as we extend into April, do things look like they are keeping pace or have you seen some change there?

Thanks.

Matt, this is Sanjay.

In the first quarter you would recall that we had a little bit of shortage of some components.

And there is generally some level of double ordering that goes on as a result of that.

But other than that, as I look forward to our demand profile, I see no significant difference, in terms of the forward-looking demand right now.

So as you saw, we guided to 85 to 88 million chipsets.

So we see a slight uptick in our demand for this quarter.

Mark McKechnie from Am Tech.

Please go ahead with your question.

Great.

Thank you.

I appreciate it, and Congrats on a solid quarter.

Probably these are for Sanjay, again on the 85 to 88 million units, it looks like a pretty good number.

I think you hit on the linearity.

Can you give us a sense for maybe, I think you can tell us on the mix between CDMA 1 and wideband-CDMA going forward.

Is there maybe one when that cutover might be, when you are equal in units on both?

Mark, we are seeing pretty good uptick in demand from emerging marketplaces in CDMA2000, and that strength continues to next quarter.

We are seeing pretty good demand for DO Revision A, DO and DO Revision A, and wideband-CDMA our expectation is quarter-over-quarter increase in wideband-CDMA shipments.

I think though as I mentioned that we are now beginning to see within that wideband-CDMA segment, a little greater growth in the low end of wideband-CDMA.

We of course have been leaders in the low-end, because we want to cause migration from GSM to wideband-CDMA, so we see that as a positive, but nonetheless it does have an impact on our ASP.

We see the 7000 series increasing in volume.

We are pretty happy about that, because that is the first time that we are able to address the application processor market, because we don't have a standalone application processor, the 7000 enables us to capture higher ASP in the handsets.

The balance of all of this in third quarter is that we see roughly flat ASP, but our guidance right now for fourth quarter is that we would see a sequential market decline in fourth quarter, relative to third quarter in ASP.

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

Hi, thanks.

In terms of absolute chipsets units relative to the industry handsets shipped, it looks like your strength there assumes that the market share gains are higher levels of inventory.

Is that the right way to think about it, and can you help us distinguish between the two, and then secondly for Bill, onshore versus offshore cash, can you just give us a sense of that, and given the lower interest rate environment, what you intend to do with your cash given the strong cash flow and your balance there?

Thanks.

In terms of market share gain, or inventory increase, I think if you look at the GSM shipments declining, and more CDMA shipments, and I think that increases our total available addressable marketplace, and within that I think that in wideband-CDMA, we have increased our market share over the last couple of quarters.

So I think that there is certainly an increase of our market within the whole wireless semiconductor space.

In terms of whether the inventory has gone up, our view as Bill talked in some detail, is that inventory has been at the high end, and while there is a slight increase in inventory in wideband-CDMA, we don't see CDMA or wideband-CDMA inventory as being abnormal right now.

On the cash, we have a little over $10 billion total cash, approximately 6 billion of that is offshore, 4 billion onshore.

So up until last quarter, we have been for some period of time here going back the majority of our cash was onshore, less so offshore, now we have swung that.

Primarily because of the significant stock repurchases that we have implemented over the last year.

In terms of the lower interest rate environment, I mean that factors into our equation for land, and to what degree we make a stock repurchases, that is specific to the domestic cash.

On the offshore cash, we are continuing to work to look for investment opportunities to get that back into the business.

Brian Modoff from Deutsche Bank.

Please go ahead with your question.

Yes.

A couple of questions.

Sanjay, can you talk about the competitive environment we have seen Broadcom back off on their view of when they get their market share, not giving a timeframe anymore, but we also had Infineon this morning talking about gaining some design wins with the Korean vendors.

Can you talk about what you are seeing out there competitively, and when we might expect to see some new advances out of QUALCOMM on the process side?

Thanks.

Brian, I think clearly there was a significant event in the competitive landscape, with the consolidation of the wireless business of STMicro and NXP.

We have long held that there will be consolidation, and we see that as the first in many such moves potentially.

If I look at my competitors, I think at the moment EMP, Infineon, and Freescale, and of course ST/NXP, would be some of the main competitors, and of course TI working with Nokia and EMP, are some of the main competitors.

I would say that Infineon is certainly performing well in the marketplace today with their solution.

But I think as we migrate to HSPA Plus and 65-nanometer integrated solutions, as well as migrate our roadmap to 45-nanometers starting June this year we will do no more 65-nanometer.

Virtually everything that we tape out except second sourcing and so on and so forth, would be in 45-nanometer, we are already heavily engaged in 32- and 28-nanometer development.

I think that we have an opportunities to continue to keep our leadership there.

It is for some period of time likely to be a very, very competitive marketplace in the wireless semiconductor space, and that I think will force some consolidation in next two years.

Ehud Gelblum from JPMorgan, please go ahead with your question.

Hi, thank you very much.

You used to give out a number that was a percent of your royalty income that was of 3G.

I was wondering if you can give us a sense as to what that may look like, even if it is relatively speaking vis-a-vis the prior quarter, and then if you could, Bill you mentioned that foreign exchange was not, didn't have much of an impact on QTL ASPs, I am wondering if you can quantify any impact at all, so we can take that out and look at that?

Then on chip ASPs, Sanjay, you went into the quarter thinking it would be down 9%, and it ended up being down barely 3%.

If you can elaborate on the types of the mix shift within your chips, I assume you are selling more.

Is it that the 7000s selling more than you expected?

If so how can that really change things going forward, and should we look at ASP, I know you gave guidance at the end of year of them coming back down again.

Can we look at the 7000s perhaps getting bigger in fiscal '09, and then I believe a follow-up for either Don or Steve.

Bill.

On the 3G, versus third generation for the CDMA 2G, we stopped giving that simply because it is all 3G today.

The amount of the old CDMA 1 that ships anymore is just basically nonexistent.

On the FX side, there is a positive FX benefit.

I think it is less so relative to in comparison to the demand for more feature-capable devices.

FX gets somewhat muted to us, because the rate our licensee pays, every license gets reset every quarter.

So that somewhat keeps down that from being too large of a benefit for us.

Sanjay.

I think that there is, I won't be exact here because I don't remember the number, but something like 7X difference in our ASP between the ratio between the lowest end chipset, enabling sub-$30 handset in India, and the 7000 series chip that is enabling Smart Phone in mature marketplaces.

And my expectation going forward is that that 6010 QSC6010, which is driving growth of CDMA in India, southeast Asia, will continue to be pretty strong.

The demand there will continue to be pretty strong, and then as I said earlier, we will also see the single chip, the UMTX solution, the QSC6240 now beginning to ship, so that will impact our mix.

At the same time of course offsetting that is that 7000 series enhanced multimedia tier devices , are also strengthening, have higher volume shipment with HSDPA, HSUPA, and DO Revision A devices giving us higher ASP.

The mix therefore we see at least in fourth quarter, depending on what happens in some of the mature marketplaces, the mix, I think could be such that we would see, we could see a modest decline in our ASP

All right.

I want to come back mentioned the royalty rate break out between 3G, sorry I misunderstood.

I was, you were probably asking, I was interpreting the old 2G CDMA from 3G CDMA2000, and I think you were referring to the W-CDMA versus CDMA2000.

We stopped breaking that out, simply because we are seeing more and more multimode, and so it is getting to be more difficult to decide is it a CDMA2000 or is it a W-CDMA device, as well as we have got these devices selling into the 2G market.

So we didn't think we could that meaningfully pinpoint that number going forward.

Your final question comes from the line of Tal Liani, Merrill Lynch.

Please go ahead with your question.

Thank you very much.

I have two questions.

First one is, what are the drivers for the changes in ASPs you first predicted the year to be 203, and now you are changing it to 217.

So is it geographical mix, is it high-end versus low-end handsets, what is driving the change in your estimate?

Second question related to it, is your guidance, you are giving implied guidance for fourth quarter, because you basically gave full-year minus third quarter gives you the fourth quarter.

I am very surprised to see EPS goes down from $0.52 to $0.49 in the fourth quarter.

This is the first time we don't have Nokia on both sides.

And we should see acceleration kind of conceptually, acceleration of growth rates and acceleration of profitability growth rate just because of that, and we are seeing deceleration when it comes to year-over-year numbers.

Also as you go through the year, there is kind of seasonalities helping you to improve the numbers and profitability.

So I am wondering why are you so conservative with the implied fourth quarter EPS estimate?

Thanks.

It is Bill.

I will give a shot here.

In terms of first one, change on the ASP drivers, regional mixes is a significant omen of that, because the delta in ASP from one region to another is quite significant.

Thus far, our regional estimates have been, we haven't seen a great deviation in what we are expecting for the full year, as to where we started at the outset of the year.

It can be a big driver but it is not a significant element in this changed ASP forecast we are giving you now.

It drive, it really goes more to that we think we are seeing a higher, greater, a greater demand for more feature-rich handsets, Smart Phones, is just I think one significant example there.

So operators are getting more and better continued experiences with data ARPU, obviously the consumers are widely demanding these data services, and that just leads to a natural occurrence of more feature-capable phones.

On the fourth quarter guidance, just I would first point out that as I explained earlier, that our operating income for the year is up quite a bit more than what is our net earnings forecast, and that is because we have brought down our guidance for what we will earn in our cash and marketable securities portfolio.

So that alone looking fourth quarter last year to fourth quarter of this year, is in the range of about $0.04 a share.

The licensing business we expect to be up fourth quarter last year to fourth quarter of this year, as you pointed out, last year didn't have Nokia, and we are assuming right now that we won't be reporting Nokia in this fourth fiscal quarter.

The chip business earnings year-over-year at this point I expect to be relatively flat.

At this point, we are expecting a mix shift in the fourth quarter as Sanjay mentioned.

And as I pointed out we are going to see quarterly swings in QCT's revenue per MSM and Op margin, simply because we are such a wide range of products available for our customers, and as the mix in one quarter changes to another, we are going to see those swings.

But overall, I think the trend there is positive.

Lastly I would just point out we made a few acquisitions, that are driving some earnings dilution on a year-over-year basis.

That is how I would look at it.

And of course we are continuing to increase our R&D investments.

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

Dr.

Jacobs, do you have any final comments you would like to make today?

Yes.

I would like to say that we are pleased with how well the business is running, and how it is very diversified geographically.

These strong results give us a lot of flexibility, so we are able to return cash to shareholders, but at the same time invest significantly in the business, and as you heard we are investing strongly in R&D, and in filing new patents, and we are very encouraged by the traction that we are seeing for a lot of our past initiatives, that we are now seeing come to market, like Snapdragon and Gobi and Q-Chat and Mirasol, and all of these kinds of things that we have been working on, and then obviously we are driving the 3G roadmap very hard.

But we also have exciting new technologies in the OFDMA space.

Then we are doing other things, for example, buying spectrum from MediaFLO, there are other new wireless technologies that might follow a similar sort of roadmap, so a lot of opportunities for us.

A lot of flexibility for us.

I think in the end of the day, it just comes back to what I have been saying for a long time.

It is really about focus and execution.

We are seeing a lot of expanding opportunities, and we are glad to be in a market where the operators and customers are adopting wireless broadband worldwide.

So thanks everybody for being with us.

We will talk to you again soon.

This concludes the QUALCOMM's second quarter 2008 earnings call.

You may now disconnect.