高通 (QCOM) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Qualcomm third-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 July 24, 2008.

The playback number for today's call is 1-800-642-1687.

International callers please die 1-706-645-9291.

The playback reservation number is 57610454.

I would now like to turn the call over to Mr.

John Gilbert, Vice President of Investor and Industry Analysts Relations.

Thank you and good morning.

Today's call will include prepared remarks by Dr.

Paul Jacobs, Steve Altman, Dr.

Sanjay Jha, and Bill Keitel.

Don Rosenberg will also join the question-and-answer session.

Due to previously scheduled business travel, several of our executives are off-site and will be dialing into today's call.

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 website.

I would also direct you to our earnings release, which was provided yesterday and furnished with the SEC today, as well as our guidance announcement released this morning, both of which are available on our website.

We may make forward-looking statements relating to our expectations and other future events that may differ materially from Qualcomm's actual results.

Please review our SEC filings for a detailed presentation of each of our businesses and associated risks and other important factors that may cause our actual results to differ from these forward-looking statements.

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

Paul Jacobs.

Thank you, John, and good morning, everyone.

Sorry about the confusion on the earnings call yesterday.

We were obviously hoping to get the earnings release and various press releases to you earlier.

But I suspect that everyone on the call now understands why we were delayed, which was we reached a settlement agreement with Nokia and we are quite pleased with the deal.

Now, we are still assessing the accounting treatment of the settlement.

As usual, we will give you our best view today, and we will update you as we progress through the quarter if there are any significant changes.

This settlement was the result of a tremendous amount of effort by a large team of people, including internal and external counsel, and I would very much like to thank them.

There are many positive aspects of the settlement agreement, and Steve Altman will cover those details later in the call.

Unfortunately, we are constrained by a confidentiality agreement with Nokia which does limit the amount that we can currently disclose regarding the specific terms of the deal.

Turning to the business, I just wanted to start by saying we have added two senior leaders from our QCT business, Jim Lederer and Steve Mollenkopf, to our executive committee.

Jim and Steve have played critical roles in QCT's success and we all look forward to their continued contributions serving on the executive committee.

I would like to now highlight our third-quarter financial results.

Another strong quarter of 3G adoption, including another record quarter of MSM shipments, enabled us to again deliver excellent results for our stockholders.

We delivered record revenues, up 19% year-over-year, and pro forma earnings per share were at the high end of our prior estimates.

It is also important to remember that this year's results do not include the Nokia royalties.

Worldwide demand for 3G continues at a rapid pace, and for calendar year 2008, we continued to see approximately 30% year-over-year growth for CDMA-based device shipments.

The fundamental drivers of our business remains strong, and we are raising our fiscal 2008 revenue and earnings per share estimates.

There are many exciting developments in our business, and I would like to now highlight some of the key achievements.

QCT delivered its 12th consecutive quarterly record for MSM shipment volumes, as shipments of CDMA-based chipsets were up 32% year-over-year.

QCT continues its leadership position in execution and innovation, providing a competitive advantage to our partners by delivering the highest quality, most advanced products and services in the marketplace.

Sanjay will provide you with more details later in the call.

Our licensing business continues to fuel innovation, competition, and growth.

Consumers benefit from the significant number of device options, ranging from feature-rich Smart phones to entry-level handsets.

The expanded worldwide marketplace, enabled by our broad licensing program, continues to drive down the price of CDMA-based devices.

For example, according to reports from our licensees, the lowest priced WCDMA handsets sold in quantities of more than 50,000 in the March quarter were less than $70, a 50% reduction from the year-ago quarter.

We are also continuing to see low-end CDMA 2000 handsets at $20 price points.

Building on our collaborative efforts to bring compelling solutions to market, at our BREW conference in May, we announced our BREW mobile platform.

This platform integrates Adobe flash technology that will help accelerate the development of rich flash-based applications, user interfaces, and Internet content in mass-market devices.

Additionally we announced Plaza, an integrated wireless service platform with a common framework for the development and support of widgets, that will allow operators and developers to produce and distribute Internet-based content plus all networks and devices quickly and easily.

Our MediaFLO USA business reached another key milestone this past quarter when AT&T launched AT&T Mobile TV service using FLO.

We are very pleased that both Verizon and AT&T have commercially launched the FLO TV service, providing more consumers with the opportunity to enjoy mobile television.

We have now aired more than 3000 hours of sports and over 1000 events, including five days of US Open golf coverage and over 100 hours from Wimbledon.

We continue to execute with our content partners to bring world-class programming to mobile TV subscribers, including recently announced coverage of the upcoming X Games and complete coverage of the 2008 Olympic Games in Beijing.

Internationally, our MediaFLO technologies team is working on opportunities in Europe, Asia, and Latin America.

We recently demonstrated the capability to support MediaFLO and the ISDB-T mobile TV standards on a multimode handset using our Universal broadcast modem chip.

Universal broadcast modems support three of the world's leading mobile TV standards in one chipset, providing device manufacturers and operators the flexibility to drive mobile TV adoption.

We were honored to be elected to the Broadcast Mobile Convergence Forums governing board and we share the Forum's views on fostering innovation in a technology-neutral market environment for promoting mobile broadcast services.

Qualcomm's MEMS division reached an important milestone this past quarter when they demonstrated the first IMOD color mirasol display, marking another step towards bringing mirasol displays into mainstream mobile devices.

Together with Foxlink, we announced our plans to bring a new dedicated fabrication plant to manufacture our next-generation mirasol displays, providing us the ability to deliver a wider variety of products in a more flexible and cost-efficient manner.

The worldwide 3G market continues to grow rapidly, driven by increasing demand for mobile broadband services.

Network operators continue to build out their advanced 3G networks to support this demand, as well as future innovative applications and services.

Data points from the CDG and GSA indicate that approximately 480 CDMA-based 3G networks have been launched as of June, 2008, including more than 95 operators deploying the higher speeds of 1x EV-DO and over 40 operators that have deployed EV-DO Revision A.

In addition, more than 205 operators have launched high-speed HSDPA networks and more than 50 operators have deployed HSUPA.

The wide variety of competitively-priced feature-rich devices continues to expand.

Our partners have introduced exciting new devices with innovative features such as touchscreen, location-based services, and mobile TV.

According to the CDG and GSA, over 500 1x EV-DO and over 60 1x EV-DO Revision A devices have been introduced into the market, and over 600 HSDPA devices and over 60 HSUPA devices have been launched.

Leveraging the broad 3G network coverage deployments and the wide range of devices in the market, operators continue to offer competitive data pricing plans, such as flat rate pricing and prepaid data packages, further stimulating growth in this dynamic marketplace.

The latest subscriber numbers by Wireless Intelligence support this, as worldwide 3G subscribers grew to approximately 670 million in June 2008, an increase of approximately 38% from the year-ago quarter.

In addition, Strategy Analytics estimates that CDMA-based handset unit shipments grew 26% year over year compared to 14% growth across all technologies, with just 10% growth for GSM.

Turning to some regional updates, in the United States, operators continued to generate significant revenues from their 3G data services.

In their first-quarter results, Verizon Wireless said its data revenue grew nearly 49% year-over-year and that wireless data revenue now represents 23% of total service revenues.

AT&T reported that wireless data revenues grew 52% from the year-ago quarter and noted strong year-over-year growth in several data services, including wireless Internet and multimedia messaging.

Sprint noted its data revenues have grown 19% from the year-ago quarter and that data revenues account for over 20% of the average revenue per subscriber.

In Europe, based on our estimated device shipments, for the quarter ending March, 2008, WCDMA shipments increased approximately 38% year-over-year.

Wireless Intelligence reported that as of June end, WCDMA subscribers in Western Europe increased 92% year-over-year compared to a 5% year-over-year decline in GSM subscribers.

We continue to see the benefits of 3G networks in the results of our operator partners.

Vodafone reported a 31% year-over-year increase in data revenues in Europe and noted that 3G devices have now reached 24% of their European customer base.

O2 reported a 56% increase in non-messaging data revenues and Telefonica Spain reported a 56% increase in data connectivity revenues.

In addition, T-Mobile UK reported that data traffic had exceeded voice traffic for the first time.

Turning to Asia, solid growth in Korea is being driven by continued technology competition and the removal of the handset subsidy ban.

Korean HSDPA subscribers continue to grow rapidly and now represent over 27% of total mobile subscribers.

In Japan, 3G subscribers as of June represent approximately 87% of the total cellular population.

3G adoption is robust in Southeast Asia, as CDMA subscribers increased 84% from the year-ago quarter.

In another example of 3G benefiting our partners, Telstra recently commented that its 3G services are generating $20 more monthly revenue per customer as compared to their 2G services.

In China, we're looking forward to the completion of the telecom industry restructuring and the issuing of 3G licenses, which we anticipate will enable a very competitive marketplace.

We continue to work closely with our partners in the industry to bring the benefits of CDMA-based technologies to this market.

While we are optimistic about the opportunities for 3G growth in China, we remain cautious on when 3G licenses will be awarded and continue to exclude them from our 2008 device forecast.

India remains one of the fastest-growing wireless markets in the world with CDMA 2000 and continuing to add more than 2 million subscribers per month.

CDMA 2000 operators continue to differentiate themselves in the marketplace with compelling services, including EV-DO from BSNL and Tata announcing its intent to deploy assisted GPS services.

CDMA subscribers represent 26% of the total India wireless market.

WCDMA adoption in Latin America continues to grow as competition increases.

According to operator announcements, there are now 26 HSDPA networks launched, a 30% increase from our last quarter.

So the mobile broadband market is as vibrant and competitive as ever, being driven by a vast number of industry participants, providing consumers compelling devices and services at affordable price points.

There are many opportunities ahead of us, and we will continue to make significant investments in research and development to drive competition and expand 3G and next-generation wireless technologies.

That concludes my remarks, and now, what you've all been waiting for.

I will turn the call over to Steve Altman to give you some details on the Nokia settlement.

Thank you.

Thanks, Paul.

As I'm sure you saw in the press release issued last night, we are pleased to report that we have settled all of our litigation with Nokia and that Nokia has agreed to withdraw its complaint to the EC.

In connection with the settlement, we and Nokia have entered into a new 15-year agreement that continues until 2022.

Under this new agreement, Nokia has been granted a license under all of our patents for use in their mobile devices and infrastructure equipment.

In exchange, not only will Nokia pay us a very substantial upfront payment, but through the term of this agreement it will also pay us ongoing royalties on all of its mobile devices that it sells, whether those devices are based on CDMA standards, including WCDMA, CDMA 2000, and PDS CDMA, or whether their mobile devices are based on OFDMA standards, including WiMAX and LTE.

Nokia has also agreed not to assert any of its patents against us, enabling us to integrate Nokia's technology into our chipsets.

In addition, Nokia has agreed to assign ownership of a significant number of Nokia's patents to us, many of which Nokia has declared as being essential to OFDMA, GSM, and WCDMA.

Months ago, we announced that we had signed our first Tier 1 manufacturer to a royalty-bearing license covering single mode OFDMA, including LTE and WiMAX subscriber equipment.

We are very pleased to now have Nokia, the world's largest handset manufacturer, sign up to a single-mode OFDMA royalty-bearing subscriber license as part of this new license agreement.

We believe that this demonstrates what we have publicly said regarding our OFDMA patent portfolio and its substantial value.

I am delighted with this outcome.

We believe that this is a very positive agreement for Qualcomm and for Nokia and will open up opportunities for the companies to work together in a number of areas.

Due to the confidentiality agreement with Nokia, we will not be able to provide any more detail on the terms of these transactions.

In a few minutes, I will turn the call over -- actually right now, I will turn the call over to Bill Keitel, who will give some color on the financial impact of these transactions and what they mean for Qualcomm going forward.

Steve, this is Sanjay.

I will follow you and Bill will follow me.

Good morning.

QCT continued our track record of strong execution in the third quarter, and I would like to highlight the results.

We shipped approximately 86 million chipsets, which represents our 12th consecutive record quarter of shipment.

This is 32% higher than the same quarter last year.

QCT generated revenues of $1.76 billion in third fiscal quarter of 2008.

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

In the past few quarters, we have attributed our growth in shipments to entry tier products destined for emerging markets.

In the third quarter of fiscal 2008, an increase in demand for high-speed data-capable chipsets intended for advanced wireless devices drove [our] growth.

EV-DO shipments increased 16% quarter over quarter, and QCT's single-chip EV-DO devices started to ship in volume quantities and contributed to the growth during the fiscal third quarter.

The QSC 6075's unmatched level of integration enables each of its wireless devices to reach price points suitable for mass market.

UMTS shipments increased 27% from fiscal second quarter.

QCT shipped a record quantity of UMTS chipsets last quarter, and we believe we continue to gain market share in the UMTS chipset market.

Our ASPs increased by 7.5% quarter over quarter due to product mix shift to a higher end.

Demand for 7000 series convergence platform chipsets increased as the market for both EV-DO and UMTS Smart phones grew.

QCT supports a full spectrum of low-, medium-, and high-tier Smart phones with 7000 series family of chipsets.

We expect that stronger demand for these feature-rich chipsets will continue in mature wireless markets and enable QCT to maintain flat to moderately lower weighted ASP going forward.

QCT delivered record operating profit of $487 million in fiscal third quarter.

This represents a year-on-year increase of 11% and quarter-over-quarter increase of 14%.

We are delivering record profits, while continuing our R&D investment, which in turn enables our leading technology position relative to our competitor.

Looking forward, we are tracking some important market developments that are potentially significant.

In China, with China Telecom's commitment to CDMA 2000, we anticipate upside for entry-tier products as carriers migrate subscribers from older, less spectrally efficient technologies, to CDMA 2000.

Likewise, if the Chinese government issues 3G licensing guidelines, we expect a ramp in shipment of EV-DO and UMTS chipsets in China.

Globally, many UMTS carriers use HSPA+ and LTE evolution paths as more economical than alternatives such as WiMAX, and we remain on track to support the carriers with our announced plan to trial HSDPA+ in calendar 2008.

QCT has successfully sampled MDM 8200, our first HSPA+ chipset, and we are now making data calls of up to 20 Mb per second.

We have begun interoperability testing with major 3G manufacturer infrastructure vendors, using MDM 8200-based data cards.

This will be followed by testing with other major infrastructure vendors in coming weeks.

Given that many key milestones have been achieved, we believe that the first commercial HSPA+ system may be deployed in late calendar 2008 or early 2009.

QCT also continues to invest for leadership in LTE, as we anticipate that it will be the predominant 4G technology selected by carriers worldwide.

We remain on track to sample our multimode, standard compliance 3G LTE chipset in second quarter of calendar 2009.

QCT is well-positioned to address the growing demand from carriers to enterprise customers and notebook OEMs for mobile broadband solutions.

Currently, data cards and USB modem satisfy most requirements in this market, and QCT enjoys a strong position with these products.

We expect that demand will grow for embedded mobile broadband solution in calendar 2009, and QCT is well-positioned with our Gobi offering.

Momentum for Gobi remains strong as several additional carriers have certified the module for their network, and the first laptop is shipping into the channels now.

TCP is engaged with more than 20 leading OEMs that are designing over 30 new devices based on our Snapdragon and QST platforms.

We expect QST-enabled connected personal navigation devices to launch by the end of this calendar year, as previously announced.

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 morning, everyone.

I will begin with a couple matters important to our results and forward guidance.

First, our fiscal third-quarter results do not include any impact related to the new Nokia agreement.

We have provided a preliminary estimate of the earnings-per-share impact of the settlement agreement upon fiscal fourth quarter, and I will add this morning a preliminary estimate for fiscal 2009.

Second, we are reaffirming our guidance for strong year-over-year growth in CDMA-based devices in 2008.

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

The Nokia settlement agreement has increased our estimates, but it is noteworthy that our estimates have increased even without the new agreement.

Turning to our third fiscal quarter results, revenues were approximately $2.8 billion, a 19% increase year over year, and pro forma earnings per share were $0.55.

In our QCT segment, third-quarter revenues increased 29% year-over-year and QCT's operating margin was 28%.

QTL earned record revenues of $803 million this quarter, and we estimate approximately 107 million new CDMA devices were shipped in the March quarter, down sequentially and consistent with normal post-holiday seasonality.

The average selling price increased to approximately $226 per unit, reflecting stronger demand for full-featured devices as well as favorable currency impact.

CDMA-based infrastructure royalties were also strong during the quarter, stemming from continued network upgrades by wireless operators and a good leading indicator for the future.

QTL's operating margin was 83%.

QWI revenues were $190 million, with an operating loss of $1 million, primarily reflecting increased mobile banking investments.

Operating cash flow was approximately $739 million and pro forma free cash flow was approximately $844, million or 31% of our revenues.

During the quarter, we returned approximately $261 million of capital to our shareholders through a cash dividend, and we announced another cash dividend of $0.16 per share, payable on September 26.

Cash and marketable securities totaled $11.2 billion, with $6.7 billion offshore and $4.5 billion domestic.

Our pro forma estimated tax rate for fiscal 2008 is now 19% compared to our prior estimate of 20%.

Turning to our guidance.

Following a thorough refresh of our forecast for the calendar year 2008 CDMA market, we are reaffirming our estimates for 28% to 36% year-over-year growth in unit shipments.

As many of you know, the majority of CDMA device shipments in any given year are replacement units -- that is, existing CDMA subscribers purchasing a new CDMA device.

At the outset of this year, we forecasted an approximate 43% replacement rate for CDMA devices, down from approximately 47% in 2007, and we believe trends continue to support this forecast.

A significant factor behind the replacement rate forecast is a good uptake on 3G data services and advanced 3G devices.

We also see a continued conversion of subscribers from 2G to 3G.

Based on the 503 million midpoint of our estimate for calendar 2008, we anticipate shipments of approximately 229 million CDMA 2000 units and approximately 274 million WCDMA units.

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

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

We are raising our estimates for fiscal 2008 revenues to between $10.3 billion and $10.5 billion, an increase of 16% to 18% over fiscal 2007, and excluding an as yet to be determined increment from the Nokia settlement agreement.

We estimate completing the definitive agreement with Nokia by the close of our fiscal fourth quarter would add approximately $0.07 to $0.13 per share to our fiscal 2008 earnings.

This wide range reflects our preliminary estimate, as we are still working through some of the terms of the agreement before we can make a final determination regarding the amount and timing of revenue recognition.

We are raising our estimates for fiscal 2008 pro forma earnings per share to $2.11 to $2.13, an increase of 5% to 6% year-over-year, again not including the $0.07 to $0.13 increment for Nokia.

We now estimate the average selling price for CDMA 2000 and WCDMA components combined will increase approximately 2% in fiscal 2008 to approximately $219 per unit.

This estimate is slightly above our prior expectations and reflects increased demand for higher-priced, feature-rich devices.

We expect the combination of pro forma R&D and SG&A expense for fiscal 2008 to increase approximately 23% year-over-year, driven by continued QCT investment in new chipset products and capabilities, business model defense costs, as well as expenses for increased patent applications, including a large quantity of OFDM inventions and innovations.

Turning to our guidance for the fourth quarter of fiscal 2008, we estimate pro forma earnings per share to be approximately $0.49 to $0.51.

Again, completing a definitive agreement with Nokia by the close of fiscal fourth quarter would add approximately $0.07 to $0.13 to this estimate.

Our fourth-quarter guidance assumes shipments of approximately 84 million to 87 million MSM chipsets, a year-over-year increase of 24% to 28%.

We estimate that approximately 114 million to 118 million CDMA-based devices shipped in the June quarter, an increase of 28% to 33% compared to the same period last year.

We estimate the average selling price will be approximately $215 for the quarter.

We expect the combination of pro forma R&D and SG&A expenses to grow approximately 5% as compared to the June quarter.

We believe total CDMA channel inventories are towards the high end of the historically normal band of 15 to 20 weeks, and our forecast assumes that this will decrease in the coming quarter.

I thought it would be helpful to walk you through a summary earnings change analysis comparing fiscal 2007 fourth quarter to fiscal 2008 fourth quarter guidance.

The $0.50 earnings per share midpoint for our fourth-quarter pro forma guidance, again excluding the potential impact from the Nokia deal, is a $0.04 decrease as compared to the year-ago quarter.

Year-over-year we expect QTL and QCT to be -- combined to be approximately $0.05 earnings per share higher due to greater unit volumes in both businesses, offset somewhat by pricing.

We estimate the QWI segment will be lower by approximately $0.02 per share.

Investment income is anticipated to be down year-over-year by approximately $0.05 a share, and if you recall, fourth quarter of fiscal 2007 included a $0.02 gain from the sale of buildings.

Looking forward to fiscal 2009, our initial estimate is that the Nokia deal will contribute approximately $0.20 to $0.28 per share, again subject to the definitive agreement, which will in turn help us define timing of revenue recognition.

In closing, we are pleased to see the 3G migration around the world continue to accelerate, supported by many the innovative products and services that our businesses help enable.

That concludes my comments and I will now turn the call back to John Gilbert.

Thank you, Bill.

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

Please limit your questions to one per caller.

Operator, we are ready for questions.

(OPERATOR INSTRUCTIONS) Brian Modoff, Deutsche Bank.

Congratulations on the agreement with Nokia.

It's good to see.

Sanjay, a question for you.

In terms of the agreement with Nokia, do you see this perhaps engaging you with Nokia in developing or perhaps working with you in your 3G baseband?

Also, given that you are developing a CSM for LTE, could you see Nokia NSN being engaged in working with you on that product?

And then how do you see this impacting -- this agreement and potentially the scale that it delivers -- how do you see this impacting some of your competitors in the market, i.e.

some of the smaller vendors that lacks scale, that perhaps don't have the range of customers that you have?

Brian, Steve has been more intimately involved in the discussions.

I would defer to him on that.

Steve, do you want to take the first part of that question?

All I can say is that I think it has been pretty clear to everybody that this dispute between Qualcomm and Nokia has been a significant impediment to working more closely together.

And I think that both companies are going to look for a number of opportunities to work together now that this dispute is behind us.

And we look forward to it.

This is Paul.

I just wanted to add that I had a very good discussion with Olli-Pekka as we were concluding the agreement, and we both agreed to get together quickly to talk about opportunities for the two companies to collaborate.

It was a theme of our discussions throughout this whole process that there was a lot of respect between the two companies, and we thought that we could do a lot to drive the industry together.

And I look forward to taking advantage of those opportunities.

Brian, just to add to that, you probably know that we already work with Nokia through an ODM relationship based on our chipset.

So I expect that we would certainly enhance that.

And given that a major obstacle has been removed in the path of our further engaging with them on the [MTS] chipset, I think we will engage in understanding that there is a possibility of further collaboration there.

In terms of your second part of your question, certainly I think to the extent that larger portion of market is not obstructed for QCT opportunity, I think that some of the folks who have had preferred conditions in a number of different accounts, I think that they will view this as potentially an increase in competitive pressure for them.

So our scale certainly enables us to deliver better product, do more R&D, and stay in technology leadership.

And we hope to be able to use all of that to convince more customers in the marketplace to use our chipsets.

Michael Walkley, Piper Jaffray.

Thank you very much and congratulations on the negotiated settlement.

Bill, just a little clarification on your fiscal '09 outlook of that $0.20 to $0.28.

Can you let us know in terms of legal defense how much of that is included in there?

Or said another way, how should we think about your legal defense in absolute OpEx dollars potentially declining in fiscal '09?

Mike, that $0.20 to $0.28 estimate, it is obviously primarily revenue, but there is an element in there for reduced legal expense directly related to what we have been spending in the past on the Nokia matter.

I think it is too early at this point to get into a discussion on total business model defense cost for 2009, but certainly the Nokia settlement agreement is a good and significant positive step.

Tim Luke, Lehman Brothers.

Thanks so much.

Bill, just to clarify -- and congratulations on the deal, obviously.

Perhaps, Paul, it might be good if you could provide a little context on what you think has been the catalyst for the timing associated with it.

But the question that I had really for Bill was for the September quarter, you were guiding a midpoint of $0.10.

For the full year of fiscal '09, you are guiding a midpoint of [up to $0.28].

So could you just give us some sense of what is impacting the boost in September as opposed to sort of weighted throughout the calendar year.

At the same time, could you give us some sense -- in the release it talks about an upfront payment from Nokia.

Would we be thinking that that would be something that you would be amortizing over the 15-year licensing deal, or how would you treat that?

And is there some of that in the $0.20 to $0.28 guide.

Then separately, Steve, perhaps you could talk about what you feel the implications may be for some of your other licensing deals with your other partners of this landmark settlement.

Steve, do you want to go first on the other licensing question?

Okay.

So, Tim, we don't believe that our Nokia agreement impacts our most favored provisions, which I think is what you are getting at, and our other license agreements.

But I would say if we offer the package of terms of the Nokia agreement to other licensees, I would be very happy if those other licensees would accept the package of Nokia's terms and conditions and provide us with the same value that Nokia will provide us under our new agreement.

So Tim, then on some of your other questions, yes, there is an upfront payment.

As Steve said, it is a very significant payment, and that payment, we are determining how that will be converted into revenue, and there will be an amortization schedule of that.

We are still working through that, Tim, hence why I have given -- we have given a fairly wide range to the earnings increments from the Nokia settlement agreement.

But yes, there will be an amortization of the upfront payment.

Bill, let me just -- one of the other questions in terms of the catalyst of getting this deal -- let me just say we have been -- as you know, we've been in discussions for a long time with Nokia.

And in terms of what was the catalyst, who is to really know?

The fact is that the parties converged and we have now an agreement that I think we're both very happy with.

Then the last one, Tim, the fourth-quarter estimate versus the '09 estimate.

As Steve mentioned, there is an upfront payment and that will be amortized.

I expect the amortization to extend back in time to when payments stopped, forward through to the end of 2022.

Then in '09, we're looking for the resumption -- an increment from the resumption of royalty payments on top of the amortization.

That gives you, I think, a good sense of why the increase in '09 versus estimate for '08.

But having said that, we are still at an early stage on working through this.

Tal Liani, Merrill Lynch.

Trying to back out the terms of the deal.

In the past, you gave guidance of $0.25 to $0.30 for Nokia contribution, and then you said also legal expenses, I think, were in the neighborhood of $300 million.

So if I'm seeing that you reduce your legal expenses by $200 million off the $300 million, it is $0.10, plus Nokia for '09, if I take the high end of the range of $0.30, that's $0.40.

Is the discount -- and your midpoint for '09 is $0.24.

So is the discount around 40% to 50% to Nokia versus the prior expectations, or what did I do in my math wrong that will kind of make the calculation wrong?

We're kind of -- we're limited as to what we can say, given the terms of the agreement with Nokia.

We certainly don't want to press on the terms that we do have.

But I would just add, Tal, that's my initial estimate on the legal expense increment of that number we gave for '09 is less than what your assumption there was.

Remember that we have said it is more than $300 million.

We have also -- in terms of total business expense for fiscal '08.

But we also said that the outside legal fees that we've been paying, although it's the majority of it, we've indicated is closer to the $200 million range.

And then the balance of that total business defense is other matters in other areas, including offsets to revenue.

So in that $200 million range of outside legal fees, you've got monies we've been spending on Nokia, trying to wrestle that one down.

There's also been the Broadcom matter; you've got the EC.

And so there's a number of areas in that $200 million or so expense, and just a portion of that has been Nokia.

Tim Long, Banc of America.

Thank you.

Just two quick ones, if I could.

First, maybe Sanjay and Joe together, very strong quarter for Chip ASPs, yet we're guiding the overall phone ASP in the next quarter, in the June quarter, to be down 5% or so.

Could you just kind of work that out for us?

Then on the deal, could you just give us a sense -- sorry -- I know you can't give too many specifics, but should we assume that -- there's a lot of technologies announced here across 3G and 4G.

Should we assume that it is constant royalty rate across all technologies, or could it be different by different interface?

And same thing, is it the same rate that we are using for the catch-up payment as we are for the ongoing rate?

Thank you.

Steve, do you want to take the royalty rate question by technology?

Yes, but I'm afraid we can't comment on the royalty rates.

But there are, as I said ongoing royalties, for each of the technologies through the term of the agreement.

Tim, on the chip ASP versus the phone ASP, I think the key item there in that differential, it's from the time we ship a chip to the time a subscriber buys the phone, that is our estimated inventory channel that we try and track.

It's not our inventory; it's others inventories.

But we indicated -- we are forecasting that there is a bleed in that total inventory channel in the September quarter, that that inventory channel will reduce.

And we think that one of the main regions that is driving some inventories that the channel is little overweighted on is in the developing regions.

So we expect ASPs of low-end devices that cross the hurdle of revenue recognition for our royalty business to be a little bit different in terms of what's going through that channel relative to the MSMs we are shipping that are at the start of that channel cycle.

Simona Jankowski, Goldman Sachs.

Thank you very much.

Just a terms of the 4G aspect of the agreement, can you just update us on what percentage of your 3G licensees at this point have also signed on for your OFDM technologies, and how you think that might change or accelerate based on this agreement?

Let me first say, under our CDMA agreement, they cover multi-mode.

So as CDMA transitions, and we think that will be a long time out, but when OFDMA gets deployed, we think there will be lots of multimode devices.

So those are covered under our CDMA agreements today.

So what I was talking about under the Nokia agreement is a single mode, so a device that doesn't have CDMA.

It has OFDMA.

And I think that with -- already this is our second Tier 1 manufacturer with now the largest handset manufacturer in the world signing and agreeing to pay ongoing royalties through the term of the agreement, that is a significant factor that I think will likely accelerate the success of our OFDMA licensing program and allow us to sign other companies.

I think today, we now have, with the inclusion of Nokia, eight companies that have signed up to single-mode OFDMA agreements.

Ehud Gelblum, JPMorgan.

Thank you.

Just absolutely amazed and stunned, Steve.

Great job.

Bill, understanding a little bit more about the new guidance, it sounds -- just correct me if I'm wrong -- that the $0.07 to $0.13 that we are adding to fiscal year '08 therefore includes some restatement of Q1 through Q3, some bumping up of those quarters so that the Q4 -- new Q4 number includes somewhat less than $0.07 to $0.13?

That is just $0.1, so it is hard to understand how the mechanics of that work.

And then as well on the one-time payment, I assume that the $0.07 to $0.13 also includes some amount of that one-time payment.

And even though it'll be amortized, should we assume that more of it ends up in '08 than ends up in future years, or are you assuming that it sort of gets amortized evenly?

Then finally, on the fundamentals, a more mundane question.

The adjustment of the total handset shipments for 2008, that includes a higher CDMA number -- CDMA 2000 number, and a lower WCDMA number.

Can you give some background as to what you saw in the quarter that led you to raise CDMA 2000 and lower WCDMA?

Thank you.

Sure.

First on the -- let's do the handset one first.

We have in our unit estimates for calendar 2008 with this -- although our total range is the same as last, we have increased CDMA 2000 modestly and decreased WCDMA modestly.

On the WCDMA side, we are seeing replacement rates -- the replacement rate extend out just marginally longer, I think, in the last few weeks.

We have all seen some announcements where operators are experiencing a situation where they are being able to hold on to their customers just a bit longer in this environment or their customers are holding onto their handsets just longer, which is basically what we expected at the outset of the year.

This reflects just a minor adjustment on what the replacement rate estimate is region by region.

Then the CDMA 2000 increment, we see that largely in the North American market.

And I think what we are seeing there is a strong upgrade cycle into a category that I think many of us describe them as Smart phones.

So that is what we are seeing in the handset market.

We spent a lot of time on this, given how many different parties or organizations or companies have been decreasing their forecasts of wireless devices in the last few months.

And when we're going against the grain, we typically then apply even more effort to it.

But after all that, we are pretty pleased to see that our estimates for the CDMA technologies as a whole are holding at this point, so --.

Then on your question on the fourth quarter, yes, you are correct.

That $0.07 to $0.13 estimate for the fourth quarter includes a catch-up, so to speak, from amounts owed in the past that now, as a result of this settlement agreement, we expect it will be what we record in the fourth quarter.

Of that fourth quarter amount, at this point, I expect that will all be an amortization of the upfront payment, a partial amortization of the upfront payment.

And as Steve said, it's a very substantial upfront payment, much more than what has been owed for the past, and a portion of it is a payment for the future.

Okay?

Glen Yeung, Citigroup.

Thanks.

This question is for Sanjay first.

I wonder if you could discuss -- I understand you can't give us any details about a potential chip relationship with Nokia at this point -- but to the extent one could potentially start from today, could you just walk us through a timeline of how long it would take from today so you could actually recognize revenues for sales of chips to Nokia, understanding that you do have an ODM relationship with them and obviously now some patent or technology changes, how long that might take.

So that is question one.

Second thing is just a question on inventories.

Up again a little bit in the quarter ,after being up a lot last quarter.

Just your thoughts as to what you think inventories will do next quarter.

Then lastly, just thinking about the bigger picture demand outlook here, because you have given us some sense as to what you are seeing on ASPs, some channel inventories that are building.

Maybe just a comment on how you see the overall demand environments for handsets.

I will take the third question about the inventory.

I think we have indicated that we are changing our business model a little bit in the sense that we are taking control of inventory earlier in the cycle of chip production.

So we carry a little more inventory, but we have a lot more control on how quickly we can turn them into parts, and therefore our responsiveness to our customers has improved.

So that is one factor.

The second factor is that you will remember that we had a little [shorty] of parts back in first quarter, and -- actually, what we had was more digital die and not enough analogue die to match it.

And I think that is working its way through our inventory cycle.

I expect our inventory next quarter will be flat to down.

And even with our current inventory, I think that if you look at our revenue turns -- our inventory turns per year, it's probably industry-leading.

So I feel pretty comfortable about our inventory levels.

I think the third part of your question was handset demand forecast, and I will turn that over to Bill.

I will give you a little color of what we are -- what is based into our forecast kind of on a region-by-region basis.

China, we are looking for a modest -- our expectations are a modest uptick from the prior quarter in terms of unit consumption.

European market, we're looking -- we think the prior quarter was coming off a seasonal effect, dipped down as we expected.

Now we are looking for an uptick in the next quarter.

In India, we see that continuing strong in terms of unit consumption.

Now, that is a region we think that vendors have stocked up pretty high on inventory.

It is a strong growth market, but nonetheless, I think inventories for that region -- not necessarily in the region, but for that region -- are a bit overbuilt.

So our forecast says there's going to be an inventory bleed in terms of units consumed versus what goes into that -- chipsets going into the early stage of that channel.

Japan, you are coming off a very strong quarter, seasonal quarter; now we look for a seasonal decrease.

Korea, flattish, slight uptick perhaps, more of a replacement market.

And then North America, coming off of a seasonal down quarter, as expected, and now we're looking for some uptick there.

And then the last area that I would say just kind of rest of the world, where we are still seeing a fair amount of 3G handsets being sold onto 2G networks.

And we have seen strong and steady growth in all other areas that we just call rest of world.

So that is how I would describe that.

Then Sanjay, the other question was that design-in interval.

Yes, thinking about the design, without reference to Nokia specifically, if I answer the design-in interval in general here, there are two possible ways to get design in usually at the new accounts, either through ODMs or directly with a design team at new prospective accounts.

Typically, we have long-standing relationships with ODM partners who have a great deal of experience in our chipsets, and they can deliver products faster than bringing up a new team on a brand-new platform.

So if we look, I think that if we were to engage in ODM relationships with a new customer, revenues could be recognized in 2010, fiscal 2010 at the earliest, I believe.

(OPERATOR INSTRUCTIONS) Mark McKechnie, American Technology.

Great, thank you, and congrats on the settlement.

It sounds like a good deal for both.

I wanted to ask a question here for Steve on pass-through rights.

Specifically, does Qualcomm actually get pass-through rights on some of the Nokia GSM patents for your customers?

I am really just trying to figure out is would LG or Samsung or an Apple, if they use your chips, be free from the Nokia IP issues by using the Qualcomm chips?

We did not get pass-through rights, but we did get assignment of a significant number of patents which we would be able to offer at licenses to our customers.

So companies that buy chips from us similar to buying chips from other companies would, to the extent they use Nokia IP, would negotiate with Nokia the terms of a license agreement to those companies.

However, Nokia did agree to cap what royalties they would charge for customers that are using our chip in a fashion that I am very comfortable with.

Maybe I'll add just a little more to that.

I believe that we have a position through some of the agreements that are already in place to pass more rights to our customers than we believe anybody else in the industry.

So I think that we are already in a good position to pass through rights to our customers.

James Faucette, Pacific Crest.

Thank you very much.

Most of my questions have been answered, but I actually just wanted to follow up on Mark's question.

If you didn't get full pass-through rights in the agreement with Nokia, at the very least, do you have broad access to their IP portfolio for incorporation into your chipsets and products in the future?

That is my first question.

Then second question is probably for Bill.

You mentioned a little bit you'd seen a little bit of an extending of the replacement cycle, particularly for WCDMA.

I would assume that has happened primarily in Europe.

Can you talk to if that is in fact the case, and if you've seen extending of replacement cycles in any other geographies?

Thank you very much.

In answering the first question, yes -- the answer is yes.

We have full access to all their patents, to be able to incorporate all their patented technology into our chips.

James, then on the replacement, we are seeing it -- we have anticipated an extension on that replacement cycle from the outset of the year.

We think 2007 was around 47% rate, and we think 2008 will end up at about a 43% rate.

So we're looking at that extension broadly across many geographies.

In this case, our updated guidance for unit shipments of all CDMA technologies in 2008 is -- we saw that cycle just widen a bit more than what we had previously expected.

And you are correct, that was in Europe, in the WCDMA, yes.

Kulbinder Garcha, Credit Suisse.

Thanks.

Just a couple of clarifications.

First of all, on the pass-through rights, was my understanding correct, Steve, that it sounds like Nokia will be able to cross (inaudible) with some of your own licensees?

What does that mean for the cumulative industry royalty rate with WCDMAs?

I think we see (inaudible) many years on this.

And what confidence can you give us that won't fall into litigation years down the road?

That's my first question.

My second question is, Bill, just to be -- I want to go back to the guidance.

As I understand it -- and tell me if I'm wrong -- the $0.07 to $0.13 EPS guidance impact from Nokia kind of assumes an accelerated impact that won't be there on an ongoing basis in 2009.

Is my understanding right?

On the first question, it's basically a royalty stacking question, and my experience has been -- and I believe it will continue to be this way -- is that royalty stacking in CDMA and WCDMA has been really a myth.

We have substantial pass-through rights from many companies, as Sanjay was saying, and those will obviously continue to exist.

When you think about Nokia and their licensing program, they are going to have -- to the extent they want to establish a licensing program and collect royalties, negotiating with companies like Samsung and Motorola and LG, these are also companies that have substantial patent portfolios -- significant patents as well.

So when you look at Nokia's business, their business is primarily a handset business, and they are not a -- they don't drive the same kind of value that we drive with respect to IPR and royalties.

So I think it will be typical in this industry for these large handset manufacturers to do royalty-free cross licenses, and so I kind of suspect that is what will continue to occur.

So many of our important and large customers and our important in small customers won't have the kind of royalty stacking issues that you refer to.

In addition, as I said, when they use our chips, they have agreed to cap the royalties they would charge at levels that I think our customers -- to the extent they do have to pay -- will be able to compete quite well.

On the question on the acceleration points, let me just back up again on that.

I think we all recall that Nokia stopped paying Qualcomm royalties after the first week of April, 2007.

In this settlement agreements, both parties have agreed the amount that covers both the past and defines the rate for the future.

And as we've pointed out, there is a significant upfront payment, and I indicated I expect we will amortize that payment from -- over that entire cycle, from April 2007 through the end of 2022.

Then in fiscal -- then there is a resumption of royalty payment on top of that.

So again, what we expect to record in this fourth fiscal quarter of 2008 will be a payment that reflects due consideration for the use of our IP from April 2007 through the fourth quarter of fiscal 2008.

And then next year, there will be an amortization and a resumption of payments as well.

Richard Windsor, Nomura.

Thanks very much.

I wonder if you could talk a little bit about -- obviously, it would appear that Nokia has got some kind of discount and that you are making up that value by getting some -- what they've assigned to you some of their patents.

I was just wondering, seeing as the only way you could really get value from those patents would be to charge higher royalties to your customers, how are you actually -- and seeing as you charge a flat rate for your patents, how are you going to derive value from the patents that they have actually assigned to you to make up the balance of value?

Well, I'm not going to go into much detail on that.

I think we received some valuable patents in a number of areas, including some areas that we have (inaudible) today, such as DSM.

But in terms of how we derive additional value from those patents, I am not at this point ready to give much detail on that.

This is Don.

I would add that there's lots of ways that one derives value from patents.

Patents, as you indicated, from an offensive perspective, a licensing perspective.

There is also a defensive value of patents as well.

So there's lots of value to a good patent portfolio.

Brett Simpson, Arete.

Thanks very much.

I have a couple of questions for Sanjay.

First up, maybe on USB modems and data cards.

I guess some of your customers are seeing some significant growth, guys like Huawei and BT in Europe here.

And can you give us maybe a sense for the size of the business that you have in this space and what sort of growth outlook you see as markets like China and Russia and Brazil start to launch services over the next 12 months?

And maybe just a follow-up, you made acquisitions in Bluetooth and WiFi a few years back, and we have not seen product as yet.

Can you just give an update as to where you are and when you expect to start booking revenues for connectivity?

Thanks.

Brett, on the USB modem and data card side, indeed we are seeing pretty significant growth, and in fact that is one of the places where our customers, like Novotel Sierra, and Option, Huawei, and others, have done extremely well in driving marketplace, both in terms of driving sales for us, but also for the carriers driving data ARPU and data revenue.

We see continued growth in that, and as you know, while the USB modem data card business is very strong with the Gobi initiative, we are enabling embedded modules.

And the prices there -- we have -- with our business model, driving the prices to a place where we see more and more laptops being embedded with these modules.

So that is an important marketplace for broadband wireless data.

With respect to your second question about Bluetooth and WiFi, we are already, in Bluetooth, booking revenue for Bluetooth shipments.

Our shipment per quarter is already in multiple million units in Bluetooth.

In fact, I think we're doing extremely well in Bluetooth.

In WiFi, we have had some challenges, as I've shared with you, in different forms.

And we are now focused on integrating WiFi cores into our higher-end chipset.

That has become the strategy, as opposed to focus exclusively on the laptop market place, a market which has been very competitive and has been served very well by a number of other partners.

We see the largest growth of WiFi now being driven by handsets and Smart phones, and that is our focus in WiFi.

Maynard Um, UBS.

Thanks.

Just looking at your fairly strong MSM guidance, can you just help us balance that with the macroeconomy, with your guidance, and also how that balances with your comments that handset channel inventories will come down next quarter?

And then a quick one for Steve.

Anything here that helps you in the Broadcom or (inaudible) cases?

Sorry.

Last, Bill, just wondering why you are amortizing the catch-up payments from the prior quarters.

Thanks.

I will take a couple there, Maynard.

In terms of the amortization, we are going to be booking a fairly significant deferred asset.

And then it is how you -- what is the appropriate way to bring that deferred asset onto the P&L.

So at this point, we have concluded the best means is an amortization, that that -- I don't think we are going to need an ongoing information flow from Nokia to bring that asset onto the P&L.

And they are -- it is a very extensive settlement agreement.

There's a number of value facets to it.

And all things combined, it just seems like the appropriate way to do it, and we're still working through an amortization schedule before we conclude that.

Then your point about the strong MSM guidance versus the macro environment.

First, I would just add -- I would say that in terms of the macro environment, again, we are probably going a bit against the tide of what many people or parties or organizations have been saying in the last couple months in terms of how they see -- their view of the total wireless market or their view of their position in that wireless market.

And I think what is clear here is that CDMA technologies are progressing very well this year, and there are some of the older technologies that are starting to drop off.

So I think that's one aspect of it.

And then the other one is we serve the entire world with CDMA technology and Sanjay's business in the chipsets.

And so where others might be more regionally focused or products that are more focused in one segment or another, we are worldwide, and I think QCT has the broadest chipset portfolio of any supplier into this 3G market.

So I think it really comes down to how well 3G is doing in this market relative to the older 2G variations, number one.

And number two, we are broadly diversified, and the benefits I think are showing through.

On the Broadcom question, maybe Don, that would be a good one for you to respond to.

Yes, was the question how does this impact or does it affect the Broadcom situation?

Right.

The answer is it is really not related to Broadcom.

We obviously have some ongoing disputes with Broadcom, as well, and those are separate and distinct from any disputes we have had with Nokia.

We've reached the end of the allotted time for questions today.

Dr.

Jacobs, do you have any closing remarks?

I just want to thank everybody for joining us this morning, and we certainly appreciate your flexibility with the last-minute changes.

But hopefully you thought it was worthwhile.

Obviously, we are extremely pleased to put the dispute with Nokia behind us, and we really feel like the Company has found a way to a win-win scenario.

So we are all looking forward to a closer collaboration between the companies, and I think that will really help drive the wireless industry forward.

And I am certainly happy to have avoided an escalation, which would definitely have been detrimental to the entire industry.

And I just want to thank our team that worked on this again for just a great effort.

Obviously, over this period, the questions and concerns about Nokia have often overshadowed the performance of the Company, and I just want to highlight again that through this period, our employees and our partners continued to execute extremely well, and I'm very happy to see this.

And as we put this behind us, it is really going to allow us to allocate our resources in an even more focused fashion to address the opportunities that are created by the growth of 3G, and as we look out to other advanced wireless technologies.

On a personal level, I have to say I'm excited to be able to spend more of my time and attention on some of the great new technologies that we are working on and great products, and also to work more closely with our partners, including Nokia, but also a lot of others in kind of consumer products and computing space, the content area.

So just a tremendous opportunity ahead of us.

We are excited to be in the position that we are in.

We look forward to continuing to deliver great results to you.

Thanks a lot.

Ladies and gentlemen, this does conclude today's conference call.

You may now disconnect your lines.