高通 (QCOM) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Qualcomm third quarter fiscal 2009 conference call.

(Operator Instructions).

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

Mr.

Gilbert, please go ahead.

Thank you, and good afternoon.

Today's call will include prepared remarks by Dr.

Paul Jacobs, Steve Mollenkopf and Bill Keitel.

In addition, Steve Altman, Len Lauer, Don Rosenberg and Derek Aberle will join the question and answer session.

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

During this conference call, if you 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 like to direct you to our 10-Q and earnings release which were filed and furnished respectfully with the SEC today, and are available on our website.

We have also furnished the SEC our financial statements and related footnotes in the extensible business reporting language XBRL format, as required by the SEC.

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

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

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

Paul Jacobs.

Thanks, John, and good afternoon, everyone.

I'm very pleased with our strong operating performance in this uncertain economic environment.

Revenues were at the high end of our prior guidance.

Operating income exceeded our prior guidance, and pro forma combined SG&A and R&D expenses were 5% lower year-over-year and well below our prior guidance.

Worldwide demand for 3G remains robust; and despite the global economic uncertainty, we anticipate another strong quarter of demand for our chip sets in fiscal Q4.

We are raising our fiscal 2009 revenue and operating income estimates given the strong underlying fundamentals of our business.

Before commenting further on the business, I would like to welcome Dr.

Young Koo Cha as Senior Vice President of Qualcomm and President of Qualcomm Korea.

Dr.

Cha's extensive experience in the high tech industry, academia and the Korean government is a great addition to our management team, and we look forward to his leadership in this key region for our business.

Our business continues to generate strong operating cash flows, which enables us to return capital to our stockholders.

As of June 28th, we have returned over $10 billion of capital to our shareholders since fiscal 2003.

We also recently announced another quarterly cash dividend payable on September 25th of this year.

While we did record additional impairments on our marketable securities this quarter, those impairments were significantly lower than previous quarters.

In addition, recent improvements in financial markets have greatly reduced our net unrealized losses from $898 million at March quarter end to $25 million as of June quarter end.

Turning to the business, QCT shipped a record number of chip sets this quarter, an increase of approximately 9% year-over-year.

We believe that the CDMA inventory channel has largely stabilized, yet remains near historically low levels consistent with our prior forecast.

In it addition, CDMA based device shipments by our licensees in the March quarter were at the high end of our prior guidance and increased 4% year-over-year.

Worldwide 3G adoption continues to accelerate, while GSM shipments continue to decline.

According to wireless intelligence, 3G subscribers grew 28% year-over-year to approximately 830 million as of June.

In Western Europe, WCDMA subscribers grew 52% year-over-year compared to an 8% decline in GSM subscribers.

In addition, according to industry analyst forecasts, 3G handset shipments are expected to eclipse GSM shipments for the first time in 2010.

3G enabled handsets are forecasted to be over 60% of total handsets shipped in 2012.

The 3G ecosystem is vibrant, and consumers have an extensive choice of competitively priced, feature rich devices to keep them connected, informed and entertained.

The GSA reports that approximately 94% of WCDMA operators have launched HSPA services, and the number of HSPA devices has grown over 120% year-over-year to more than 1,600 devices by over 180 suppliers.

In addition, the number of HSPA enabled notebooks has more than tripled in the same period.

Also, according to the GSA and operator announcements, there are now five HSPA Plus commercial networks and more than 25 additional operators have announced plans of testing, trialing or deploying HSPA Plus technology.

CDMA 2000 continues to be successful in both developed and emerging markets; and according to the CDG is approaching half a billion global subscribers.

India reached a significant milestone this past May, surpassing 100 million CDMA 2000 subscribers, of which approximately 50 million were added in the past two years.

Globally, there are over 65 EVDO Revision A commercial networks, with over 30 additional networks in deployment.

Revision B is gaining traction as several operators, including China Telecom, have indicated interest in Revision B to further leverage their 3G investment.

In China, the broad deployment of 3G CDMA and world's largest wireless market, continues.

Since January 2009, China Telecom has added 11 million CDMA subscribers and announced plans to deploy EVDO Revision A in 500 cities by the end of this month.

In addition, China Unicom announced its HSPA networks (inaudible) 100 cities today and plans to deploy HSPA in total of 284 cities by the end of this year.

Now, as with most new market deployments, ramp up takes sometime for networks to be fully deployed and for a broad portfolio of handsets be made available to consumers.

But we've always believed that when licenses were issued, infrastructure deployments would occur rapidly, and I'm very pleased to see the pace of these deployments.

We continue to see growing demand for 3G Broadband services, driven by increased consumer desire for mobile internet access and more personalized user experiences.

For example, in North America, multiple operators continue to report strong wireless data growth year-over-year, driven in part by Smartphone competition, including the most recent launch of multiple new iconic devices.

The trend towards connected mobile computing in the U.S.

continues as the three top operators now offer subsidized notebooks or network computers with imbedded 3G capability.

And the trend towards cloud computing in the mobile environment continues to evolve, and it is a trend that bodes well for us.

Recent announcements such as Google's Chrome operating system and Microsoft's plans to offer free on-line version of its Office product suite will further enable the shift towards mobility.

Our continued commitment to innovative research and development puts us in a unique position to benefit from the growing demand for compelling new 3G enabled devices.

Our comprehensive chip set portfolio supports multiple operating system and provides our OEM partners with more choice and flexibility to develop new categories of mobile computing devices that will support an increasingly Mobile society.

We previously demonstrated advanced interference cancellation techniques in our CDMA 2000 infrastructure chip set solution that further improve system capacity.

We also recently announced a collaboration in which ZTE will utilize Qualcomm's advance uplink interference cancellation technology in our next generation UMTS bay station.

Using this technology, operators can boost their UMTS data through-put by up to 60% and deliver a user experience that is comparable to LTE in a similar channel bandwidth.

Turning to FLO TV, the DTV transition is enabling our expansion into key major markets such as Boston, Houston, Miami and San Francisco, as well as expanded service in Chicago, Los Angeles, New York and Washington, D.C.

By the end of 2009, FLO TV will reach more than 100 major markets and more than 200 million potential customers.

In our display business, we recently announced the opening of our dedicated mirasol color display fabrication facility in Taiwan, in partnership with Foxlink.

It was an exciting new step towards further commercialization of our innovative mirasol technology that provides a more rewarding mobile experience, enabling extended battery life and superior outdoor viewing.

You may note that we have disclosed that the Korea Fair Trade Commission is expected to issue a decision on our case shortly.

Unless and until an order is issued, it would be inappropriate for us to comment further on the case than what we have provided so far.

So while the global economic environment remains uncertain, we will continue to invest strategically in key research and development programs to improve our technology leadership and competitive position, and to drive shareholder value while closely managing our SG&A expenses.

There are many exciting new growth opportunities in wireless today, and we are fortunate to have a strong balance sheet and operating cash flow to execute on our strategic objective.

We are well-positioned to drive innovation and growth in 3G and in next generation wireless technologies.

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

Thank you, Paul.

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

We shipped approximately 94 million chip sets this quarter, a record shipment level for QCT.

This represents a 36% increase quarter over quarter and a 9% increase over the same period last year.

We generated record revenue of approximately $1.8 billion and delivered record earning before taxes of $548 million in the third fiscal quarter of 2009.

We are encouraged by these strong Q3 results and remain focused on cost reductions efforts within this current economic climate.

Our average revenue per MSM remained consistent with the previous quarter at approximately $19, driven by a greater than expected mix of chip sets that enabled advanced data devices, combined with the stabilization of inventory levels in developed markets.

EVDO shipments increased 83%, and UMTS shipments increased 54% over the previous quarters.

While we expect ASP to trend marginally lower in the fourth quarter, we anticipate a similarly healthy product mix.

Now turning to product milestones, commercial devices enabled by the QSC6240 and 6270, the industry's first single chip products for UMTS, launched this past quarter as scheduled and are now available in stores.

We continue to believe our single chip solutions or cost effective UMTS devices are helping to accelerate the migration of GSM users to 3G.

Our Snapdragon products are making strong progress as well.

In May, Toshiba's TG01, the first commercial devise enabled by Snapdragon, launched in several markets across Europe.

Consistent with our prior statements, we anticipate that numerous additional commercial Snapdragon enabled devices will be announced throughout the year.

At the Computech show in June, we announced an extension of the Snapdragon road map with the QSD8650A.

The 8650A offers a 1.3 gigahertz core for 30% greater processing ability and enhanced graphics while leveraging 45 nanometer technology for 30% lower power consumption.

HSPA Plus also continues to progress as scheduled, with over 25 operators now planning to launch service this year.

We have more than 8 device manufacturers designing products based on our industry leading MDM 8200 chip set solution for HSPA Plus with [Wallway] already having launched their data cards into multiple markets.

This technology allows carriers to evolve their network capability, making it a very compelling upgrade option, especially in today's challenging economic environment.

We continue to diversify our product portfolio in order to enable the next generation wireless experience.

This past quarter, we announced two wireless LAN products that take us into new markets markets that complement our core cellular business.

Our N-stream WCN 1320 chip supports performance up to 600 megabits per second, and is designed to enable the wireless distribution of multiple simultaneous streams of high definition video, voice and data throughout the home.

As part of our end to end wireless LAN solution, we also announced WCN 1312 chip, an 802.11 N-solution for hand sets and mobile devices sporting data rates of up to 72 megabits per second.

Both products are sampling now.

QCTS continues to execute successfully despite an uncertain economic climate, and the results are evident in our financial performance this past quarter.

We remain focused on meeting our customer's needs, as well as expanding to win new business in new markets with new partners.

Thank you, and I will now turn this call over to Bill Keitel.

Thank you, Steve, and good afternoon, everyone.

I will begin with highlights of our third quarter results.

Revenues of $2.8 billion were at the high end of our prior estimate, as 3G device shipments grew approximately 4% year-over-year in the March quarter and our chip set shipments grew approximately 9% year-over-year in the June quarter.

Pro forma operating income of $1.12 billion also exceeded our prior estimate.

We continue to see the benefits of our broad initiatives to reduce certain operating expenses.

The combination of pro forma R&D and SG&A expenses decreased approximately 5% year-over-year, including a 20% decrease in SG&A expense.

R&D expenses grew approximately 6% year-over-year, as we have increased our investment in select key projects.

Operating cash flow was strong in the third quarter, approximately $1 billion or 39% of revenue.

Approximately 111 million new CDMA devices were shipped by our licensees in the March quarter, at the higher end of our prior estimates.

The average selling price of CDMA devices shipped in the March quarter was approximately $191, consistent with our prior guidance and down 5% sequentially.

We shipped a record 94 million MSM chip sets, consistent with our prior guidance and up 36% sequentially, as a significant contraction in the CDMA inventory channel has now stabilized.

Pro forma net investment income was $79 million in the third quarter compared to a net investment loss of $67 million in the second quarter, and includes our adoption of the new FSP-FAS 115-2, covering net security impairments.

Investment impairment also decreased.

For the third fiscal quarter, we recorded $112 million in net other than temporary impairments and marketable securities, which equates to approximately 1% of our cash, cash equivalents and marketable securities.

Net unrealized losses on our investment portfolio decreased substantially in the third quarter, down to $25 million at the end of fiscal June as compared to $898 million at the end of last quarter.

Our total cash and marketable securities grew to approximately $15.7 billion at the end of the third quarter, with approximately $7 billion onshore and $8.7 billion offshore.

During the third quarter, we paid $282 million of cash dividends or $0.17 per share.

Now turning to our full year guidance, we are reaffirming the 565 million mid-point of our prior calendar 2009 CDMA device shipment forecast.

We estimate that between 540 million and 590 million CDMA devices will be shipped in 2009.

565 million midpoint represents an 18% year over year increase, and we estimate that approximately 217 million units will be CDMA 2000 and approximately 348 million units will be WCDMA.

We are reaffirming our prior estimate for average selling prices for CDMA 2000 and WCDMA devices.

We continue to expect average selling prices will decrease approximately 9% year-over-year to approximately $199 per unit in fiscal 2009.

We believe that the significant CDMA inventory channel contraction observed in the first and second fiscal quarters has ended.

Looking forward and consistent with our prior estimates, we expect the CDMA inventory channel will remain relatively low at approximately 14 to 15 weeks for the remainder of calendar 2009.

We are raising our revenue and operating income guidance for this fiscal year.

We now expect fiscal 2009 revenues to be in the range of approximately 10.25 to $10.45 billion, an increase of approximately 200 to $400 million above our prior estimates.

We estimate pro forma operating income for fiscal 2009 to be in the range of 3.3 to $3.4 billion, an increase of approximately 250 to $350 million above our prior estimates.

This updated financial guidance reflects continued strength in 3G device shipments around the world, as well as a favorable mix of more data capable chip sets for our QCT business.

We expect the combination of pro forma R&D and SG&A expenses to be flat year-over-year, reflecting successful SG&A expense reduction combined with thoughtful investment in select R&D projects.

Our estimated pro forma fiscal 2009 tax rate is approximately 29%.

Excluding investment impairments and the litigation settlement charge, our underlying pro forma tax rate is estimated to be approximately 21% for fiscal 2009.

Turning to the fourth fiscal quarter, we estimate revenues to be in the range of approximately 2.55 to $2.75 billion.

We estimate pro forma operating income for the fourth fiscal quarter to be approximately 950 million to $1.05 billion.

We anticipate shipments of 88 million to 92 million MSM chip sets during the September quarter.

This reflects continued healthy demand, up approximately 2 to 7% over the same quarter last year.

We estimate that approximately 127 to 132 million new CDMA based devices shipped the June quarter, up approximately 14 to 19% sequentially, and reflecting our expectation for strong growth across multiple regions, including WCDMA in developed markets.

We estimate the average selling price was approximately $189 per unit, and we anticipate fourth fiscal quarter, pro forma R&D and SG&A expenses combined will increase sequentially approximately 4%.

That concludes my comments.

I will now turn the call back to John Gilbert.

Thank you, Bill.

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

I would encourage you to limit your questions to one per caller.

Operator, we are ready for questions.

(Operator Instructions).

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

Hi, thanks.

Just a question on your guidance.

Your handset guidance assumes a ramp in the back half of the year.

Now, I would have assumed you would have actually seen an acceleration of chip set units ahead of that, given low levels of inventory.

But your chip guidance is actually down slightly sequentially.

Can you just talk about the disconnect there; and if you can, market share and those types of things?

Thanks.

Maynard, this is Bill.

I will give you my inputs here.

The 94 million chips we shipped in the June quarter as compared to the midpoint of our estimate for the September quarter of 90 million, this is very much in line with what we were seeing approximately three months ago.

We had a couple of major operator launches occurring in the June quarter.

We expected there would be a product build in advance of that launch, as we seen so many times other operator launches.

And so seeing a slight decrease here in the June quarter is consistent with our prior estimates.

And then, yes, you are correct.

We are expecting a ramp in units in the second half of the calendar year.

Obviously, there is a one quarter lag between our royalty units and shipping and the time we recognize revenues.

We are expecting a ramp in the second half of the year.

In terms of our chip sets, we are an important ingredient of that market.

We would like more share, and certainly there are other parties shipping into this robust market as well.

Okay, great.

And then just quickly, can you offer any feedback with your customers in Korea and kind of discussions there relative to the KTFC?

That's it for me.

Thanks.

Discussions with our customers -- this is Don Rosenberg.

We, of course, have quite good relationships with our customers in Korea, and we think that largely they have been supportive of us.

But beyond that, as we say -- as Paul said earlier, we don't want to talk about the deliberations in the KFTC at this point.

The next question is from Brian Modoff from Deutsche Banc.

Can you hear me all right?

Yes.

Hello?

Okay, good.

Yes, just following up on that guidance, recent discussion with MediaTech, they are looking at 90 million units for Q3, and actually that number may be higher than that.

So they are seeing good demand in China.

Samsung's numbers are -- I mean, LG's numbers last night were well above the expectations, and Samsung is out tonight and we expect some decent results there.

Given that you guided kind of an 89 to 92 -- or 88 to 92 in the quarter previous and ended up doing above that, looking -- given we aren't seeing a lot of indications of weaker demand in Asia in particular and WCDMA continues to track well, are you being consistent here with what you're saying on your A6 shipment forecast relative to the quarter, and are you inferring on Q4 by maintaining your full year guidance and implying a ramp there in the back half?

Brian, this is Steve.

The -- just comment very briefly on the MediaTech numbers, I think it's a little difficult to correlate them to our market, because we play in such different markets today.

In terms of our guidance, we are pretty confident in the number that we have given out.

As you know, we have -- in the face of new carriers launching, as we talked, we tend to, I think, want to observe the ecosystem a little bit before we understand what's going on.

So we have pretty good visibility into what's happening over the next quarter.

As we've said in June, we've seen the developed markets really respond back to the normal levels of inventory, so we have much greater visibility into what, I think, the majority chip sets are going to be now.

Can you talk about what you are doing on -- your R&D continues to be strong relative to your other expenses and you are doing a lot of work in process technologies in terms of bringing down your diameters.

Can you talk a little bit about what you are planning to do going into next year relative to performance and cost on some of your chips, and should we see several new product launches in -- over the next several quarters as you work through -- as your R&D starts to turn into products.

Sure.

The -- if you look, we have been investing in processor technology -- both DSD processor and micro processing technology -- for the last five years, and we are really starting to see the fruits of that in the market.

It started very much on the Snapdragon product lines; but as you know, we are moving that through the entire product line -- that core and that core technology through the entire product line.

We have recently announced really two products that meet the theme of what your question was.

Number one, we announced Dual Core products, which we think is an important differentiator for us moving forward, as well as New Geometry.

Both of those advancements, I think, move in a way that helps us.

The other aspect that I should mention is as we go to the lower geometries, we think that our advantage of having integrative solution becomes larger.

Primarily what happens is that the products become limited by their IO and not by their die size.

So we have a fundamental advantage given our strategy moving forward, should those things play out the way we think they will.

Tal Liani from Banc of America, please go ahead with your question.

Hi.

I'm afraid I have a same question on the same topic and then one more question on (Inaudible).

If you look at chip shipments over the last quarter, it went up from roughly 70 to 95, and we saw that a lot of it is attributed to China.

Can you forecast what could happen in China -- first of all, just confirm the sources for the growth, the sequential growth we have seen this quarter, and maybe give us some color on how much of it is related to data cards and how much is related to China, and give us some more color there.

And second, you're guiding again to the same neighborhood.

If we add some conservatism to your guidance, it means that roughly it's going to be flat to slightly down; and the question is, wouldn't you think that China is going to start slowing down?

This is what we see in the last quarter.

Or maybe you have a different forecast for China.

So just to get color on chip shipment.

Second question, not related, it seems like [Sisera] said that [Amcore] is not licensee that's in good standing currently, and I'm just wondering what are the implications on you if at all?

Thank you.

Tal, this is Bill Keitel.

I will try and take your first one here.

At the outset of this quarter, we had expected a significant portion of this quarter's demand to be targeted at developing world.

And as we progressed through the quarter -- there was a good ramp there, but some of that demand shifted to developed shifted from developing to developed.

And I think you could see that in our uptick in revenues, and kind of what you would calculate as the average selling price of our chip sets.

So there was that shift there.

We have even seen a bit of that continuing into our demand here for the September quarter.

This is Don.

I will take the [Sisera] question.

[Amcore] is a licensee of [Sisera].

[Sisera] has acknowledged that on several occasions.

We understand that recently that [Sisera] has alleged that [Amcore's] payments are not appropriate under the terms of their license.

[Amcore] has assured us that they are.

In any case, as far as we are concerned, this seems to be yet another dispute over their license agreement and what the appropriate level of payment is; which as in the past will be resolved under the terms of that agreement, which we understand have a dispute resolution procedures.

But none of that should impact us.

We are still purchasing from the licensee [Amcore], and it shouldn't have an impact on us with respect to the limited exclusion order to the ITC.

Mark McKechnie from Broadpoint AmTech, please go ahead with your question.

And Mr.

McKechnie, your line is open.

Oh, thank you.

Can you hear me now?

Hello?

Yes, sir, please go ahead with your question.

Oh, great.

Okay.

Sorry about that.

First question is, how do you account for this Broadcom settlement?

Is that a one-time loss, I guess, in this quarter?

Or how are you going to account for that going forward?

Mark, we took -- the only accounting for this quarter is fairly modest in this quarter.

It's an amortization of some of the patents that we acquired, as well as some imputed interest on the extended payments.

So the bulk of the charge occurred last quarter, and this quarter was fairly minimal, as it will be going forward.

Got you.

Okay, thanks.

And then second -- this is probably for Steve.

On Android for the second half of '09, is that -- I don't know, maybe you could discuss your expectations for that and let us know.

It seems like you have pretty good share on the Android designs.

Thanks.

Mark, the -- we are pretty optimistic about Android.

We've had a number of customers choose Android on our 7000 and 8000 devices, and you have seen a number of them come out sort of in the first half, primarily from HTC.

But we are looking forward to that having a bit more broad adoption.

And then as Paul mentioned in his text, I think the Cloud based computing and some of the initiatives that Google has in terms of where the data is going to reside will actually be beneficial to us outside of the handset space and into the Smartphone space as well.

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

Great.

Thank you.

Bill, just a question for you on the overall ASP, how we should think of that, sort of calculating royalties.

Obviously, you have got the low end CDMA growing in emerging markets, and then you have a higher mix of Smart Phones.

So are you seeing any seasonal patterns with kind of March quarter more slanted towards emerging markets, and the back half of the year more towards mature markets, or do we just expect ASPs to steadily decline over time?

And then also just a quick clarification question.

With the little lower operating income margin in the QTL business, was there any other charge (inaudible) that was unusual this quarter?

Sure, Mike.

So first on the ASPs, you get a little regional variation in the ASP; although for this year in total, we don't think that is going to be too big of a variable.

FX for the full year is a bit of a reduction, probably in the $5 range.

So the bulk of it is just an outright decrease in the average selling price.

I think that's really been and driven by WCDMA with its significant volume (inaudible), volume and time enables price to come down effectively.

And then we are seeing the benefits of that great expanded market, TGSM declining at a faster rate, and makes the call particularly growing in a faster rate.

So I think all in all that's been healthy.

But then you are on to the key point after that.

The demand for data capabilities and data features has been growing nicely, and so that has been an offset to some degree, and I expect it will continue to be.

And the second question?

QTL (inaudible) margin?

Nothing really significant this quarter.

It -- you get some -- it tends to -- you'll get some gyrations from quarter to quarter.

It tends to be a function more so of relative infrastructure royalties to the handset royalties.

And from time to time we complete audits, and there can be a recovery there.

But nothing noteworthy I think at this point to be drawing out.

You will just see some fluctuations from quarter to quarter.

Tim Long from BMO Capital Markets, please go ahead with your question.

Thank you.

Two somewhat related questions, if I could.

Bill, it looks like the blended royally rate did tick up a little bit in the quarter.

Was there anything there other than you had mentioned that there was a little bit of shift in the quarter towards the developed world.

Is that what helped it, or was there anything else going on there?

And then secondly, just back to the overall unit guidance, we are three months later than your last report and you still have a pretty wide range.

So you should have much better visibility now, but you chose not to tighten that range.

How should we read into that and what would you say are the big secular issues that are going to move you one way or the other in that range?

Is it (inaudible) or are there other drivers there?

Thank you.

Sure.

Tim, on the royalty rate, we did mention -- I would just point out, we did mention last quarter that we had a very large quarter in terms of shipments of our CSM chips -- the infrastructure chips -- and we had a fairly good quarter also on infrastructure royalties in the quarter we just reported with all of the network buildout that's going on in a number of regions.

But -- so other than that, the driver tends to be, as I said, it's the mix of customers reporting licensees and then the mix of the combination of subscriber royalties versus infrastructure royalties versus royalties that end up as a result of our audits.

On the unit guidance, yes, we had a good discussion on the range, that we went through our normal processes and it was good to see we were still vectored on the midpoint of our estimate.

But we decided that it's best to leave the range as it was.

One, the economic situation -- although it's improving certainly, there is uncertainty ahead; and then number two is that we are still -- we think we are at a very low level of total channel inventory for CDMA product.

And so we thought we would let that go another quarter or so before we would consider narrowing that range.

Tim Luke from Barclays Capital, please go ahead with your question.

Thank you so much.

Bill, or maybe Steve, as you just think about the calendar year for the chip side, could you just remind us how we should think about seasonality as we head into the calendar fourth quarter?

As the market ramps, should we usually expect the chip business to see some sequential improvement?

Or are there factors as you build ahead of a slower March quarter that might mitigate a sequential improvement in the chip number in the calendar fourth quarter?

And Bill, you reiterating your sense that you feel 14 or 15 weeks is the level now for the channel.

Do you feel that that's the level that is sustainable going forward?

Or do you ultimately believe that there will be some further restocking required?

Like you just said, Don, maybe you give us some sense of the EC update, if there is any, to perhaps coordinate with a Korea update.

Thank you so much, guys.

Tim, this is Bill.

On the first two questions, on looking at the chips on the calendar year, I think the most pertinent point here is that we have reiterated our 565 million unit forecast for the calendar year.

And so we are expecting good growth in unit shipments of new devices into that market here for the next two quarters.

And I think that bodes well for our chip set business.

I think overall we have done -- have been doing steadily well on shares -- steadily improving on shares.

So I hope that -- that should bode well for us on the chip set side.

On the 14 to 15 weeks, we would like to believe that's sustainable.

But I would say we are suspect of that.

We think at the 14 to 15 weeks, it's a pretty tight level, especially when you consider the wide variety of devices that are out in the market on 3G technology and the range of offerings that operators and consumers can avail themselves of.

I think that's pretty tight.

I wouldn't be surprised if over the next couple of years we see that uptick a bit.

Simona Jankowski from Goldman Sachs, please go ahead with your question.

Hi, thank you very much.

The first one is just if you can give us an update on the license and renegotiations with one of your WCDMA licensees, and if you are still expecting that to be completed by September.

And then just secondly, within your overall commentary on inventory in the channel having stabilized, just by region, is that still the case in China or do you see China still bleeding down?

And if you can just give us the context of what percent you think of your end demand comes from China.

This is Derek.

Let me go ahead and take the first one.

I think really not much more of an update since the last call.

Our negotiations are continuing.

I think we are making good progress and I think we still anticipate concluding extension through within the time frame that we have talked about before.

On the inventory channel stabilization, when we speak of that inventory channel, we are speaking of it on a worldwide basis.

There is always ebbs and flows on a regional basis.

As we mentioned earlier, we think that there were a couple of major operator launches in China; and as is typical as we have seen many times in our past, there is a little prebuilt for that.

It's only logical to see that happen.

But I would just add that we are maintaining our 565 million mid-point for the market and we haven't deviated our regional estimates.

So we thus far the market is performing pretty much to our expectation.

We are monitoring it closely, but we are not really seeing surprises on our end here.

And in terms of the China specific to our business, we used to disclose that, and we've drawn back from that for a number of reasons.

So I don't think we will be getting back into disclosing that.

Phillip Cusick from Macquarie, please go ahead with your question.

Hi, guys.

Thanks.

I wonder if we can talk first about cost cuts.

How much has really come through versus your expectations and versus what we are going to see in the fourth quarter?

And then, will those be fully baked by the fourth quarter or should we look for some in early next year?

And then second of all, if you could give us an update on what you expect from MediaFLO devices later this year.

Thanks.

On the cost cuts there are some implementation costs we are incurring this year.

We've declined to break those out.

I know others do so.

We prefer not to.

We are making select and small adjustments in our workforce.

I expect on the programs, we will be largely done going out of this year; but I think some programs will have some momentum that will carry on into some improvements for fiscal '10 as well.

So I think the program has gone well.

It has been very broad.

We are seeing improvements across every organization, every business unit in the Company.

And so we feel it's been well engrained by our approximately 16,000 employees; and largely complete end of this year, but I think still some benefits to show through in fiscal '10.

Phil, this is Len Lauer.

Your question about the MediaFLO devices, where as we move through the year and really get into the fourth quarter of the calendar year, we are excited on a number of fronts.

One is, we'll have some new feature phones out to our operator partners; but also entering the Smartphone marketplace with the Smartphone device.

We also, in partner with Audiovox in the fourth quarter, will be launching into dealers and going into the rear end displays in cars in the U.S., and that will be aftermarket at the dealers, but also launching accessory capabilities to go out to existing devices that have the FLO capability.

So you will see an expansion of the devices both, in handsets and also accessories, that will really start to, I think, establish us into being strong with the operators and in more distribution channels with the consumers.

Kulbinder Garcha from Credit Suisse, please go ahead with your question.

Thanks.

Just a couple of questions.

First of all for Bill, just a clarification, did you mention you could have further OpEx savings into 2010, and can we then assume OpEx could continue to grow at a slower pace than sales going forward for a few quarters.

That's just a clarification.

And the second question is, on the license renegotiation that was mentioned about six months ago, Qualcomm is not expecting to include that fiscal year, and can you give us any update in terms of how that deal might look in terms of upfront payment or not, and any kind of idea on timing really?

Many thanks.

I'll try and clarify on the cost side.

Yes, we do expect some benefits to carry on into next year.

And I would say, yes, we were definitely planning at this stage that our operating expenses would grow at a slower rate than our revenues would for fiscal '10.

On the license extension -- this is Derek -- again as I said, I think we are still confident that we will conclude this extension kind of in the time frame that we had previously discussed.

Again, we have been somewhat cautious in terms of getting too much into the details.

We do continue to believe that the agreement will include a lump sum component to it, as well as a number of other terms and conditions.

So I think that is all sort of consistent with what we have said in the past.

Matthew Hoffman from Cowen and Company, please go ahead about your question.

Yes, thanks.

A quick review here on the infrastructure side.

You had mentioned royalties were a little bit better on QTL.

Can you go through the OEMs where you have -- are there certain OEMs where you see better royalty rates than others?

Is there a mix issue on that front, or is it just the overall infrastructure spending was better in the quarter?

Thanks.

Yes, Matt, our infrastructure royalties over the years, we've described them a couple times as lumpy.

It's really more a function of network buildouts and the timing of those.

It's been the nature of our infrastructure royalties for many years here.

Okay.

And as you look into the 4G road map here, both on the -- especially on the chip set side, I guess as you look at what's going on with LTE, can you update us on the chip set front there, and are you on target to hit all your milestones on LTE chips?

Thanks.

This is Steve.

On LTE, we've announce two products.

We announced a product about -- a little bit over a year ago, or year and a half ago, which was the Data Centric product that came in really three flavors, all of them multi-mode, because we believe that the initial deployments -- and in fact for some period of time, the deployments will require both the backward compatibility mode and the 4G mode as well.

That product is on track and doing well.

We have also augmented our product line this February by announcing a Smartphone product as well, which combines the processing power from our Snapdragon product with the modem of the product that I just mentioned -- the LTE modem that we just talked about.

So we have a fairly robust portfolio of products for LTE, and I would expect us to do a similar thing to what have done with HSDPA or with DO, which we will move that through the portfolio as the market requires it.

Anil Doradla from William Blair, please go ahead with your question.

Thanks for taking my question.

My question was regarding India and 3G options out there.

Second half of '09, as the options get completed, how should we be viewing the impact of that on Qualcomm, especially -- can we start seeing a blip a quarter or two from now, just as we think -- with stronger demand in China?

And have you accounted that in your Q4 guidance going forward?

This is Paul.

So there is still a little bit of uncertainty about the exact date of the options.

There are some new reports coming out of India talking about whether or not the government is in a hurry to have those options.

So it's not clear yet exactly when is going toi happen.

It's likely that the major impact of that would not be in this calendar year.

But with that said, we continue to see good growth in China.

As I said -- I'm sorry, in India -- as they passed the 100 million mark in CDMA, so that's a nice milestone in the past.

So I mean, typically if the options are done, say on a certain date, typically do the handset vendors start ordering chips a quarter or two before?

Or -- I mean, what is the time difference between the options and their ordering chip sets from folks like you?

In this case if the operators don't know they are going to get a spectrum, they won't be prebuilding.

So it will take them sometime, probably the better part of a year, to build their networks out.

They may have some early launches.

So you would see that ramp happen.

And then often what happens in a new market is that multiple vendors will try -- or think they are going to get the same order.

So we have to actually judge what the end demand is.

But the ramp -- you can see it kind of what's going on in the ramp with, say, China Unicom as a good proxy here, where we are seeing demand, but it's still a little slower as they continue to roll their network out.

James Faucette with Pacific Crest, please go ahead with your question.

Thanks very much.

I wanted to quickly touch on chip sets, primarily both from a strategic perspective and also from a current market perspective.

From a strategic perspective, on Snapdragon, so far we have really only seen that product announced into Smart Phones.

Can you talk just quickly about why you think that is, and at what point we will likely start see that move more aggressively into other factors and segments?

And then the second question is, you talked a little bit about pricing coming down some going forward, and you seemed to allude to that being primarily mix-driven.

Can you talk about what type of pricing or competitive pressures you may be seeing on the different segments of your chip businesses?

Thanks.

We are on both of those questions, the first one on Snapdragon, what we did was we invested in this technology, really for two markets -- or two market segments.

The first one is really high end Smart Phones, of which the first ones you have seen with the Toshiba TG01, as well as, devices that we think cross over between a Smartphone and a laptop, a term that we refer to as a Smartbook.

We have talked a number of times about how the first of that second category -- meaning the Smartbook (inaudible) phones will start to come out in the fourth calendar quarter of this year, and we still remain confident in those launches.

We do expect that market to develop over time, paced primarily by how the software gets developed across the various players.

There are a number of traditional software providers in the cellular space that are trying to pull that user experience up into this new class of devices, and we are excited about supporting them and I think that will build through next year as well.

With regards to pricing, which was your second question, what we said was that we would see kind of a marginal downtick in pricing, pretty consistent with what we would see in all cases in cellular, which is that there is an ASP erosion.

If you were to think about next quarter versus the quarter we just reported on, a similar type of mix in terms of strong demand for the products that use data.

So we feel pretty good about how our ASP is going to hold up, given the normal trends that are in cellular.

So I think it's more of a strong story than perhaps what you are thinking.

Glen Yeung from Citi, please go ahead with your question.

Thank you for taking my question.

I wanted to follow actually in the last question with respect to ASPs.

I think part of what we are seeing obviously is a mix shift downwards that's likely being exacerbated by the economy.

And I wonder if you can give us your thoughts on what, if any, impact there may be on ASPs to the extent the economy is getting better next year?

I think on ASPs for next year, it's a little too difficult to tell.

And one of the reasons is really this -- what impact and what size will the China market be?

We talked about how difficult it is to predict new market launches, and they tend to be lumpy in terms of demand.

But in terms of the developed market, which we are starting to see -- as we said, the inventory has stabilized.

We feel pretty good about how the ASPs are holding up there.

Okay, and then just one other question.

I think the comment was made that the CSM business was actually very strong up until now.

Is that being guided down for a third quarter?

And -- well, either if it is or isn't -- and with the thought of Q4 -- calendar Q4 -- is there a potential for that business to change course?

This is Steve again.

On the CSMs, we announced last quarter that we had record shipments, primarily DO, Revision A and B capable.

Similar type of shipment level this quarter -- not at record level, but still very, very strong -- and we expect that to be -- to continue consistent with new carriers launching.

I would say, though, that from the perspective of our broader business, the CSM business tends not to be as financially significant; but it does indicate mix shift in the future, meaning that the fact that the carriers are deploying DO, Revision B capable infrastructure means that we expect reasonable demand for the handsets in the future.

Adam Benjamin from Jefferies, please go ahead with your question.

Yes, I was just interested in asking some follow-up questions on the wireless LAN.

You guys introduced a product there after quite sometime -- the Airgo acquisition.

Just curious if you can elaborate on the strategy there going forward.

You've partnered with Atheros.

If you could elaborate on that partnership going forward, as well as your own solutions, that would be helpful.

Sure.

This is Steve again.

The -- really two, maybe two vectors there.

On the very high end, I think we have a vision of a connected home, or certainly devices in the home distributing much higher data rates.

And I think those devices will tend to be connected more with the cellular network than they have been in the past.

So you can envision our (Inaudible) product and our high data rate wireless LAN product perhaps coming together in a format that may be very easy for the market to take.

So on the high end, I think we have a strategy to run that in the connected home.

In terms of the more standard products -- and I mentioned the WCN1312 -- that's really an extension of our existing integration strategy, where we think it's important as the attach rate goes up in the handset devices that we start to integrate those more tightly with our solutions.

So really both of those vectors we are driving now; and as we've mentioned in previous calls, that really augments our existing Bluetooth capability as well.

So when do you expect to be shipping your own Wi-Fi solutions, either combo it with somebody else's Bluetooth or stand alone?

We have been shipping Bluetooth for the last year, and we expect at the end of this calendar year to start to ship our wireless LAN solution.

Stacy [Rascon] from Sanford Bernstein, please go ahead with your question.

Hi, guys.

Thanks for taking my question.

I just wanted to revisit again the device guidance for next year.

So I know historically, typically you have maybe 55% or a little bit more or a little bit less of a shipments in the back end.

But I mean, it's obvious you've got a bit more of a ramp this time.

It doesn't sound like it's restocking.

I'm just curious if you can give me more color on what actually is driving that.

Is it a demand pick up?

Is it something else that's going in the channel?

Or -- I'm -- what is it?

We think it's demand pick up.

We expect the channel to be holding in this kind of 14 to 15 week band.

So we do think it's a demand pick up.

We have seen continued success with demand by the end consumer for advanced data services.

We are continuing to see operators doing well with data ARPU.

There seems to be a healthy competition out there for enabling good, affordable prices for the end user.

And you've had a large number of network launches and network upgrades.

So we think -- and then a little bit better improving economy as well.

So we think that the foundation is there and we are hopeful of seeing it come true.

Can you give me color on how much of that might be driven by handset demand versus demand for other devices that -- I guess non-handset demand that are also 3G?

We have indicated in the past that the data device -- data only device market has been quite strong.

We gave some estimates on that about 9 months ago.

I would just say that we continue to see that to be a very healthy market growing at a very strong rate, stronger than the market as a whole.

Mark Sue from RBC Capital Markets, please go ahead with your question.

Thank you.

Just the over-asked question in a different way.

Is there any share loss going on the chip set side, perhaps at China Telecom?

And then separately, as it relates to Snapdragon, any rough storm systems on Smartbook units next year and whether or not we should be worried about cannibalization with Smart Phones.

Mark, (inaudible), as you probably are aware, we actually don't talk about that in terms of quantitative numbers.

But I think as Bill mentioned, we feel pretty good about our share position at the moment and as exiting this fiscal year as well.

With regards to Snapdragon and how it may cannibalize different markets, I think our view is that is a very much incremental market relative to the Smartphone market.

I think you will start to see, and it's evidenced in our customer base, a lot of customers which will cross over.

But from the perspective of a handset person looking at this market, it will look incremental.

I do want to just also come back to the point -- the question was asked on data devices.

There has been some press reports on various markets -- notably some developing world markets.

And we just know -- we've seen this in the past -- that as some press would tend to report a market, they often -- they don't count a subscriber who has a voice-centered device and a data only device, they don't count that as two subscribers.

Obviously, we do.

So you can see some -- you might be seeing some anomalies in terms of how you're picking up numbers from various sources versus what we are seeing here, simply because of these data devices and subscribers having multiple subscriptions.

Craig Berger from FBR Capital Markets, please go ahead with your question.

Hi, thanks for answering questions.

Can you guys just help me understand a little bit more on the mirasol (inaudible), and what type of devices?

And then separately, as you look at the LCE, do we see the same type of royally rate on LTE that you are seeing on the 3G (Inaudible)?

Thank you.

Just to clarify.

You are asking about our status of mirasol business?

Your phone line was kind of breaking up.

(Inaudible) devices timeframe?

We haven't started to project revenues for mirasol display business yet.

We have just launched the first fab.

That's coming up to speed, and we are pleased with the traction that we are getting with customers.

Obviously, the first customers are going to be relatively small opportunities as we launch the technology into the market.

But from a technology standpoint as we look out -- we have some nice demonstrations we have done on larger displays -- full motion video and enhanced color gamut.

So I think the road map looks good for us.

This is Derek.

Let me take the LTE question.

I think as you all know, the multi-mode devices that CDMA and WCDMA, and as well as LTE, will continue to be covered under our existing CDMA, WCDMA agreement.

We have also now signed eight, what we call single-mode OFDMA subscriber agreements, meaning ones that do not include CDMA or WCDMA, including with Nokia; and we have stated publicly as well as on our external website that we expect at this time, based on our patent position and the standards around LTE, that we would expect to charge 3.25% for a license to our essential patent portfolio for the single modal FDMA devices.

This is Steve.

The other think I think it's important to know is that we believe strongly that LTE rolls out, it will be rolled out in a multi-mode fashion.

So for a significant period of time, our existing CDMA agreements will cover that.

Tavis McCourt from Morgan Keegan, please go ahead with your question.

Thanks for taking my question.

Two of them.

First, in the QCT business, it looks like operating margins were as good as they have been in quite awhile, and I'm just wondering, is there a point where it gets more difficult to continue to expand margins in that business and you have to keep on reinvesting?

Or is this something that we can expect margins to continue to expand as revenues ramp in the chip business?

And then second, now that it seems like you have got the spectrum, you're ramping products with the FLO TV, can explain to us a little bit how financially this will work in terms of added OpEx or Cap Ex over the next few quarters?

Well, this is Steve.

I will take the first question.

Yes, so this quarter we actually did have very strong profit percentage, driven primarily by the leverage coming from the top line.

So I think it's a fact in this business that you have to continue to invest in order to maintain your leadership position, and that will be true moving forward.

We have seen, and we expect this calendar or this fiscal year, to exit that year -- or exit this year -- in a range that is more consistent with our historical levels.

So we were pleased that the business has really returned to the point where we said it was going to be about two quarters ago when we said that when the orders returned, that we would restore the leverage.

And then -- this is Len Lauer -- on your question about MediaFLO, we are closed to finishing the majority of the buildout of the network.

A lot was built out waiting for the DTV transition; and we've opened in the key markets that Paul mentioned earlier, and now we're pretty much in implementation mode, of going out, expanding -- as we said earlier -- the number of devices, and also the enhancing with our distribution partners.

So I would say it's a pretty steady state.

You can see that (inaudible) expecting increases in what we have been doing, and now we are just looking forward to executing with a strong national network, and hopefully having even better service out there.

And ladies and gentlemen, we have reached the end of the allotted time for questions and answers.

Dr.

Jacobs, do you have final or closing comments you would like to make?

I would like to thank everybody for being on the call today.

I was particularly happy to see the chip set shipments back to a record level this quarter.

It's nice to see that that followed our projections as we went into the downturn, and to come out the way that we projected.

Also, I like seeing the uptick in the treasury portfolio.

We didn't spend too much time on that today, but I just wanted to say that our team there did an exceptionally good job this quarter.

I'm also pleased by the fact that we have been managing the OpEx as well as we have, particularly SG&A, because we have continued to be able to grow R&D, and we think there are a lot of exciting opportunities to address with our research and development.

Obviously, we talked a lot about the trends toward Smart Phones, and we are very excited by the Smartbook opportunity with some exciting new partnerships, as well as our strong existing partners.

And then as we look forward, we discussed these new geographies opening up, and clearly this is a strong 2G to 3G transition, which is continuing -- it's nice to see.

We were really happy after all these years to see that we are going to have the majority of the shipments of the 3G devices going forward.

So we are very happy with our competitive position.

I think we have some great new products and great new technologies coming out over the next year, and hopefully that will continue to show in our performance.

So thanks very much, everyone.

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

We would like to thank you for your participation.

You may now disconnect.