高通 (QCOM) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Qualcomm fourth 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 November 3, 2010.

(Operator Instructions) I would now like to turn the call over to Mr.

Warren Kneeshaw, Vice President of Investor Relations.

Mr.

Kneeshaw, please go ahead.

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 with join the question-and-answer session.

An Internet presentation and audio broadcast accompany this call, and you can access them by visiting our website at 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 would also like to direct you to our earnings release which was furnished with the SEC today and is available on our website.

Our 10-K is in the process of being filed.

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.

I would also like to remind our listeners that our New York analyst day will be held on Wednesday, November 17.

The analyst meeting will be webcast for those of you unable to attend in person.

Consistent with past analyst days, we will be providing guidance disclosures at that time that are in addition to those provided in our earnings release and on this call.

And now it is my pleasure to introduce Qualcomm's Chairman and Chief Executive Officer, Dr.

Paul Jacobs.

Thank you, Warren, and good afternoon, everyone.

Let me begin by saying how pleased I am with our performance this year as we delivered record earnings per share and record MSM chipset volume.

In looking forward, our outlook reflects strong revenue and earnings growth in fiscal 2011.

In the coming year, we expect continued healthy growth in CDMA-based device shipments including smartphones and other data-centric devices driven by the global adoption of 3G and accelerating consumer demand for wireless data.

We've had a number of highlights this year.

First, QCT continued to execute.

Our Snapdragon platform set the competitive benchmark for smartphone silicon, and we've taken a leadership position in offering our chipsets for key operating systems such as Android and Windows Phone 7.

We offer the industry's broadest 3G product roadmap, and we continue to grow share in WCDMA chipsets.

Our licensing business continues to be well positioned in 3G and multimode 3G LTE and now has over 185 licensees.

Of note, we added another 14 new Chinese licensees in fiscal 2010, bringing the total number of Chinese licensees to 65.

Our licensing program continues to foster innovation and supports the 3G ecosystem that benefits wireless consumers worldwide.

In terms of our display business, we believe Mirasol is a disruptive technology for the mobile display industry.

The combined benefits of extremely low power consumption with sunlight viewability and support for color, video and touch sets it apart from the competition.

We've made strong progress in the development of this display technology as we brought our first fab on line and are targeting limited volume commercial 5.7 inch display devices in the first half of 2011.

We're very excited about the prospects for this technology, and we'll be providing more details at our upcoming analyst day.

In FLO TV, we have decided to change directions, stepping back from the direct to consumer business and commencing a restructuring plan under which we expect to exit the current FLO TV service business.

We're in discussions with a variety of interested parties and are continuing to evaluate other options for this business.

Possibilities range from a new wholesale model, sale or joint venture with a third party and/or sale of the spectrum licenses in discontinuance of the operation of the network.

Overall, we had strong earnings and cash flow performance in fiscal 2010.

We returned more than $4 billion to shareholders in the form of a $3 billion buyback and over $1 billion in cash dividend.

We ended the year well position with a strong balance sheet, including $18.4 billion in cash and marketable securities.

Turning to calendar 2011, we expect CDMA and multimode 3G/4G based device shipments to grow to approximately 765 million units, up 20% year-over-year, based on the midpoint of our projections.

This growth will be driven by the global adoption of 3G, the continued demand for wireless data, strength in consumer demand for smartphones, growth in new connected device categories, as well as 3G momentum in emerging regions.

Operators around the world continue to benefit from the growth in wireless data.

Japan is approaching a tipping point where data ARPU will exceed that of voice.

In the United States, AT&T recently reported a 30% year-over-year growth in data revenues, and Verizon wireless stated that data comprised over 35% of its revenues this quarter.

We expect this trend in data growth to continue as operators increasingly experiment with variable pricing plans that provide more choice in lower total cost of ownership alternatives to consumers.

To meet the network needs resulting from this rapid growth in wireless data use, operators continue to make investments in the latest air interface technologies.

KDDI recently announced its fourth quarter device lineup, and seven of the new devices included support for multicarrier EV-DO, also known as EV-DO Rev B.

According to the GSA, to date there are a total of 81 operators who have launched HSPA+ networks, of which nine support dual carrier HSDA Plus with data rates of 42-megabits per second.

The rate of HSPA+ network launches is faster today than when HSUPA was first introduced.

We're also seeing strong momentum behind LTE led by Verizon's expected launch this quarter.

Multimode capabilities are essential for devices on these networks, and we're very well positioned to capitalize on these dynamics by leveraging our time to market advantages and industry leading modem solutions.

Smartphones remain the strongest area of growth within the wireless segment driven by continued innovation and competition.

According to Canalys, the global smartphone shipments exceeded 80 million units this quarter, representing a 30% increase quarter-over-quarter and a 95% increase from the year prior.

Looking forward according to Gartner, smartphones as a percentage of the total handset market is expected to grow from approximately 16% in 2009 to greater than 45% in 2014.

These numbers would be even greater if they had included BREW mobile platform-based phones in their numbers.

The emergence of new connected device categories is also a favorable trend for our business.

As volumes in new categories like 3G connected e-readers and tablets continue to grow, they represent incremental growth opportunities for our businesses, driving adoption of multiple 3G devices per consumer.

The growth of 3G in emerging regions is another catalyst for our business.

China represents a significant opportunity with a low CDMA penetration rate of 13%.

With 3G networks now maturing, operators have turned to increasing the number of devices available on their networks.

For example, China Telecom reported more than 100 EV-DO handset models in supply by the first half 2010, and China Unicom had over 90 3G models available as of June.

In India, 3G licenses have been issued and the majority of newly licensed operators plan to launch 3G services before the end of calendar year 2010, and Tata DoCoMo became the first private Indian operator to launch 3G.

3G services will be available across all nine of their circles this week.

Now, on the legal front, as we noted in our 10-K, in September the Company was notified by the SEC of a formal investigation that arose from a whistle blower's allegation made in December 2009 to the audit committee of the Company's board of directors and to the SEC.

The audit committee has conducted a review into the allegations and related accounting practice with the assistance of independent counsel and independent forensic accountants.

This recently concluded review did not identify any errors in the Company's financial statements.

The Company continues to cooperate with the SEC's ongoing investigation and looks forward to resolving this matter.

And separately, I'm pleased to report that the arbitrator in the Panasonic arbitration issued an interim order in the first phase of the process denying Panasonic's claims that we breached our license agreement with them.

We're pleased with this initial finding as it supports our belief that Panasonic's claims are without merit.

So, to wrap up, we've completed another record year at Qualcomm, and I would like to thank all of our employees and partners for their tremendous efforts.

With our broad licensing program and industry leading chipset roadmap, we're extremely well positioned to take advantage of key 3G growth opportunities in both developed and emerging regions around the world.

In looking forward, I am pleased with our outlook for improved revenue and earnings growth in fiscal 2011 and strong growth in CDMA based device shipments driven by the global migration to 3G and increasing consumer appetite for data-centric devices, particular smartphones.

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

Thank you, Paul, and good afternoon, everyone.

Our QCT business delivered strong results this year in a dynamic environment, reflecting growing demand across our product portfolio.

We had another record quarter shipping 111 million MSMs, which was a great follow-on to our record results in the June quarter.

We also had a record year, shipping just under 400 million MSMs.

We are extremely pleased to deliver stronger than expected revenues and operating profit for the quarter and for the fiscal year, with operating margins exceeding the top end of our guidance.

As we anticipated in July, demand for smartphones continued to grow in the September quarter.

This is clearly a favorable trend for our business.

Shipments of integrated 7000 and 8000 series chipsets increased more than 30% quarter-over-quarter and nearly 100% year-over-year.

We also saw continued strong demand for our QSC and data-centric products.

Our broad, industry leading chipset roadmap helped us grow share in both WCDMA handsets and in mobile application processors this year.

As forecasted a year ago, we experienced a greater than normal decline in our average revenue per MSM during fiscal year 2010.

In the first half, this was driven by competitive pricing pressure and an increase in sales of chips for entry level and lower tier feature phones.

In the second half, we saw even stronger than anticipated demand for our higher tier integrated chipsets, evidenced by the fact that we shipped four times the number of Snapdragon chipsets in the second half of fiscal 2010 than we did in the first half.

This favorable mix trend is likely to continue into fiscal Q1, resulting in a sequential increase in average revenue per MSM.

Growth in demand for smartphone chipsets continues to be an important driver for our business, and we expect to see an increase in the variety and tiering of smartphones in the future.

We continue to see up side in the high end of the market, as well as new wave of opportunity coming in the form of lower cost, high volume 3G phones in both developed and developing geographies.

The cost advantages of our integrated approach and platform compatibility among our products positions us to grow as these trends play out in the marketplace.

We have a significant and growing number of design wins based on our integrated solutions encompassing multiple price tiers and form factors.

On the high end, devices based on the newest members of our Snapdragon family the 8x55 and 8x30 chipsets are expected to be available this holiday season, and devices based on our dual core products are expected to be available in the first half of calendar 2011.

New lower cost smartphones based on our integrated 7x27 and 7x25 chipsets are also growing, including offerings from LG, Motorola, Sony Ericsson and Huawei.

In China alone, we have seen a nearly 30% growth in our customer base with over 40 new designs in this tier.

The majority of these are based on the Android operating system.

Our investments to support multiple operating systems positions as well to gain share from smartphone growth.

We now have seven different integrated chipsets that support the Android operating system.

We are also Microsoft's lead chipset partner for the Windows Phone 7 launch.

Our Snapdragon chipset powers all nine of the new Windows Phone 7 handsets which are expected to be in stores in Europe, the US and southeast Asia this holiday season.

On the modem side, our innovation, product quality and ability to execute continue to set us apart.

In emerging markets like India and China, our single chip QSC product family positions to us benefit from the 2G to 3G transition.

A number of customers, including Lenovo, Yulong and Longcheer have already launched devices based on our 6240 and 6270 chipsets, and we have more than 25 designs in progress at multiple customers in China.

In mature markets, the 3G to 4G transition has started, driven by the increasing demand of smartphones and tablets.

Our MDM 9600 chipset is the first and only multimode LTE solution designed to help our customers seamlessly bridge this complex technology transition.

We have sampled this product and expect to see the first commercial products based off of it this quarter.

We are very pleased that we finished the 2010 fiscal year on such a strong note and above targets, driven by an increase in demand for smartphone chipsets.

We expect this trend to continue into the first quarter, along with initial demand for LTE chipsets.

In the second half, we expect a change in mix as the demand shifts to more mass market smartphone products and emerging market chipsets driven by transition from 2G to 3G.

We will continue to price in order to gain share in this environment as we did in fiscal 2010.

You will you also see a major product transition in our portfolio as we sample our first 28-nanometer parts and increase the focus on cost optimized smartphone solutions.

In closing, we believe the QCT team executed well in fiscal 2010 and continued to drive our technology and integration leadership position in the industry.

We believe we are in a strong competitive position to continue to grow share and to lead the transition to smartphones and the growth of mobility in the market.

That concludes my remarks, and I now turn the call over to Bill Keitel.

Thank you, Steve, and good afternoon, everyone.

We have good results to report to you today.

Our fiscal fourth quarter revenues were $2.95 billion, up 10% year-over-year and non-GAAP earnings per share was $0.68, up 42% year-over-year, both exceeding our prior guidance.

QCT had record MSM shipments and favorable product mix including HSUPA and EV-DO integrated chipsets.

QCT's operating margin increased to 28%, reflecting strong volume and increased mix of higher tiered chipsets.

QTL revenues were $921 million, and total reported device sales by our licensees were approximately $28 billion for activity in the June quarter, towards the high end of our prior guidance and up 12% sequentially, reflecting strength in Europe and North America.

We estimate that approximately 153 million to 157 million subscriber units were shipped by our licensees in the June quarter at an average selling price of approximately $179 to $185.

As Paul mentioned, we are excited to see the introduction in growing sales of an increasing number of new 3G-enabled products, including tablets, that will drive incremental growth for QTL and QCT.

As we have explained in the past, our licensee business for some time has had a voluntary royalty capping program for certain kinds of devices, including 3G enabled laptop computers.

In order to help drive the broadest possible adoption of 3G connectivity in these new incremental product categories, we have decided for now to extend our voluntary royalty capping program to cover some additional types of connected devices such as tablets that meet certain requirements.

Depending on selling prices of these devices, the royalty caps may result in a royalty payable on something less than the full selling price of the device.

QTL's implied royalty rate decreased slightly quarter-over-quarter with one of the key drivers being the growth of these new connected device sales, notably tablets.

Operating cash flow was $1.1 billion, and our cash and marketable securities balance was $18.4 billion at the end of the quarter, with $6.3 billion onshore and $12.1 billion offshore.

Our non-GAAP tax rate was approximately 19% in the fiscal fourth quarter.

Non-GAAP earnings per share for the fourth quarter were up $0.11 over the third quarter.

QCT contributed $0.07 on higher MSM shipments and favorable product mix while QTL was better by $0.04, driven by higher shipments of CDMA based devices.

Improvements in investment income and our tax rate offset the sequential growth in operating expenses including two non-recurring operating expense items.

Turning to our results for fiscal 2010, revenues were approximately $11 billion, up 6% year-over-year and in line with the midpoint of our original guidance at the outset of the fiscal year.

GAAP earnings for fiscal 2010 were $1.96 per share.

Non-GAAP operating income was $4.3 billion, up 37% year-over-year, and non-GAAP earnings were $2.46 per share, up 88% year-over-year.

Our business continued to generate strong cash flow, operating cash flow for fiscal 2010 was more than $4 billion and approximately 37% of revenue.

QCT's fiscal 2010 operating margin was 25%, above our original guidance at the outset of the fiscal year, driven by strong volumes and favorable product mix in the second half of the year, including healthy demand for our integrated smartphone chipsets.

QTL's operating margins was 83% for fiscal 2010, and we estimate that the fiscal 2010 device ASP as are reported by our licensees, was approximately $183 to $189.

Our non-GAAP and GAAP tax rates were approximately 20% in fiscal 2010.

We are updating our estimate for calendar 2010 CDMA device shipments.

We now expect approximately 625 million to 650 million devices to be shipped.

Based on the 638 million midpoint of our estimates, we expect worldwide CDMA device shipments to grow approximately 26% year-over-year.

Our prior estimate had been 23% midpoint growth.

Turning to next year, we estimate calendar 2011 CDMA device shipments will increase approximately 16% to 24% over our 2010 midpoint estimate with unit shipments of approximately 740 million to 790 million units.

Based on the current business outlook, we anticipate fiscal 2011 non-GAAP revenues to be in the range of approximately $12.4 billion to $13 billion, a double-digit increase of 13% to 18% year-over-year.

We expect non-GAAP operating income to be in the range of $4.8 billion to $5.3 billion in fiscal 2011, an increase of 11% to 23% year-over-year.

We expect fiscal 2011 non-GAAP earnings per share to be in to be in the range of $2.63 to $2.77, an increase of 7% to 13% year-over-year.

We are encouraged by the progress we are making in resolving the two licensing disputes.

While the outcomes remain uncertain and the disputes may not be resolved in 2011, we have included some benefit in the high end of our 2011 guidance relating to resolution of the disputes.

While the total amount expected to be owed by the licensees is significantly greater than what's in our guidance when prior years' and total fiscal 2011 disputed royalties are included, we are trying to be prudent pending resolution of the matters.

Once the disputes are resolved, we will adjust our guidance and provide you with an appropriate explanation so that you can understand the impact.

In the QCT segment, we expect a modest decline in revenue per MSM in fiscal 2011, more consistent with historical norms prior to fiscal 2010.

We anticipate that non-GAAP R&D and SG&A combined expenses will grow approximately 7% year-over-year and driven primarily by growth in R&D expense.

We have begun a restructuring plan to exit the current FLO TV service business and expect to incur restructuring charges in fiscal 2011 to reduce ongoing expenses.

This in turn better positions us for the strategic alternatives we are considering.

We expect our non-GAAP tax rate in fiscal 2011 to be approximately 21% and our GAAP tax rate to be approximately 19%.

Turning to the first quarter of fiscal 2011, we estimate non-GAAP revenues to be approximately $3 billion to $3.4 billion, an increase of 14% to 26% year-over-year.

We anticipate that non-GAAP earnings per share will be approximately $0.70 to $0.74, an increase of 13% to 19% year-over year.

This estimate includes shipments of approximately 115 million to 119 million MSM chipsets during the December quarter due to continued strong demand for smartphones in developed markets.

We expect total reported device sales of approximately $31.5 billion to $33.5 billion by our licensees for shipments in the September quarter.

And we expect a favorable foreign exchange benefit of several dollars, mostly due to the euro.

We believe that the channel inventory level is going through a seasonal build for the holiday season although early indications are that the build may be a bit larger than what we've seen in recent years.

We expect non-GAAP R&D and SG&A combined expenses to be approximately flat sequentially.

The Qualcomm Investor Relations website includes an extensive slide presentation on the many data points included on this conference call, and we look forward to seeing you in New York for our analyst day meeting on November 17 where we will share additional data points regarding our fiscal 2011 guidance, including regional device shipment estimates, average selling prices and channel inventory.

The analyst day event will be webcast for those of you unable to attend.

That concludes my comments.

I will now turn the call back over to Warren.

Thanks, Bill.

I'd 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, therefore, to limit your questions to one per caller.

Operator, we're ready for questions.

(Operator Instructions) One moment, please, for the first question.

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

Hi, thanks.

If you could first talk about -- in terms of the tablets and other devices within your guidance, how much -- or if you can help us size that market in terms of how much is embedded into your guidance currently.

And then secondly, if I just look at your fiscal year guidance, the math seems to imply that your operating margins in either your QCT or QTL or both will actually decline pretty significantly going into the last three-quarters of the year.

By my math, maybe below 25% on chipsets, if I'm holding 80% margins on my QTL business.

Can you walk through the puts and takes of the margin linearity through the rest of the year?

Thanks.

Maynard, this is Bill.

On the tablet question, we are considering whether we share more data on the market estimate and connected devices specifically for a couple of weeks in New York.

It's not currently in our -- in the presentation, but it is under consideration for inclusion.

On the fiscal year operating margin, you are correct, we are expecting some decline after the first quarter.

As Steve mentioned, we do -- we are looking at a channel inventory build here in the December quarter.

Typically,that begins to run off into the March and June quarters, number one.

And number two, Steve talked about some product transitions that we got -- that we foresee here in the second half of the year.

So we are expecting operating margins to decline a bit in the QCT business.

Mike Walkley from Canaccord, please go ahead with your question.

Great, thank you very much.

Bill, I was wondering if you could update us on Mirasol.

You said last year was about 180 million to 190 million, if my memory is right, in terms of your guidance for fiscal '10.

Can you update us on what might be included in the guidance for fiscal 2011?

And then just building on Maynard's question in terms of the margins, do we also -- I know usually in the March quarter you have an ASP reprice or lower prices in your QCT division.

Is that how we should think about that division also?

Thank you.

Mike, on Mirasol, I think we've got some good information to share with everybody in a couple of weeks on how we see that business developing and unfolding.

We had said at the outset of this year that we expected about $190 million loss -- operating loss in that business.

We did do a little bit better than that, $10 million or $15 million or so better this year.

The operating loss within this guidance is -- we're projecting a higher loss for fiscal 2011, and we'll give some specifics on that in a couple weeks.

On the average ASP within QCT, yes.

As the year unfolds, right now we think we're in an ebb.

Developed market versus developing, one kind of ebbs and the other one flows a bit as you progress.

Right now, we think we're very much in an ebb on the developed market.

Latter part of this year, we are expecting emerging markets to do a bit better.

So, that would suggest a bit of a decline in average revenue per MSM.

Thank you.

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

Bill, first on the -- you talked about the cap in non-handset devices that you will charge.

Is that cap lower than what you might collect on a higher end smartphone ASP?

And then a question for Steve as well.

You talked about kind of the mix changing a little in the back half of the year.

What are you assuming for products like Snapdragon dual core?

Should we be seeing that soon?

And then the overall smartphone mix.

Do you expect that to continue to increase as a percent of your overall chip mix in terms of shipments in the back half of the year?

Brian, this is Derek.

Let me address your first question.

The -- we have had generally across our licensing program a capping program for some time.

Now what we're rolling out in a little more breadth is some specific caps to specific devices.

And I think as to those, the expectation is that they will be below the caps that would apply generally to the broader set of handset devices.

You will have actually -- smartphones may have -- someone selling a smartphone might pay you more royalty than someone selling an netbook or a pad device?

Yes.

Okay.

Brian, this is Steve.

On your smartphone mix question, I think what you're seeing is in the first quarter, certainly in the quarter that we gave guidance on, we continue to see very strong shipments of smartphones and probably, as I mentioned in my script, a little bit more than we even thought a couple of quarters ago.

In the second half of the year, what we anticipate happening is that the shift will be probably a little bit more to the developing market which would pull that down a little bit in terms of the type of device that we ship.

It's more a statement, I think, about how, I think, strong it is at the moment versus kind of what's happening in the second half.

Although in the second half, as Bill said, it kind of goes back and forth between developed markets versus emerging markets.

We saw that happen this year as well.

In terms of dual core, dual core, we have today over ten different companies designing tablets on our dual core solutions, so we feel very good about where they're going.

And then also in the handset space, you'll see that as well.

That mix will start to happen through the year.

The tablet space, at this point, it's difficult to say how big that space is going to be.

I've seen a lot of different estimates on that, and it will be interesting to see what happens.

As we probably talked before, we see that in the developing world being one type of market in the -- developed world, you see one type of market.

In the developing world, I think will you tend to see a number of different types of devices go in there, mainly because there is no laptop market for them to have to displace.

We've already seen that with some of our product today.

You've seen products go into India based off of smartphone chips, and so it will be a little bit of a mix there.

In all cases, I think we're still trying to figure out how big that market is and how it will develop throughout the year.

Thank you.

Tim Long from Bank of Montreal, please go ahead with your question.

Thank you, just a question maybe for Derek and Steve on LTE and timing of impact.

I think Steve, you talked about getting some chips in the market for the data cards this quarter.

Could you talk a little bit about the time line for phones?

I think it's going to be single chip for awhile, and when do we get the integrated chip.

And then Derek, if you could just talk a little bit about when you think LTE devices will really start hitting the numbers and what impact we could expect from them for next year.

Thank you.

This is Steve, I'll handle the first part of that.

I think that will you see, consistent with what we said before, you'll see first products launch on our chipset here in this quarter that we're in today.

I think you'll see a big push on more handset and other connected products, probably around the timing of CES, and those will start to come in at the high end of the portfolio next year and certainly build.

We are addressing that really in three different ways.

The first product is the MDM 9600, which is the one I mentioned on the script, and that's going into production in customers' devices here this quarter.

Then we will augment that with both our single core and dual core chipsets through next year and then follow that up with our integrated 28-nanometer device that we've talked about.

So, it's a portfolio of products that we'll develop through next year according to that transition progression.

Let me take the second half of that.

As you know, the royalties that are generated are paid in arrears, so we do expect some volume of LTE 3G multimode devices in the fiscal year, although given the QTL fiscal year to be less than what you would expect in a full calendar year.

The licensing structure we have in place, as you know, is going to -- already applies to multimode 3G LTE devices, so the royalties will continue to get paid on those devices without the need for us to go out and sign new agreements.

I think we do expect to some extent upward movement on the ASP from these devices, given that the introduction of products with new technologies tend to start out at a higher price point and work its way down.

So, could be a positive contribution to the ASP.

Great, thank you.

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

Thanks very much.

Can you hear me okay?

Yes, we can.

While on your numbers and your guidance, with respect to the question, I was wondering, Steve, in providing your guidance for a somewhat lower ASP assumption in the back half of next year for the chip business, could that partially be reflective of some customers requiring base band functionality rather than an integrated base band and application offering?

And also, if you could clarify from Bill's comment, he said that he might expect slightly higher inventory levels to be sustained through this calendar quarter, and you spoke about strength of smartphones into the first quarter.

How do we think about those two elements and what might be underpinning them?

Thank you so much.

Sure.

I think what you're seeing -- is more of a -- or at least what we've modeled, is more of a shift within the integrated portfolio as opposed to a change in architecture.

The -- as I mentioned in the script, we're seeing very strong traction with our integrated solution.

I think more of what is like likely to happen, and again, this is a difficult thing to model.

You're predicting mix and inventory levels out two or three quarters, which I think history is sometimes difficult to do.

But our current plan assumes that shift tends to be more toward the mass market smartphone, which is a different type of product than I think we're selling right now in a lot of the developed markets.

It's, I think, a good trend for the business, because that also tends to pull 2G subscribers over to 3G, and I mentioned how in the China market for example, we're getting a lot of design traction on what I would consider to be mass market smartphones.

I think more of the growth of that market segment is occurring versus any change in architecture.

Tim, this is Bill.

On the channel inventory question, as you know, well are aware, typically see a little more channel inventory building in this December quarter for the holiday season.

And then you look back in past years, the work-off of that extra inventory is typically in the March quarter, but sometimes it extends into the June quarter.

We're trying to monitor this very closely this year.

We are, as we said, a little suspect that there's a bit more inventory build than what we've seen in prior years, and it's just around new devices, new OEMs and a lot of excitement around the whole smartphone market.

So, we're going to continue to monitor this here over the next couple weeks and when we're in New York, we'll share with you our best view of it as of that point in time as to just how much of an increase is it and is it a -- do we think it's a March unwind or a March and June quarter unwind.

Thank you very much.

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

Hi, thank you so much.

Just a couple of questions on QTL.

Bill, I think you said that the implied royalty rate decreased quarter on quarter, partly because of capping program in tablets.

And I would imagine that the capping program impacts ASPs, but not the royalty rate.

If you could just clarify that.

And then the second question on QTL was it looks like ASPs actually declined a little bit sequentially, and I understand they're one quarter in arrears, but Q2 was a pretty strong quarter for smartphones, so just curious why ASPs were down.

And then just lastly in QTL, the 82% level for operating margins, is that now a normalized level for that business or are there still any excess legal costs or anything else unusual there that's depressing that margin?

This is Derek.

Let me take the first one.

So basically, yes, there is a sequential decline in the implied rate.

As Bill mentioned, the devices that are coming through, the total reported device sales are coming through at a full ASP.

And to the extent that there is a royalty cap in place, that means the royalty will actually get paid on something less than that complete selling price.

So, that does have a downward effect on the implied rate that you would calculate based on the information that we provide.

As typical, some of the revenue outside of the subscriber base tends to be a bit lumpy.

Audit recoveries were a bit down this quarter as well.

That was contributed to the quarter-over-quarter change.

On the ASP question, ASPs for the September quarter we just reported were pretty much in line with what we expected.

There was a modest decline from the prior quarter and as we had mentioned last time, that was primarily the euro.

There was a few dollars of euro FX impact that reduced the average selling price.

But on that same point, as I mentioned earlier, we're seeing the opposite impact here in this coming December quarter.

We're looking for several dollars of positive impact, again, primarily due to the euro.

On the operating margin side, for the licensing business, last quarter we reported approximately 80%.

This quarter we reported 83%.

So, we did indicate last quarter it was an abnormal quarter.

And then in terms of the full year, obviously we're looking for good earnings growth and part of that is -- we are looking to grow revenues and operating income at a faster rate than our operating expenses.

So, we are looking to leverage that base of operating expense, and we already have in place.

So, on balance, operating margins, I think, are on a positive trend here.

Terrific, thank you very much.

Mark McKechnie with Gleacher and Company , please go ahead with

Great, thank you.

So, I want to ask about the non-recognized licensees.

In the past, you said it was about $200 million or so.

Has that run rate increased?

And would there be included in your guidance any kind of a catch-up, because it's been a couple of years since they've paid.

And then I also have a question on the chip side.

In terms of overall content, I think the big driver on the increase generally is going to be apps processor and maybe move to 4G.

So, maybe if Steve can give us an update on -- want to clarify that.

And then second is, any update on your connectivity solutions in terms of growing your footprint into Wi-Fi, Bluetooth or GPS, thanks.

Mark, it's Bill.

On your first point on the licensees, yes, last year we indicated that we thought there was approximately $200 million of revenues that we would not be recognizing, and that $200 million was the estimate as of the end of fiscal '10.

We updated that during the year and indicated it was still in that range of approximately $200 million.

The number, obviously, we haven't given you a specific for where it stands.

Our estimate as of the end of fiscal 2011, it is substantially larger, and we thought it best not to do so.

The number is quite large.

We thought it was better just to put in a prudent estimate into our guidance, the high end of our guidance for what we expect to be able to recognize and get paid for and get reported on by licensees here in this fiscal year.

As we reach resolution, we will update everybody on the specifics and give best clarity we can as to what were prior year impacts and what's the current year impact.

Just to be clear, the number that's in the high end of our guidance does not include an amount for prior periods.

Okay, great, then Steve, on the chip content side?

Sure.

So on -- a very good breakdown, I think, of the components.

In terms of the AP attach rate that is growing, we talked about in June that we had a 50%, or nearly 50% sequential growth in our 7K and 8K units.

We just reported a 33% sequential from June to September.

Then looking forward, we expect to see solid double-digit percentage gain on a sequential basis into Q1.

So, we think that that business is going quite well or that business segment is going quite well in terms of growing share.

4G, we think is a positive catalyst for us as well, on the ASP side, as well as on the content side.

As we've talked about before, a number of -- I think there are two things that differentiate us on the 4G side.

One is our multimode capability, so the ability to seamlessly hand over or provide simultaneous services across the 3G and the 4G networks.

And then also, I think just our ability to execute.

What we saw through the quarter was a build in terms of demand for LTE chipsets, and I think that's probably a good data point for how we're able to deliver.

In terms of connectivity, GPS is a big component of our solution today, has been for long time.

It's a -- it's something that has a very high attach rate with our solution across feature phones as well as smartphones.

We're now shipping Bluetooth in the tens of millions a year type of quantity, and that has started to move into being an integrated solution in our smartphone roadmap.

That will be followed by our wireless LAN solution, and then we will integrate that as well.

So, if you look at our product portfolio, we started sampling stand-alone Bluetooth devices several years ago, and now we've migrated that into the MSM.

We're a little bit delayed relative to the Bluetooth schedule, but the same strategy is playing out on wireless LAN.

So, it's a stand-alone product today, it will be integrated here in the future, and you will you hear more announcements about that in the future.

Thank you.

Ehud Gelblum from Morgan Stanley, please go ahead with your question.

Hello, guys, thanks.

Actually, I have some clarifications mainly, and then kind of a question.

At the end there are more clarifications.

Steve, you spoke about your WCDMA chip share going up.

Can you give us a sense as to where you think that is, because it sounds like you do track it in a sense.

And you gave great information on the integrated 7000 and 8000, how they've grown the last couple of quarters.

But can you give us again a sense as to roughly what percent you are of your total MSMs are now of the 7000 or 8000?

Just to give us in the ballpark, are we at 50% yet?

Or are we still around 20% or 30%?

Something of that sort after the last couple of really strong quarters.

And then another clarification, Bill, you said that, I just want to make sure I heard that right, that all of, or was it the majority of the royalty rate decline this quarter, I calculate around 3.25% versus we were expecting, I think a 3.4%.

Was that all due to the caps, or were there other things in there so that we can kind of back in.

I appreciate it.

Sure, this is Steve.

I'll talk about the share issue.

We think we're building share.

At least we have -- think we're building share both in the handset market -- or actually, in the handset market and overall.

I think in the past, the WCDMA market has been very strong growth in data cards.

And then really what happened was there's been a, I think a pretty strong move into smartphones.

That transition into smartphones, I think has been a good transition for us in terms of share.

We expect that to continue through fiscal year 2011, and as I said on my remarks, we will be -- continue to be aggressive in both protecting slots as well as trying to grow our share throughout the year.

And as things moved, I think a little bit more to being integrated solutions in the smartphone space, we think that the market will move into a direction that plays to our strength.

In terms of -- I think there was a question there on 4G as well in terms of share or no?

More of the -- first of all, if you could quantify at all the share you're talking about with WCDMA and then second of all, the integrated percent of your total MSMs that are integrated.

You've told us that they've grown 50% and then 33% last two quarters, but if you can give us a sense quantitatively where -- what the penetration rate of your total MSMs are right now of integrated, or 7000 and 8000s.

Sure.

On both of those, I don't think we've provided that type of guidance in the past, but I would say that it's, in terms of the percentage gain, it's not -- it's a significant amount that I think the growth in percentage is actually meaningful as opposed to a law of small numbers type of issue.

But unfortunately, I don't think that's something that we've broken out in the past.

And Ehud, on the royalty rate question, in this quarter we just reported what the -- we call the implied royalty rate as compared to the third quarter decreased 10 basis points.

And the primary driver of that was this connected device point that we've made.

But then as Derek mentioned, a contributor as well was the fact that our audit recoveries, which tend to be lumpy, were not as much in the fourth fiscal quarter as they were in the third fiscal quarter.

So, the majority of the 10 bps it was connected device caps.

Yes, the primary driver was connected devices.

Appreciate it.

Thank you.

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

Thank you very much.

I wanted to follow up on the tablets.

I think in response to Maynard's question at the outset of the Q&A session was that you indicated you were debating whether to give more view into what you think the tablet market may look like.

I just want to clarify that you do have some tablet built into your guidance for fiscal year 2011 first.

Second, as part of that, several years ago you gave a statistic of tens of millions of units shipped related to connectivity, and I think most of those were laptop cards.

How are you thinking about cannibalization of tablets into what you've been getting from things like USB dongles, et cetera?

And then finally, contribution from TDS CDMA.

In the past, there had been some comments that you may start to try to address that market.

But if you could just give us a rough outline of how we should be thinking about TDS CDMA's contribution to your fiscal year 2011 outlook and when you might be participating in the chipset business there?

Thank you.

James, I'll take the first two, this is Bill.

On the tablet market, yes, we do have an estimate in our forward guidance.

Yes, we do have that in.

And then how we think of tablets in terms of cannibalization, I think the key point there is that we see tablets going -- being sold with a higher rate of wide area network connectivity, 3G connectivity, than what we were seeing laptops go with that same capability.

So I think -- we think as time goes on, tablets will substitute, to some degree, for a laptop.

But on balance, if the connectivity stays at an increment, then it's clearly a positive for Qualcomm.

This is Steve.

On the chipset side, it really looks like an incremental market to us.

And the interesting thing about it is, I think it's unlike the netbook space or the laptop space.

The embedded attach rate of wireless WAN is quite high, which I think helps us in two ways.

One, it sets up the market better for us.

The other one is that I think it encourages a number of the handset players to pull up into that space.

And so it looks very much like a different market to us from the chipset side, one that we can leverage our traditional strengths on.

At this point, we don't really se it as cannibalizing the dongle space, either.

Let me just comment on TDS CDMA.

I think it's a similar story.

I think, as we've said in the past, we've got a large number of companies that are licensed for TDS CDMA.

We're collecting royalties from those licensees on a nice segment of the devices being sold in China.

However, we're still -- we've still got some work to do, and we're continuing to engage in discussions and try to enter into agreements with the remaining companies that are supplying in China that are not yet licensed.

And I think we'll be in a position to put a little more color on that in a couple weeks in New York.

Tal Liani from Bank of America Merrill Lynch.

Please go ahead with your question.

Hi, I'd like to look into your guidance.

You mentioned that you have some contribution from tablets.

I'm wondering if you can quantify.

Then you also mentioned there is some contribution from the licensing dispute, and I'm wondering if you can quantify also this one.

And the third point, Mirasol this year, size of their memory, it was about $0.09 of losses from my calculations.

What's embedded in your guidance for next year?

Are you assuming a substantial increase or not?

And then can you also discuss -- you said that you may be able to update us soon on Mirasol.

But can you discuss what could be or what's going to be the impact of any investment you have there?

What could be the impact on your guidance?

Thanks.

Tal, this is Bill.

On the contribution from tablets, what we said was that it's not in our presentation as it stands right now that we are working on for New York .

But we are considering, and we're having a good discussion on whether we would include a breakout estimate of connected devices.

So, it's under consideration, but we haven't decided that yet.

It's a new developing market, a little harder to forecast because of that reason, but we are considering that.

On the licensing dispute, I'll just recount, I think what are the key points that we made here.

If you recall, we had said he it was approximately $200 million as of the end of fiscal '10 that was due to us and, of course, one licensee is paying, but we haven't recognized it.

So, revenues and earnings that we haven't recognized.

And that number for fiscal 2011 is substantially greater.

And so the decision was rather than put forth what is a pretty large number, we thought it was better to just put in a very prudent estimate into our guidance of what we think will be ultimately recognizable in fiscal 2011, and we did not include in that any prior year.

So, it would only be a prudent estimate of what is earned and what we think we will report and recognize in fiscal 2011.

From a timing standpoint, we put that in the second half of the year, but that's what we've got right now.

On the Mirasol side, the 2010 operating loss was approximately $180 million.

We do have, on a percentage basis, I would say it's a fairly substantial increase year-over-year operating loss.

I think as you know, we're pretty optimistic about the potential there we've got.

And we'll get into some more specifics on that, on what's in the guidance and where we stand in that business in a couple weeks when we see you in

Rod Hall from JPMorgan, please go ahead with your question.

Yes, thanks for getting me in there.

Just a couple of quick questions.

One, given the election results last night, I wonder if you guys could talk a little bit about what you think the timing on potential legislation to let you repatriate the international cash might look like and just generally comment on what you think the probabilities are there.

I'd also be interested in whether you think paying a dividend early or committing to some kind of dividend like Cisco has done would help your chances with the government.

So, that's one question.

And then another one, it's just -- I know it's been asked several times, but I want to clarify again.

On the royalty caps, could you just confirm that you're using an absolute US dollar amount for the cap, and then can you also talk about how you're basing that cap?

In other words, should we assume that that -- that the absolute US dollar royalty payment on these devices is kind of being based off of what you're already receiving as an average on existing smartphone royalties, or is it something completely different?

So, this is Paul.

Let me take the repatriation question, since I've been in the middle of having those discussions with members of the administration and Congress people.

The discussions have really focused around what the use of that money would be, whether it be used for things like building factories in the United States or other forms of CapEx, creating more R&D jobs, so funding innovation or dividends.

I've been a pretty strong proponent that dividends would be a good use of that money because it would create a philosophy of money in the economy.

I would not say that I've gotten great traction with that at this point, but we're continuing to do that.

We're doing an economic study about repatriation, and when that is completed, we'll be going around Washington, hopefully demonstrating to people the value of repatriation.

So far, that hasn't -- dividends hasn't been something that's been a leverage point, but as I said, we'll continue to try and drive that thought.

Then on the tablet question, again, I think what we're looking to do is on a specific set of device categories where we really want to help drive a higher penetration of 3G, put in place some specifically tailored caps.

And as I said, they are lower than sort of the traditional caps that apply, generally or broadly across the licensing program.

But at this point, we're not really going to get into any more detail as to exactly how they're calculated or what they are.

Stacy Rasgon from Sanford Bernstein, please go ahead with your question.

Hi guys, thanks for fitting me in.

Question on your guidance.

I'm still having a little bit of trouble reconciling it.

So, if I take the midpoint at fiscal 2011, you've got revenues up 16%, you've got operating profit up about the same amount, around 17% with OpEx up only 7% or 8%.

So, I can see where the margin compression is coming from there.

But you've got EPS up only about 10%, so it sounds like there's quite a bit of cost or some other kind of compression below the line that's affecting the difference between the operating profit increase and the EPS increase.

Can you give me some feeling for what that actually is?

Yes, it's pretty straightforward.

We don't include in our guidance any -- a forecast of unrealized capital gains on the investment portfolio.

It just -- the net of what we might realize versus what we might have to impair we feel is an area that's difficult to forecast, and so we just don't include it in our guidance.

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 closing the call?

Yes, I think at the beginning of the fiscal year there were a lot of concerns about our competitive chipset position and growth opportunities, licensing business.

And I've got say, I'm really happy with our performance in the year and also, with our projections going forward.

Snapdragon sales really highlight our strength in smartphones.

Smartphones and also these new device types are driving a lot of opportunities for the licensing business.

So, I'm just very excited about what we see as the potential going forward.

The reason is because the wireless industry really continues to innovate at an extremely rapid pace.

It's doing that because it's responding to consumer traction and excitement.

The amount of focus on this space, I think is almost higher than it's ever been, and so I feel like Qualcomm is extremely well positioned there.

We are going to continue to drive that dynamic as hard as we can with new products and new technologies in 2011 and beyond.

So, we thank you very much for your support, and thanks for being on the call today, and we look forward to seeing you in New York.

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

We'd like to thank you for your participation, and you may now disconnect.