使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Ladies and gentlemen, thank you for standing by.
Welcome to the Qualcomm third quarter fiscal 2010 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 21, 2010.
The playback number for today's call is 800-642-1687.
International callers please dial 706-645-9291.
The playback reservation number is 83946397.
I would now like to turn the call over to Warren Kneeshaw, Vice President of Investor Relations.
Mr.
Kneeshaw, please go ahead.
Warren Kneeshaw - VP, IR
Thank you, and good afternoon, everyone.
Today's call will include prepared remarks by Dr.
Paul Jacobs, Steve Mollenkopf, and Bill Keitel.
In addition, Steve Altman, 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 them by visiting www.qualcomm.com.
During this conference call if we use any non-GAAP financial measures as defined by the SEC in Regulation G you can find the required reconciliations to GAAP on our website.
I'd also like to direct you to our 10-Q and earnings release which were filed and furnished respectively with the SEC today and are available on our website.
We may make forward-looking statements relating to our expectations and other future events that may differ materially from Qualcomm's actual results.
Please review our SEC filings for a detailed presentation of each of our businesses and associated risks and other important factors that may cause our actual results to differ from these forward-looking statements.
And now it is my pleasure to introduce Qualcomm's Chairman and Chief Executive Officer, Dr.
Paul Jacobs.
Paul Jacobs - Chairman, CEO
Thanks, Warren.
Good afternoon, everyone.
Our financial performance this quarter was ahead of our expectations.
It was driven by record MSM chipset shipment, favorable product mix, and continued strong demand for 3G devices around the world.
Looking forward we continue to see healthy CDMA-based device growth of approximately 23% in calendar year 2010, and are pleased to be raising our revenue and earnings guidance for the fiscal year.
I would also like to highlight that during the third quarter and the first few weeks of our current quarter we repurchased an additional $1.3 billion of our common stock bringing our cumulative repurchases to $3 billion in this fiscal year.
This is an exciting time in the wireless industry.
Although some global economic uncertainty remains our business is extremely well positioned to capitalize on some very positive industry trends.
Specifically, mobile wireless data usage continues to expand rapidly.
We're at a transformative stage in the industry as people increasingly use their 3G devices to stay connected.
New network technologies are coming online to meet the demand for more capacity.
With the recent issuance of licenses in India the 3G footprint is now global.
Finally, we're seeing the emergence of new 3G connected device types come to market.
Qualcomm's scale and breadth of technology position us to uniquely capitalize on these opportunities.
Our broad licensing program and our semiconductor expertise in managing the complex performance and power management demands of the market really set us apart.
So moving into some specifics, global wireless subscribers recently surpassed the 5 billion milestone, according to Wireless Intelligence, just over 1 billion of these being 3G.
According to the GSA and CDG, approximately 85% of the world's networks now support 3G.
With networks in place and the healthy demand for data services we expect the global migration from 2G to 3G to continue.
Smartphones remain one of the fastest growing segments in wireless as evidenced by the focus major OEMs are placing on this device category.
According to Informa, one in every five phones sold globally in 2010 will be a smartphone.
By 2012 approximately one in three is projected to be a smartphone.
Additionally, we're seeing carriers continue to experiment with variable data pricing plans which will help spur data growth and drive demand for data capable devices.
Our broad family of chipsets, including the cost effective QSC single chips designed for emerging markets, as well as industry-leading Snapdragon products which support a wide range of operating systems and multimedia capabilities position us well to assist our partners in creating devices across all tiers in the market.
We recently held our first annual Uplinq Conference in San Diego which provided a forum for developers and partners to learn about new initiatives within Qualcomm and to create new business opportunities.
The event was a success and brought together more than 2,100 attendees from around the world.
We focused on our support for multiple operating systems and how developers can better optimize their applications to work with our solutions, as well as how Brew MP will help bring the smartphone experience to the masses.
Brew MP is gaining traction with operators such as AT&T, America Moviles, Korea Telecom, and China Telecom in addition to the traditional Brew operators.
To meet the growing demand for wireless data more licensed spectrum needs to be made available for mobile broadband around the world.
Operators are making significant spectrum and capital investments to keep pace with consumer demand and we're very encouraged that in just the past few months India, Germany, France, Denmark, the Netherlands, along with Mexico and Colombia have all conducted major spectrum auctions.
On the technology front, operators continue to invest in network enhancements.
The GSA reported that almost all operators who have launched WCDMA have upgraded to HSPA and approximately one-third of these operators are committed to deploying the higher data rates with HSPA+.
In addition, 80 operators have committed to deploy LTE, up from 64 just a few months back.
Moving to the region, China represents a significant 3G opportunity with only 12% of the approximately 800 million subscribers using 3G according to Wireless Intelligence and operator reports.
The breadth of 3G devices being made available to consumers across China continues to grow, fueling demand for 3G adoption.
China Telecom has been adding more than 3 million CDMA2000 subscribers per month this year, and is further energizing and leading the global CDMA2000 Ecosystem.
At the end of June, they hosted the China Telecom CDMA2000 Ecosystem Conference, an event that attracted several thousand attendees and served as a venue for Ecosystem players to develop business opportunities relating to new devices and technologies.
At the event, China Telecom encouraged device manufacturers to use Brew MP as an operating system for low and mid-tier smartphones and shared their expectation that smartphones will make up up to 50% of 2011 new handset models.
Other topics of discussion included QChat, 1X Advanced and EV-DO, including Rev.
B.
With over 71 million CDMA subscribers on their network, China Telecom is on a path to becoming the largest CDMA2000 operator in the world.
In North America, we continue to see a bifurcation of demand with growth at both the high and low end.
Smartphones continue to define innovation in this highly competitive region with some of the hottest devices incorporating our Snapdragon solution including HTC's Incredible and EVO.
As well, prepaid continues to show signs of strength and several operators reported strong prepaid numbers in calendar Q1.
We're also seeing some encouraging signs with replacement rates as consumers upgrade to new devices.
Verizon reported that 8.6% of their post-paid base upgraded in the first quarter, representing an increase of almost 15% from a year ago.
In Europe, we do remain cautious on short-term growth prospects, but within this backdrop we are confident in the continued 3G growth and are encouraged by several favorable trends.
Leading operators are pushing smartphone growth and are actively deploying HSPA+ as an evolution for 3G networks.
According to the GSA, the number of commercial HSPA+ networks in Europe jumped from eight to 34 in the past year.
On their last earnings call Vodafone Group reported that their current smartphone sales was 30% of their total mix, and that they intend to grow smartphone mix to 70% or more by their fiscal 2012.
We're also continuing to see strength in 3G USB dongles.
Competition is helping to drive 3G price points lower and into prepaid as evidenced by the launch of T-Mobile's Android-based Pulse Mini and Samsung's Pocket 3G.
Lastly, according to Wireless Intelligence, 3G penetration in eastern Europe is approximately 10%, leaving strong growth opportunities ahead.
Turning to India, the 3G auction process was completed with seven carriers being awarded spectrum.
Consumers will benefit as these carriers compete to provide compelling 3G services and product offerings.
Based on operator commentary, new 3G networks could be in service as soon as the end of this year.
The expanded 3G footprint in India will provide us an opportunity to address the higher tier that was previously served by 2G devices.
In June, we won a 20-MHz slot of spectrum in the four telecom circles in the Indian broadband wireless access auction.
Our strategy with this spectrum is to facilitate the deployment of TD-LTE technology in combination with 3G to provide a clear technology roadmap for Indian operators and help foster a worldwide 3G/LTE Ecosystem.
With respect to our FLO TV business, we are engaged in discussions with a number of partners regarding the future direction of the business.
We are considering a number of alternatives, and we will update you as appropriate.
So in conclusion our fiscal year revenues are broadly in line with our original expectations at the outset of the year with earnings per share trending ahead.
While revenue growth this year is below what we expect of our business longer term, we're confident that the investments we are making in new products and technologies as well as the strategic pricing initiatives we have taken this year to maintain and grow our business will allow us to achieve our long-term growth objective.
That concludes my comments.
I will now turn the call over to Steve Mollenkopf.
Steve Mollenkopf - EVP, President, CDMA Technologies
Thank you, Paul.
Our QCT business continues to execute well and I'm pleased to be able to share some highlights from the third fiscal quarter of 2010.
We had a record quarter, shipping approximately 103 million MSMs which represents an increase of 11% over the previous quarter.
This increase was driven by our leadership in smartphones, particularly UMTS, as customers embraced our integrated roadmap including our 7000 and 8000 series chipsets and by continued strong demand for our data centric product.
In total, QCT revenues were up 10% sequentially reflecting these strong unit volume and relatively stable pricing.
The investments we have made in our smartphone portfolio have put us in a leadership position across all tiers and geographies.
This was evidenced by our growth of our 7K and 8K series chipset shipments of nearly 50% sequentially.
We believe we have gained significant share in mobile applications processors in the past two years with our internal data showing that our share at application processors has more than doubled in this period.
Our flagship Snapdragon brand has become the industry benchmark with over 15 new designs launching this past quarter.
In the rapidly growing Android segment, we are continuing our leadership position in both modems and application processors.
Since launching the world's first Android device almost three years ago, we now have over 40 commercially launched designs spanning multiple price tiers and form factors ranging from smartphones to smartbook devices.
Qualcomm chipsets were in some of the most popular devices this quarter including the HTC Incredible, the the HTC EVO, the Sony Ericsson Xperia X10 and Lenovo's LePhone.
We expect our success with Android devices to continue as we expand our support for Android across all tiers of our MSMs.
Today our partners have more than 50 device designs in progress based on our platform.
Our current generation of Snapdragon chips are shipping in volume and we continue to expand our industry leading portfolio.
This quarter, we sampled our Snapdragon dual-core 1.2GHz chipset with advanced GPU and multimedia capabilities.
The industry is going through multiple modem technology transitions, from 2G to 3G in some countries, and 3G to 4G in others.
We believe these technology transitions are opportunities for us to continue to demonstrate our strengths in both modem development and systems integration.
Our MDM 9000 series 3G LTE multi-mode chips are available now.
We expect to see data devices based on these chipsets offered commercially before the end of the year followed by smartphones and other smart-connected devices starting next year.
We have incorporated TD-LTE into all of our 3G LTE chipsets to align with and leverage our recent win of BWA spectrum in the 2.3GHz band in India and our worldwide carrier relationships.
We continue to focus on advanced wireless WAN technologies, deliver backwards compatibility in our chipsets with all air interfaces and global multi-mode capabilities which is an important and growing strategic advantage for us versus the competition.
Looking ahead, demand for our chipset products remains strong.
For our fourth fiscal quarter, we estimate MSM shipments will increase to approximately 106 million to 111 million units driven primarily by greater demand for smartphones and strength in China and North America.
The chipset market continues to be very competitive and the pricing environment is mostly consistent with our expectations at the onset of the year.
As always, the demand profile across our broad product portfolio is a key driver of our results.
Based on our latest estimates of this demand mix, we expect QCT operating profit for fiscal 2010 to be closer to the high end of our prior guidance of 22% to 24%.
We are pleased with the execution across the teams in QCT and we look forward to the opportunities ahead.
Our chipset portfolio aligns with device trends today and in the future with industry leading chipsets for HSPA+, the multi-mode 3G LTE, integrated Snapdragon solutions for tiered smartbooks, smartphones and tablets as well as low-cost solutions for the unique needs in emerging markets.
That concludes my comments.
I will now turn the call over to Bill Keitel.
Bill Keitel - EVP, CFO
Thanks, Steve.
Good afternoon, everybody.
I will begin with the highlights of our third quarter results.
Revenues were $2.7 billion, at the high end of our prior guidance, and pro forma earnings per share were $0.57, exceeding our prior guidance on the strength of record MSM shipments.
In our QTL segment, revenues were $847 million.
Total reported device sales by our licensees was $25.2 billion for activity in the March quarter, up approximately 19% year-over-year and consistent with our expectations at the outset of the quarter.
We estimate that approximately 134 million to 138 million subscriber units were shipped by our licensees at an average selling price of approximately $183 to $189.
We believe the average selling price increased sequentially driven by higher end devices, notably smartphones.
QCT shipped a record 103 million chipsets this quarter.
QCT's operating margin was 24%, better than our expectation at the outset of the quarter driven by greater phone volume and favorable product mix related to smartphone demand trend, as well as relative strength in North America.
Operating cash flow was $951 million and our cash and marketable securities balance was $17.6 billion at the end of the quarter with $5.9 billion onshore and $11.7 billion offshore.
During the third fiscal quarter and the first few weeks of this current quarter, we returned $1.6 billion of capital to our shareholders including dividends paid of $309 million and $1.3 billion of shares repurchased.
Our remaining stock purchase authority is now $1.7 billion.
Our pro forma tax rate was approximately 19% in the third fiscal quarter and we estimate our pro forma annual tax rate will be approximately 20% to 21% for fiscal 2010.
As Paul mentioned, we won spectrum in the recent India BWA auction for a total cost of approximately $1.1 billion.
Due to local regulatory restrictions we financed the payment for the spectrum on a short-term basis with a [rupee] bank loan.
We expect to form a partnership and finalize the partnership capital structure, including use of our offshore cash by the end of the calendar year.
And we plan to ultimately exit the venture.
Now turning to our guidance.
For CDMA-based device shipments we continue to see strong growth in global 3G device sales, and we are reaffirming our 2010 forecast.
We estimate that between 600 million and 650 million CDMA-based devices will be shipped in 2010, reflecting approximately 18% to 28% growth year-over-year, based on the 508 million midpoint of our 2009 estimate.
Our estimate for CDMA channel inventory is consistent with our prior expectations, as we continue to estimate that it is at the lower end of the historical range and will remain so the rest of this year.
We are raising our revenue guidance and now expect fiscal 2010 revenues to be in the range of approximately $10.7 billion to $11 billion.
We are raising our earnings per share guidance and now expect pro forma earnings per share to be in the range of approximately $2.33 to $2.37.
We estimate that the average selling price of CDMA-based devices for fiscal 2010 will be approximately $184 to $188, a slight increase above our prior guidance.
We continue to estimate that the average QTL royalty rate for fiscal 2010 as you calculated with the information we provide and excluding the one-time Samsung catch-up in the first fiscal quarter to be approximately equal to the rate of our fourth fiscal quarter 2009.
The rate continues to be understated due to two licensee disputes.
We are reaffirming our estimate for pro forma combined R&D and SG&A expense to grow approximately 4% year-over-year.
Looking ahead to the fourth fiscal quarter, we estimate revenues to be in the range of approximately $2.67 billion to $2.93 billion.
We estimate pro forma earnings per share for the fourth fiscal quarter to be approximately $0.55 to $0.59.
We estimate that June quarter total reported device sales, which will be reported later this quarter by our licensees, be approximately $26.5 billion to $28.5 billion, up approximately 5% to 13% sequentially and 6% to 14% year-over-year.
Our current estimates for QTL fourth fiscal quarter revenue and gross margin are contributing to Qualcomm's raised guidance.
Although we now see some foreign exchange impact, notably the euro, it is more than offset by higher than expected ASPs.
We anticipate that QCT will ship a new record of approximately 106 million to 111 million MSM units during the September quarter.
We anticipate fourth fiscal quarter pro forma combined R&D and SG&A expenses will increase sequentially approximately 1% to 2%.
In closing, we're pleased with the progress we're seeing in the second half of this fiscal year.
That concludes my comments.
I'll now turn the call back to Warren Kneeshaw.
Warren Kneeshaw - VP, IR
Thank you, Bill.
Before we go into our question-and-answer session, I would like to remind our participants that our goal in 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
(Operator Instructions) One moment for the first question.
Our first question comes from the line of Tim Luke with Barclays Capital.
Please go ahead with your question.
Tim Luke - Analyst
Thank you so much.
Steve or Bill, it looked like you saw a list in your operating margins for the chip business as well as some improved volume.
Could you talk about some of the factors that are leading to that improvement in the operating margin and how you may see the operating margin dynamic going forward as you see a stronger Snapdragon shipment?
I'd also just be grateful, Bill, if you might be able to clarify, it separately looked like the gross margin for the licensing business was slightly lower in the quarter.
Could you clarify what might have contributed to that?
Thank you so much.
Steve Mollenkopf - EVP, President, CDMA Technologies
Tim, this is Steve.
I'll take the first half of that question there.
What we saw in this quarter kind of sequentially was an uptick in our smartphone platforms, which is a little bit better mix for us in terms of pricing and the value that we get on a chipset by chipset basis.
So in particular, we saw our, as I said in my script, we saw that our integrated solution really jumped up 50% actually on a quarter-by-quarter basis.
We also saw a pretty strong growth in UMTS, which I think was beneficial as well.
Looking forward into the fourth quarter, we expect to see, again, double-digit percentage growth on a sequential basis on our integrated smartphone chipset.
So we think it's a -- we're benefiting from a positive mix shift.
Bill Keitel - EVP, CFO
Tim, on the QTL side, the quarter we just reported for QTL were for shipments that occurred in the March quarter which is their typical seasonally down quarter, and that was no different for this year.
So you just got less volume going through in the quarter that we just reported now.
On the operating margin line, there was also an increment in legal and patent expenses, additional patent expenses for additional patent filings.
Operator
Brian Modoff from Deutsche Bank, please go ahead with your question.
Brian Modoff - Analyst
Hi, guys, couple questions.
So can you talk about the pricing environment overall?
You raised your overall ASP by, the low end by $2.
Is this kind of more what you talk about earlier in the year where you expected the overall environment or the overall mix to improve in the back half driven by better sales in some of the more mature markets?
And then Paul you mentioned about returning to your long-term growth -- revenue growth target on the top line.
Can you kind of talk about what would be the drivers that would create revenue growth again for Qualcomm and when we might start seeing that?
Thank you.
Bill Keitel - EVP, CFO
Brian this is Bill.
To your first question, yes, that is what we're seeing.
We had expected in the second half of this year richer devices to be shipping, and, in fact, that's what we're seeing.
Paul Jacobs - Chairman, CEO
So we're expecting to see, although we haven't put out our projections for the next year, so I'll have to be cautious, but we've been talking about getting back to the mid-teens kind of growth rates over the -- for the medium term.
And really what that's coming from is some of the things that you've heard about this quarter and next quarter in terms of new device types trending towards smartphones.
You've heard about new geographies coming online, particularly China, and now India moving to allow us to sell into the higher tier.
So a number of really good trends that I think coming online and those will really impact our top and bottom lines.
Operator
Tal Liani, Bank of America-Merrill Lynch.
Please go ahead with your question.
Tal Liani - Analyst
Hi.
I have two questions.
The first is about the better ASPs that you mentioned, Bill.
Can you discuss regions?
Is the ASP better in all regions, or is it mostly in countries with smartphones?
And also, most of the currency headwinds is in Europe, of course, because of the euro.
So can you discuss also ASP trends in Europe versus other regions?
This is the first question.
The second question is about semiconductors.
You mentioned on the call now in one of the Q&As, you mentioned on the call that you expect double-digit growth in integrated chips.
On the other hand, we hear from your customers public announcements from Samsung that they launch now Android phones based on their own Hummingbird and LG endorsing ALMap, and we hear more and more from your customers about other vendors, and the question is what is the risk that your content in smartphones, chip content, is going to go down in value because maybe you are going to be shifted more towards just the modem part versus an integrated solution?
Thanks.
Bill Keitel - EVP, CFO
Tal, it's Bill.
I'll take the first question on the ASPs.
First, on the euro, the FX impact of the euro was about offset by the favorable ASP that we saw in Europe.
So revenues coming into the licensing business for Europe as a whole was about a wash between the FX impact and the favorable ASP.
On the broader front, in terms of ASPs, for the quarter we just reported, we saw about a half-dozen regions with improved ASPs quarter-to-quarter, including China, Europe, India, Korea, Latin America.
A little more mixed is our expectation going into the September quarter, about half and half is our expectation in terms of improved ASPs relative to a modest decline.
Steve Mollenkopf - EVP, President, CDMA Technologies
And on the second half of the question about competitiveness on the smartphone area, if you look at our customer makeup, we have a very different feedback coming from the customers than I think you represented in your question.
I mentioned in the script about launching 15 different Snapdragon designs over the last quarter alone.
There's a fair bit of customer diversity there, which I think helps us, I think it's some where in the neighborhood of 10 to 11 different customers actually launching those products.
We also had a significant increase from a new customer who is ramping, a European customer, which I think helps us in terms of diversifying the business.
The other trend that we're seeing both strategically as well as in our numbers is the move to more mass market smartphones.
As they move that direction, we think it actually advantages us in terms of our integrated solution, just because the only way that you can get to that cost point is by integrating.
I know there's differences of opinion, but as you get to a lower price phone, a phone that actually replaces a feature phone, which is where a lot of the volume comes from, they tend to go integrated, and we see that in our order flow as well.
As I mentioned, we had almost 50% growth, sequential growth, from Q2 to Q3.
We expect that to continue at double-digit percentage rate from Q3 to Q4.
Operator
Tim Long from Bank of Montreal, please go ahead with your question.
Tim Long - Analyst
Thank you.
Just a two-parter if I could.
First, Bill, if you could clarify on the guidance, I'm trying to put these together, so I'm looking at the midpoint of the royalty revenues up 9% sequentially, March to June, and your MSMs look like midpoint is up 5% June to September, share count probably down because of the buyback.
How is the midpoint of earnings guidance flat?
If you could just tell us what some of the negatives are to that.
And then, secondly, if could you just talk a little bit about the non-handset market, what's going on there.
My sense is, given the unit numbers you're talking about in Q1, that might have been down pretty well in the first quarter, in the March quarter.
So could you talk about the dynamics in dongles and USBs and what you think happens as other devices like tablets really start to hit your numbers?
Thank you.
Bill Keitel - EVP, CFO
Okay, Tim, on the first part of your question, in terms of the guidance update, we are expecting a volume increase in -- on the chipset, obviously.
There's a mix of products there, but on balance we expect QCT to be contributing probably $0.02 of earnings contribution.
On the QTL side, we're looking for about a $0.01 contribution.
The OpEx is about a $0.015, or a $0.01 offset, and then you've got a tax rate increase for about a $0.01.
So I think that's about makes up your quarter-to-quarter Q3 to Q4 walk on the earnings.
Tim Long - Analyst
Then the non-handsets?
Bill Keitel - EVP, CFO
The amount of handsets?
Tim Long - Analyst
No, the non-handset business, the dongles, data cards, and impact of tablets and other devices.
Bill Keitel - EVP, CFO
Yes, sorry, go ahead.
Derek Aberle - EVP, President, QTL
This is Derek.
Why don't I take that one.
I think if you are looking at the March quarter as compared to prior quarters, as Bill mentioned, we've got lower units that's a down quarter for QTL typically, but as dongles, USBs as a percentage of total units, relatively constant quarter-over-quarter from the prior quarter.
I think a lot of the tablets and new opportunities that we see coming might just be starting to kick in in the quarters to come, but not really reflected too much in Q3.
Operator
Rod Hall from JPMorgan, please go ahead with your question.
Rod Hall - Analyst
Yes, thanks for taking my question.
I've just got a couple quick ones.
I wonder if you could just comment on the China MSM units.
You said that they were strong and I'm wondering, there was -- I think at least we believe there was a crackdown in China on some of these wide label producers, and I wonder if you could say whether that has helped Chinese units on MSM and whether you think that trend might continue?
Then my second question is on Snapdragon.
I wonder if you could just update us on the number of design wins you're standing at now?
My third question is on Mirasol, if you could tell us what the status of the second facility is?
And, Paul, maybe just update us on where we are with demand on that for next year?
Steve Mollenkopf - EVP, President, CDMA Technologies
This is Steve.
Maybe I'll take the first two.
The first one is about impact in China on kind of the crackdown on wide label phones.
I don't know if we've seen direct impact.
We continue to see strong unit growth, strong units out of China.
We're starting to see the beginnings of a mix shift up market from sort of voice centric, voice and SMS-centric devices to more data centric devices which we think is a good trend moving forward.
But I think in terms of how the open market hits that, probably not as big an impact as you might think.
I think there was a question, too, about an update on Snapdragon designs.
We stopped tracking them as closely as we did the early days.
There's a fair, broad sort of design flow across most of our OEMs.
I think we've talk about 40 different customers and over 100 different designs.
It's very strong design-in flow right now, so we're very pleased with the way that's going.
Paul Jacobs - Chairman, CEO
On Mirasol, in terms of the second facility, we have released some relatively small amounts of money to get the process started.
There are some negotiations that are ongoing both in terms of getting land and facilities in place there, so that looks like that's on target.
And as we said, that won't be an impact through even next year.
Next year we will be out of our -- operating out of our first facility.
We expect to be significantly supply constrained.
We have a number of partners that, both major name partners that are looking to build devices, based off of the Mirasol displays that we will have, then also some other partners that will be doing that.
These will be primarily focused own that 5.7-inch more e-reader type display that we have right now.
Operator
Ehud Gelblum from Morgan Stanley.
Please go ahead with your question.
Ehud Gelblum - Analyst
Hi, appreciate it.
Thank you.
Just a couple of quick things.
The uptick, maybe 10% sequential growth that you're seeing in market size, Bill, and Steve, in your guidance next quarter of $26.5 billion to $28.5 billion, how much of that, in your mind, is coming from increased volume and how much of that is coming from increased ASP, or are you assuming essentially flat ASP and it's all coming from volume?
Steve, also, your guidance for operating margin, you talked about the double-digit growth in the integrated chips, and you talked about the full year operating margin now being at the high end of 22% to 24%.
Previously you talked about June being the trough and September being higher, now that June clearly is not even the trough.
It turned out that March was the trough.
Shall we still look for September to be sequentially up from this, or that's not the way to look at it, we should look at it on the full year just given (inaudible) sequentially?
And then, Paul, you just made some interesting comments about MediaFLO and the discussions, if you could just elaborate a little bit and give us the timing as to when you might see a resolution on that?
Bill Keitel - EVP, CFO
Ehud, this is Bill.
On the market size, we're going to stick with our new process of giving guidance on the total reported device sales and then in three months or so we will give you our best estimate on how that was broken down between units and ASP.
Steve Mollenkopf - EVP, President, CDMA Technologies
Ehud, this is Steve.
On the operating margin, if you look at what we gave in the script, I think you can kind of back into a number for the fourth quarter which I think is pretty consistent with what we've talked about before.
The difference, really, is for the full year is what happened in Q3.
As you know, it came in a bit better than what we had expected.
Primarily, and I'll refer back to what Bill has in his script, we had some strength in North America.
We also had some positive mix shift due to the strength in smartphones, even inside of what we thought at the time we gave the outlook.
As we mentioned, there's a fair bit of -- or as we've talked about a number of times, the market is actually very difficult to measure and to predict in terms of mix.
We are seeing customer demand pull in and ask for products inside of lead time.
We're able to meet that demand.
In this quarter, that's been something that really positively impacted our numbers.
It probably would have even been better had the rest of the supply chain been able to meet those demands as well, but I think as well documented some of the other components suppliers probably couldn't do that.
So it's really a positive mix shift that we've seen.
Paul Jacobs - Chairman, CEO
In terms of MediaFLO process, we're in discussions in the number of different companies.
We've been pleased by the response that we've gotten and the interest that we've had, although it is very early stages, really just going around now, trying to understand the different things that different companies might be interested in relative to that business and relative to the spectrum also that we own.
We haven't really put a firm timeline in place, so I would say it will get done in the next year, but I don't think I can be much more specific than that.
And it's not -- the process going forward includes a number of alternatives, so I wouldn't necessarily jump to the conclusion that it is -- it will be done one way or another.
There are different things that we're trying to do in that process, see whether there are things -- whether we can retain some ability to give advantages to our chipsets, for example, going forward.
So a lot of interesting discussions.
It's early days, but we're happy with the interest we've gotten so far.
Operator
Maynard UM from UBS, please go ahead with your question.
Maynard Um - Analyst
Hi, Steve, can you just clarify your chipset margin commentary?
I mean, given your increasing volumes, the favorable mix, the commentary about the pricing environment, just curious, why you are not seeing the greater leverage or even greater leverage into the next quarter?
And then, Bill, or Derek, on the licensing side, can you talk about your royalty rate?
It seems like Android is gaining significant share and not necessarily the lower royalty rate OEMs, and also Apple presumably gaining share, so just wondering if there's a reason why you wouldn't see your royalty rates increase as those licensees are gaining share, and when do we get back to the mid to high 80% EBIT margins in that business?
Thanks.
Steve Mollenkopf - EVP, President, CDMA Technologies
Maynard, this is Steve.
I'll take the first half.
So we are seeing, I think, some improved operating margin metrics with the increase in volume.
There continues to be a competitive pricing environment, but I think we are seeing a mix shift up, certainly better than had the smartphones not launched, which I think is what we've been looking for.
So I think we are seeing the leverage.
We are going to finish at that time high end of that range, and so pretty much I think the year has unfolded largely the way that we thought, I think with a little bit of an increase in this quarter relative to what we thought at this time last quarter.
Bill Keitel - EVP, CFO
Maynard, this is Bill.
On your questions there, based on the data we disclosed, and then the implied royalty rate you calculated, you'd see a modest decrease in the quarter we just reported, sequential decrease.
And the primary driver there is infrastructure royalties, which I think you understand, they tend to be kind of lumpy.
But nothing structurally different is coming through there, whatsoever.
In terms of a longer-term view and getting back into the mid-80s, we're working through our longer-term plans now and we certainly have plans to improve that operating that margin, but we'll consider maybe a little more color on that topic when we get to New York in November.
Operator
Simona Jankowski from Goldman Sachs.
Please go ahead with your question.
Simona Jankowski - Analyst
Hi, thank you so much.
Just a couple questions for Steve.
Steve, I think you're currently on 1GHz on your second generation of Snapdragon, and I think you mentioned you're sampling the 1.2GHz.
From your competitive intelligence do you expect your competitors to be on that same kind of performance roadmap because it seems like in the last year or so you've all been relatively clustered that in speed?
But curious if that's going to gap one way or the other into the back half of the year?
And then just secondly, as LTE begins to ramp toward the end of this year, are those ASPs and market share for you consistent or different than what you have right now in 3G?
Steve Mollenkopf - EVP, President, CDMA Technologies
Sure.
So the first one about microprocessor competitiveness, I think we think that our design, and when we look at the competitive data, is advanced both in terms of timing and performance on a core-by-core basis.
If you look at the performance metrics, even on browsers and things like this, we feel that it actually even shows itself at the system level.
So if you look at the performance, even clock rate to clock rate, we think we have an advantage with the current design.
We are working on speed enhancing those designs, which you'll see come out in the dual-core designs.
We also have a 1.5 and above GHz solution also sampling that we can use.
We're coming out with a next generation micro architecture, which we think bumps it up substantially as well.
So we feel that we have a leadership position into the future with regards to micro architecture and microprocessors.
I will say that the industry is filled with a lot of folks either speed bending parts or doing things and comparing less apples to apples, but we feel very comfortable in terms of where we stand competitively with a commercial solution.
So hopefully that's the answer to the first one.
The second one was LTE ASPs.
We do see an uplift in terms of LTE ASP.
The way that we positioned our product, it comes out in stand-alone form, then it will be integrated in with our high-end smartphone solution.
We think that LTE eventually will become a table stakes feature at the high end of flagship smartphones, and we're positioning ourselves for that.
Operator
Ittai Kidron from Oppenheimer.
Please go ahead with your question.
Ittai Kidron - Analyst
Thanks.
I wanted to dig again into the QCT margins.
Given your annual guidance, actually implies a sequential decline in margin in the next quarter.
So how should we think about that?
And also, Steve, as we're going to next year, is this a level you expect us to be kind of, quote/unquote, stuck on for some time, or what would be the time for you to start moving higher than the 24% that you are at right now?
Steve Mollenkopf - EVP, President, CDMA Technologies
Yes, I would encourage you to perhaps maybe make the calculation again in terms of the fourth quarter.
I don't think we'll see a decline, and it probably depends on what your assumptions are in terms of some of the numbers.
But I think it will be probably closer to flat versus down.
With regards to next year, I think it's a bit too early for us to be making comments about next year.
We are pleased that we're exiting on the high end of our range and sort of with the right momentum.
But I think we'll be in a better position to talk about next year in totality when we get to our analyst conference in November.
Ittai Kidron - Analyst
Very good.
Just a follow-up on Snapdragon.
Are you experiencing shortages specifically on that product?
Steve Mollenkopf - EVP, President, CDMA Technologies
No, we are not.
We've been supported very well by our foundry partners for that product, been able to supply it.
In fact, in some cases we have delivered to some OEMs 300% of their lead time forecasts.
We've been able to actually move very, very aggressively to meet their needs.
I don't believe the rest of the industry is able to move as quickly as perhaps we are, but we have been able to supply those products to meet customer needs.
Operator
James Faucette from Pacific Crest, please go ahead with your question.
James Faucette - Analyst
Great, thank you very much.
Wanted to direct one question to Steve in the competitive environment for chipsets.
You indicated that you're still seeing some competitive pressures, maybe from pricing or even gigahertz in response to Simona's question.
My question is how would you compare the competitive environment now, say, versus a year ago?
Are you feeling more comfortable, less, or do you think it's about the same?
And then maybe a question for Bill or Paul.
As far as the large amount of cash, particularly offshore cash, I know that you are using some of that in terms of the spectrum acquisition in India, but can you talk a little bit about options that you may be exploring or how important that is to you to at least find a way to do some more flexible -- or be more flexible with that?
Thank you very much.
Steve Mollenkopf - EVP, President, CDMA Technologies
James, this is Steve.
I'll take the first part of that.
With regards to pricing, it's really three components.
There's customer mix, there's product mix, and there's really kind of pricing.
Customer mix and product mix we believe is trending positively.
I mentioned about the diversity of customers earlier on.
I think that is something that helps to us a certain extent.
In terms of pricing, it's still a very competitive environment as semiconductors always are.
Relative to where we were a year ago, I think a year ago we had a number of people who were probably entering into the market and were probably a bit more aggressive than what we see today.
A lot of them have already entered have already played their hand to some extent.
There's always continual pressure as products get upgraded, but I think it's probably a little bit less aggressive relative to where it was, let's say three months ago, or, excuse me, three-quarters ago.
You can see in that our ASP trends as well, if you look at sort of the sequential change in our ASP.
But continues to be something that we have to manage and have to work our way and innovate our way out of.
Paul Jacobs - Chairman, CEO
In terms of the offshore cash, obviously, we're using it in areas for advantaging the business, things like eventually India spectrum, Mirasol investments as well.
Clearly, we also invest that money offshore, the returns of that, off of that are onshore, and we use that for things like dividends and share buybacks.
But in addition, we've been having a number of discussions lately with the government about opportunities for repatriation because we feel very strongly that with the amount of offshore cash that a lot of U.S.
companies have, that really could be almost a private sector stimulus, if there was a way to bring that money back and to incentivize companies to bring that money back and put it to use in the United States.
So we've had discussions around whether they could be used for CapEx, things like building factories in the United States, whether we could use it for improving or increasing R&D in the United States, and we've also had discussions about whether it could be brought back for doing things like providing dividends to shareholders, and you do get some push-back.
There is a perception in Washington that previous repatriation that happened did not result in job growth and so forth.
In fact, I guess some companies that had repatriated money had layoffs after that so that left a bad taste in the mouth of many politicians and regulators.
But I think that there are arguments to be made there, and we will continue to make those kinds of arguments.
But as well as doing that, obviously, we continue to use it for investments and for business purposes.
Operator
Edward Snyder from Charter Equity, please go ahead with your question.
Edward Snyder - Analyst
Thank you very much.
Couple things here.
Channel inventory seems to be remaining low, and I know you guided for more of the same, even as you're kind of coming off of the trough period in demand here.
Is this a permanent dislocation in inventory is there some structural issues that are holding you down that you think may revert to the mean as we go forward?
Then, Steve, is it fair to assume that a higher mix of your slim modem shipments like we're seeing in Motorola's Droid products and has been rumored going to be in the Apple iPhone that will push margins back down to the lower end of your ASIC guidance, and then Snapdragon pull it to the top?
I'm just trying to get a handle on the mix.
And the final question, I'm sorry for three here, is there any visibility on LTE device for handsets, when that might start sampling, maybe next year?
Even if you can block it into a half-year segment that would be great.
Thanks a lot.
Bill Keitel - EVP, CFO
Ed, this is Bill.
On the channel inventory, I think you've heard us, we felt that channel inventory has been at the low end of its historical range for some time now.
We think that was largely driven by concern over the world economy.
I still think there's an element of that in various parties' thinking.
But having said that, I think it's somewhat constrained today also by the fact that there are other parts of the chain -- we're doing well -- but other parts of the chain of the phone supply that are experiencing shortages.
Steve Mollenkopf - EVP, President, CDMA Technologies
And then your question about modem mix, I try not to talk too much about any particular customer or potential customer, but the way, if you look at our product portfolio, we essentially have high-end smartphone solutions.
We have some mass market smartphone solutions and feature phone.
And then we have modems.
The modem tier really, depending on whether you're taking sort of last year's modem or this year's modem, or next year's modem, there's a pretty big difference in terms of pricing.
We do get paid, we think, for our leadership of modems, and depending on how particular OEM that's using a stand-alone modem, which modem tier they select, it really depends on what -- that influences ASP quite a bit.
Probably the modem tier that we use in sort of mass market USB tends to be a little bit below what we see in the handset tier.
So short answer to your question, it really depends on what the OEM picks in terms of how it will affect our ASP.
Operator
Stacy Rasgon from Sanford Bernstein, please go ahead with your question.
Stacy Rasgon - Analyst
Hi, guys.
Thanks for taking my question.
Two quick ones around the operating margins and the royalty rate.
So first of all we saw QTL operating margins, it looked to me like they came down about 500 basis points, and we had the royalty rate, as you mentioned, compress a bit, and I think you said it was due to infrastructure.
I was wondering if could you give me a little bit of color on what drove such a large decline in the QTL operating margin?
And also for your guidance that the full year royalty rate would be about where Q4 2009 was last year, by my recollection that was about 3.4%, I think.
Would that imply further compression of royalty rates in Q4?
Bill Keitel - EVP, CFO
So Stacy, Bill Keitel here.
On the QTL Op margin, two factors there that we've mentioned.
One is that we're recording revenues now for products that licensees shipped in the March quarter.
March quarter tends to be the low quarter coming off the holiday season.
So revenues were low in QTL just from a seasonality standpoint, so that affected the margins, one.
Two was that more of our legal expenses and patent filing expenses were impacting licensing business this quarter.
On your second question, the royalty rate, yes, we have been saying that we expect the royalty rate as you calculate it based on the information we provide to about equal the -- for this year to about equal the rate that we reported going out of fiscal 2009.
It ebbs and flows a bit from quarter-to-quarter, for things like infrastructure payments, of the mix of product, but on balance, we think it's going to be about equal for the full year.
And then, of course, remember, too, that that rate is understated because of two licensee disputes that -- we remain confident in.
It's just a matter of time before we're able to report those revenues.
Operator
Kulbinder Garcha from Credit Suisse.
Please go ahead with your question.
Kulbinder Garcha - Analyst
Thanks.
Just to follow-up, Bill, on the licensing margin, is this cost structure on licensing, I'm not clear on, is it permanently higher for a period of time or is it just temporary?
I'm trying to figure out whether margins bounce back quite quickly in licensing.
Then on the licensee dispute, previously when this first came about, I think, in January, you seemed confident it would get settled this year, so there was kind of a time horizon as to when it could come back.
Could you say, for example, you feel comfortable it would be within 18 months you'd get these revenues and earnings back?
Bill Keitel - EVP, CFO
Kulbinder, on your first question, in terms of the rate, I wouldn't see anything structural here.
Seasonality on revenues this quarter for the licensing business tends to be the low quarter, that's a constant.
But I don't think that fits your definition of what you're trying to describe here as structural.
In terms of fees we incur for legal defense of our business, at some times QCT business is occurring a higher level than not, at other times it could be the licensing business.
Overall, those fees are down substantially if you look back a couple -- a year or two.
But right now the licensing business, couple matters we're dealing with are focused on licensing.
Then in terms of the revenue, in the past we've said that it's in the range of approximately $200 million.
We think as of the end of this fiscal year that revenue that's due to us, that we expect to ultimately collect.
The number has not changed substantially, but the probability at which we're including revenues for fiscal 2010 has been reducing as time has gone by.
Again, we're very confident that we'll ultimately be able to record these revenues.
Timing can be a difficult thing to pinpoint.
But overall I think we're making progress.
Operator
Mark Sue with RBC Capital Markets, please go ahead with your question.
Mark Sue - Analyst
Steve, on a like-for-like comparison, is your integrated solution at cost parity with discrete processors and baseband combinations, and if not, when may you reach parity, and are there indications of new entrants into the integrated solution market?
Steve Mollenkopf - EVP, President, CDMA Technologies
We actually think we have a cost advantage, acquisition cost advantage to being integrated.
That acquisition cost advantage tends to be best suited for the die sizes that you need to support kind of a mass market smartphone, so we actually view ourselves as having an advantage.
Now, there's always -- what margin that our competitors are willing to take ultimately determines what the price is to the OEM, but we feel we have an acquisition cost advantage.
There are a number of other players who support integrated solutions.
They tend not to have the same breadth of technology, either up and down a particular technology, like WCDMA.
They may not have the same number of tiers and so they, therefore, can't cover as broad a product portfolio with a large OEM, or they don't -- we don't think they have the ability to stay with us as we drive technology at the speed at which we think we can.
There's no shortage of people who want to compete in this area, but we feel that our core strengths really are the things that will be rewarded by the customer base.
Mark Sue - Analyst
As a follow-up, Steve, are there any motivations to kind of draw the costs down for Snapdragon so that you could drive unit growth, or not just yet?
Steve Mollenkopf - EVP, President, CDMA Technologies
Obviously, there's not a policy for that.
We obviously make that on an opportunity-by-opportunity basis.
We think that the market is just beginning to make the shift and these categories are just launching, so I think it's at the point where there is a premium applied to these type of devices, and as we need to do that we will do that.
We will be putting ourselves in a position of, we think, relative strength as we move to 28-nanometer.
We'll be able to drive integration, we think, even faster than the competitors.
So we'll be even better positioned as we make that node transition.
Operator
Anil Doradla from William Blair, please go ahead with your question.
Anil Doradla - Analyst
Yes, thanks for taking my question.
The question that I had was, given that the majority of these smartphones have stand-alone application processors, is Qualcomm averse to the idea of offering a stand-alone processor, and along those lines, do you see a price point cut-off where most of the handset guys are looking for integrated solutions versus stand-alone?
Steve Mollenkopf - EVP, President, CDMA Technologies
I would say this.
Our data probably shows a different trend, which is that if you look worldwide, and take out the Apple iPhone, the trend really tends to be more toward integrated than disintegrated when you look at it.
That trend even becomes stronger as you go to phones with a retail ASP lower than $200.
So it's really in that mass market range where you tend to see the integrated winning.
And you can see that across of number of OEMs.
I think sometimes we get a little bit -- we tend to make conclusions based off of what we see in North America, and worldwide, there's quite a bit of volume across, particularly Android volume, that exists that shows a very different trend, and we definitely see in that our order flow.
Operator
And ladies and gentlemen, we have reached the end of the allotted time for questions and answers.
Dr.
Jacobs, would you like to add anything further before adjourning the conference?
Paul Jacobs - Chairman, CEO
I want to thank everybody for joining us again this afternoon, and we're really pleased with the way the quarter turned out, and happy to be able to raise guidance.
And I think that's really a reflection of these favorable trends we've been talking about with the smartphone volumes really starting to ramp and Snapdragon starting to ramp, with 3G becoming global and with new technology starting to ramp.
It turns into things like record MSM shipments and better mix and also better device ASPs.
So we've been happy to have the opportunity to return capital to our shareholders in the face of what I think was fairly bearish sentiment about the Company.
But the other thing is that we're able also to continue to really invest in new technologies and products and I think that positions us very well for the future.
So thanks very much, everyone.
Operator
And ladies and gentlemen, this does conclude the end of today's conference call.
You may now disconnect.