高通 (QCOM) 2011 Q3 法說會逐字稿

Welcome to the Qualcomm third-quarter fiscal 2011 conference call.

(Operator Instructions).

As a reminder, this conference is being recorded July 20, 2011.

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

International callers, please dial 706-645-9291.

The playback reservation number is 78821001.

I would now like to turn the call over to Warren Kneeshaw, Vice President of Investor Relations.

Mr.

Kneeshaw, please go ahead.

Thank you, Marcelo, and good afternoon, everyone.

Today's call will include prepared remarks by Dr.

Paul Jacobs, Steve Mollenkopf, and Bill Keitel.

In addition, Don Rosenberg, Derek Aberle, and Craig Barratt will join the question-and-answer session in the Internet presentation and audio broadcast accompanying 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 and Regulation G, you can find the required reconciliations to GAAP on our website.

I'd also like to direct you to our 10-K and earnings release, which were filed and furnished, respectively, with the SEC 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.

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

Paul Jacobs.

Thanks, Warren, and good afternoon, everyone.

I'm happy to report that Qualcomm delivered very strong results again this quarter, in addition to successfully completing the acquisition of Atheros.

Our business performed well across all key guidance metrics.

We're off to a strong start with Atheros.

During this quarter, we sampled our Snapdragon MSM8960 chipset based on 28-nanometer process technology.

The MSM8960 is a dual core solution which uses our next-generation microarchitecture called Krait with integrated multi-mode modem technology including EV-DO, dual carrier HSPA+, and both the TDD and FDD variances of LTE.

As we've said in the past, only one of our licensees', WCDMA, subscriber unit royalty obligations would expire if not extended prior to late 2017.

I am pleased to report that we have now successfully completed this remaining renewal.

The licensing business continues to be well for strong growth ahead, and this latest renewal again demonstrates the established value to the industry of Qualcomm's patented inventions.

In June, we hosted our second annual Uplinq conference here in San Diego.

The event was a success as it brought together industry leaders from across the ecosystem, including application developers, operators, and device manufacturers.

Our support of multiple operating systems was highlighted by keynote presentations delivered by HP, HTC, and Nokia.

The convergence of the mobile and computing ecosystem is accelerating as smartphones and tablets are becoming full-blown computing devices.

Traditional computing device manufacturers are working on mobile devices and developers are increasing their emphasis on mobile.

According to Strategy Analytics, by 2012 the installed base of smartphones is estimated to exceed the installed base of PCs.

Our collaboration with Microsoft to enable Windows 8 to run on our Snapdragon family of chipsets, including the MSM8960, further underscores this shift in computing.

The migration from 2G to 3G continues as well, with Wireless Intelligence reporting that at the end of June, there were approximately 1.4 billion 3G subscriptions globally, up approximately 30% from a year ago.

And Wireless Intelligence predicts that by the fourth quarter of this year, 3G will be contributing greater than 50% of net subscriber additions.

Driven by the increased demand for 3G and data-capable devices, wireless data traffic continues to accelerate.

Operators continue to make network investments in the latest radio technologies for both existing and new spectrum.

According to the GSA, the number of operators that have commercially launched HSPA+ now totals 136.

39 of these operators have commercially launched dual-carrier HSPA+, a 70% increase in the last three months.

Additionally, there are now 218 operators that are investing in LTE, including 24 networks which have commercially launched.

According to the CDG, there are currently seven commercial EV-DO Rev.

B networks, with an additional 11 operators planning to launch or trial the technology.

CDMA device trends are healthy, and demand for smartphones remains strong across multiple geographies around the world.

According to Gartner, global smartphone sales exceeded 100 million devices in the first quarter of 2011, representing 85% year-over-year growth.

Also, Google recently announced that more than 550,000 Android devices are activated every day, up from 100,000 activations per day in May of last year.

In developed regions, we continue to see strong trends for smartphone adoption.

According to Gartner, sales of smartphones in North America are expected to increase by approximately 41% from 2010 to 2011, and smartphone sales are expected to exceed 50% of the total handsets sold this year.

In Europe, smartphones continue to expand into more affordable price tiers.

Recently in the UK, the Vodafone Smart and the LG EGO feature phones were both operated -- both offered at GBP75 as pay-as-you-go devices, further blurring the lines between the pricing of smart and feature phones.

Additionally, operators such as SFR, Orange, and Mobistar in Belgium have each launched bundled-data plans in which a second device can be added to an existing data plan as a means of increasing their wireless data subscriber base.

We see positive trends in developing regions as well.

I attended a CDMA industry summit and handset fair hosted by China Telecom in Guangzhou last month that attracted more than 11,000 attendees.

According to press reports from the event, more than 50 EV-DO phones were announced by 20-plus manufacturers.

It was also reported that China Telecom highlighted that 3G EV-DO handset sales are expected to reach 29 million units this year, increasing by 190% over 2010.

In May, China Unicom launched 21 Mb per second HSPA+ service in 56 major cities.

And in June, according to SINO-MR data, the ZTE Blade, based on our 7000 series chipset, set a daily sales record by a Chinese OEM and has become the second highest selling 3G smartphone on Unicom's network.

Earlier this week, I attended a China Unicom partner event in which China Unicom announced 15 new 3G devices, of which 13 were based on our chipsets.

In India, 3G networks have now been live for more than six months, and operators are making plans to increase 3G coverage from over 100 cities today to over 1,000 towns by the end of the year.

3G device availability in India is also expanding to meet new levels of affordability with HSPA+ devices such as the Spice G6550 being offered at under $90.

At the higher end, 21 smartphones have been launched to date based on Snapdragon, including the HTC Sensation based on our dual-core solution.

So has the first Snapdragon tablet in India, the HTC Flyer.

So to conclude, while we have continued to execute on our strategic priorities, we have seen our opportunities to expand at an even greater rate than we had previously expected.

And accordingly, we're pleased to be raising our revenue and non-GAAP earning guidance for the fiscal year, driven by strong global smartphone adoption, as well as the addition of Atheros.

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

Thank you, Paul, and good afternoon, everyone.

Our QCT business executed very well again this quarter.

We shipped a record 120 million MSMs, above our prior guidance range, reflecting strong demand for our integrated 7000 and 8000 series chipsets, which were up 32% over last quarter.

Our supply chain responded very well to the events in Japan, fulfilling all customer orders during the quarter, including a small amount of unexpected buffer demand which we forecast will be worked off in the September quarter.

We also completed our acquisition of Atheros, and the integration into QCT is progressing well.

The team is executing according to its roadmap, having already announced three new connectivity products, and we're excited to welcome Craig and the entire Atheros team to Qualcomm.

Our average revenue per MSM in the third fiscal quarter was higher sequentially, as expected, reflecting a richer mix of integrated smartphone chipsets, as well as approximately five weeks of Atheros revenues, post-acquisition close.

QCT operating margins were in line with expectations.

We continue to make significant investments in modem technology, application processing, connectivity, graphics, and software.

Our leadership position in combining these technologies into a platform of integrated tiered chipset solutions is unmatched in our industry, and aligns with both industry trends and the business priorities and device requirements of our OEM partners.

We also continue to expand our support of multiple operating systems with the launch of the latest version of WebOS, as well as BlackBerry 7.

Customer traction for our first dual-core Snapdragon chipsets, the MSM8660 dual-core platform, continues to grow, and there are now more than 100 designs in development based on that platform, in addition to six smartphones and four tablets previously announced or commercially available.

Dual-core devices this quarter include the HT Sensation, the HTC Evo 3-D, Pantech Vega Racer, T-Mobile myTouch 4G, and HP TouchPad.

Including both single-core and dual-core chipsets, our partners have now announced a total of 10 different Snapdragon-powered tablets, and there are another 40 tablet designs in process.

Our multimode 3G LTE solutions continue to lead the industry with several USB dongles and mobile router data devices based on our multimode 3G LTE chipsets launching this quarter.

The complexity of supporting 2G, 3G, and 4G standards across the proliferation of over 40 RF bands also plays well with our system-level approach to integration, and we are unique in our ability to support all these requirements.

As Paul mentioned, we sampled the Snapdragon MSM8960 ahead of schedule this quarter, which is the industry's first multimode 3G LTE dual-core chipset for handsets.

This is the first of multiple 28-nanometer chipsets on our roadmap, and it is designed to integrate seamlessly with our new connectivity solution, the WCN3660, which supports dual-band WiFi, Bluetooth NFM, and is optimized for smartphone and tablet devices.

As we announced at Computex, the MSM8960 will be the first processor in the Snapdragon family to power devices using Windows 8.

The MSM8960 and the broad platform of multimode 3G LTE chipsets on our roadmap will greatly expand the reach of LTE and take our high-performance, high-efficiency designs to the next wave of smartphones, tablets, and upcoming generations of Windows computing devices.

Demonstrating our potential expanded opportunities that the Atheros acquisition provides since the deal closed in May, we have launched the industry's first FCC-certified WiFi System-in-Package for microcontroller-based designs to enable machine-to-machine communications and introduced the industry's lowest EPON solutions for broadband over fiber networks and the power grid.

We continue to leverage the strong distribution channels and product portfolio that Atheros developed over the past decade.

Specific to wireless LAN, the adoption of 11n across all channels continues with 11n now making up over 70% of this revenue.

Sales to our PC OEMs increased significantly due to the strong adoption of our combination wireless LAN and Bluetooth products.

Overall, we are excited about the platform and the business opportunities in front of us.

This year continues to progress much as we expected back in November.

We are modestly increasing our R&D investments in the fiscal fourth quarter to support new process technologies, the commercialization of our expanding multicore and LTE product offerings, and to support multiple new customer opportunities.

Our strategic focus on integrated systems solutions, leveraging our modem, application processor, connectivity, graphics, and software leadership, is working well, and we expect to see strong volume growth in the coming quarters.

That concludes my comments.

I will now turn the call over to Bill Keitel.

Thank you, Steve, and good afternoon, everyone.

Today, we reported strong financial results for our third fiscal quarter, and we are pleased to be raising our fiscal 2011 revenue and non-GAAP earnings per-share guidance.

Given the size of the Atheros transaction and consistent with prevailing tech industry practice, we've modified our non-GAAP reporting methodology.

Starting with acquisitions completed in the third quarter of fiscal 2011, we are supplementing our non-GAAP reporting by excluding the step-up of inventories to fair value and amortization of certain intangible assets.

Fiscal third-quarter revenues were $3.6 billion, which was at the high end of our prior guidance range.

Atheros contributed less than $100 million, reflecting approximately five weeks of activity since the acquisition closed in late May.

Non-GAAP earnings per share were $0.73 for the quarter, including approximately $0.005 attributable to Atheros, exceeding the high end of our prior guidance range.

Our fiscal third quarter non-GAAP earnings per share were $0.03 better than the $0.70 midpoint of our prior guidance.

Both QTL and QCT each added approximately $0.01 per share, and investment income and Atheros each contributed approximately $0.005 per share.

We estimate that approximately 170 million to 174 million CDMA-based devices were shipped by our licensees in the March quarter at an average selling price of $209 to $215, up approximately $9 sequentially, primarily due to increasing sales of smartphones.

We are seeing handset strength -- handset ASP strength across both emerging and developed markets, as well as increasing breadth of other connected devices such as tablets and eReaders.

Our total cash position remains strong at approximately $20 billion, despite using $3.1 billion of net cash to acquire Atheros.

Now turning to our guidance, we are reaffirming our estimate of between 750 million and 800 million CDMA device-based shipments in calendar 2011, up approximately 18% year over year at the midpoint.

We now estimate that the average selling price of CDMA-based devices for fiscal 2011 will be approximately $204 to $210 per unit.

The $207 midpoint is $3.00 above our prior $204 midpoint estimate, primarily driven by greater adoption of higher-priced devices, such as smartphones, around the world.

We are raising our fiscal 2011 revenue and non-GAAP earnings per-share guidance, reflecting higher average selling prices for CDMA-based devices and the addition of the Atheros business.

We expect fiscal 2011 revenues to be in the range of approximately $14.7 billion to $15 billion, up approximately 35% year over year at the midpoint, which includes approximately $350 million from Atheros.

We anticipate fiscal 2011 non-GAAP earnings per-share to be in the range of $3.15 to $3.20, up 29% year over year at the midpoint.

Of the approximate $0.09 non-GAAP earnings per-share increase over our prior fiscal 2011 guidance range midpoint, approximately $0.06 reflects an improved outlook for QTL, approximately $0.02 is related to Atheros, and approximately $0.01 is the net benefit from greater investment income and modestly greater R&D expense.

We expect the combination of non-GAAP R&D and SG&A expense to grow approximately 20% to 21% year over year.

As Steve Mollenkopf mentioned, we expect a modest increase in QCT R&D investment primarily related to new chipsets and customer opportunities.

In QCT, operating margins are largely consistent with our prior expectations.

Excluding Atheros, we expect operating margins to be in line with our prior guidance range of 22% to 24% for fiscal 2011.

Including Atheros, we expect operating margins to be towards the low end of that range for the fiscal year.

Specific to the fiscal fourth quarter, we estimate revenues, including Atheros, to be in the range of approximately $3.86 billion to $4.16 billion, up approximately 36% year over year at the midpoint.

We estimate non-GAAP earnings per-share to be approximately $0.75 to $0.80, up approximately 14% year over year at the midpoint.

We estimate that our subscriber licensees will report total reported device sales of approximately $38 billion to $41 billion in the September quarter for shipments they made in the June quarter, up approximately 9% sequentially and approximately 40% year over year at the midpoint.

We anticipate shipments of approximately 120 million to 125 million MSM units during the September quarter, with revenue per MSM up sequentially, driven by the inclusion of a full quarter of Atheros revenue and the particular mix of chipset products we expect to ship.

We estimate that the CDMA inventory channel declined a bit in the June quarter, consistent with our prior expectations.

For the September quarter, our forecast anticipates an additional small bleed of channel inventory, and we continue to estimate that the CDMA inventory channel will exit the fiscal year at or slightly below the low end of the historical 15- to 20-week range.

We anticipate fourth fiscal quarter non-GAAP R&D and SG&A expenses combined will increase sequentially approximately 9%, reflecting Atheros and the increased QCT R&D investments we previously mentioned.

That concludes my comments.

I will now turn the call back to Warren Kneeshaw.

Thank you, Bill.

Operator, we are ready for questions.

(Operator Instructions).

Mike Walkley, Canaccord Genuity.

Bill, just wanted to follow up on your updated guidance.

Could you walk us through the QTL change again?

I understand the better ASPs are due to increasing smartphone mix, but with the units a little light this quarter, maybe you can walk us through where you see strength in the out quarters to keep your full-year unit guidance.

Thank you.

Mike, I'll give you a little more color first on the ASP.

We are anticipating that $9.00 sequential average increase.

We think about $6.00 of that is largely greater Asia and North America, higher average selling price, and about $3.00 of foreign exchange.

On the unit side, we are anticipating a fairly significant uptick going into the -- out of this fiscal year and into the first quarter of the calendar year.

We held our estimates for the year constant at that 750 million to 800 million units for the calendar year.

Our -- specifically, we actually had a debate of whether we should raise it a bit, but given some of the economic malaise in the world, we thought best to hold it steady there.

But we are seeing some good strength in a number of markets, so we feel pretty good about that forecast and do expect an uptick going into the first part of the fiscal year -- of the new fiscal year.

Thank you very much.

Tal Liani, BofA Merrill Lynch.

Hi.

This is Eric Ghernati for Tal.

Just a question, if you do the math on the -- I mean, it's a small number, but based on your MSM chipsets and your MSMA speeds, you get to 2.196 billion.

I'm just curious how do you include Atheros in there?

Similarly for the guidance, you said $350 million for the full year, implying somewhere in the neighborhood of $270 million to $280 million for Atheros.

Just give us a sense on how do we include or exclude that from the QTC number?

Sure.

I wouldn't exclude it.

We're giving a little bit more color on the Atheros this quarter for a couple of reasons.

One, the guidance we gave at the outset of the quarter didn't include Atheros, so we thought it was appropriate to give more detail this quarter.

Likewise, our prior guidance for the fiscal year had not included Atheros.

So, we're giving a little more detail this quarter.

We won't continue this going forward because our guidance from here on will include Atheros.

Specific to Atheros for this fiscal year, again you have about five weeks from the June quarter and a full quarter in the September.

That will add approximately $350 million of revenue to this fiscal year, of which a little less than $100 million was from the June quarter.

So that's included as you would calculate revenue per MSM.

Obviously, revenue per MSM includes a wide variety of different products from QCT already, and so you've got any number of different chipsets.

So you can see a little variability in that average.

It's an indicator, but it's one people should be cautious on taking too directly and imputing what that might mean, that being revenue per MSM.

And then, a question for Steve.

You know, you said that you started sampling your 28-nanometer device.

Realistically, how much of your overall mix do you think 28 nanometer should be in the fit two quarters from now?

Sure.

28 nanometer -- our first 28-nanometer device will really go commercial at the end of this calendar year, so it really won't show up until the next calendar year.

We, however, are very optimistic about that device.

We have had great success with it so far in terms of how it is looking in the lab.

I mentioned that we sampled that early, which is pretty rare for us and actually probably an indicator of how much priority is on that now as a Company.

I've mentioned that we've added some additional OpEx in order to really -- I think we're pretty optimistic about that chip.

We want to make sure that we derisk it as best we can, but we expect that to be something really more in the middle of next fiscal year.

Matthew Hoffman, Cowen and Company.

Paul, you made a point of highlighting the TDD and FTD modes in the upcoming LTE chips.

First question here, what's your outlook for TDD LTE versus FTD globally?

Will TD grow meaningfully outside of China and east Asia?

Second, strategically, how much of an advantage is it to support both modes and offer backward compatibility with CDMA and HSPA+?

Thanks, Paul.

We're watching governments allocate spectrum around the world, and there's clearly a number of places where unpaired spectrum is going to get allocated.

In some cases, it will be used for things like supplemental downlink, so that you use it in conjunction with other FDD systems.

But there is pretty clearly going to be a strong demand for TDD capabilities.

Obviously, what is going on in China right now, we are still waiting to see and I think we will wait for some time to see exactly when the government will provide the licenses.

But there is work underway, trials going on, underway.

Obviously in India, things are going quite well on the LTE TDD side.

So I do think that it will be strong.

What the mix will be is really going to be driven, I think, mostly by how spectrum allocations get done.

For us, we don't really care, actually.

We're happy to support both and we have them in the chips.

And your question about having multimode support, I think it's going to be very important because most operators are looking to roll out LTE as supplemental data capacity in urban areas or in hotspots, and then, over time, it will roll out more broadly.

The other issue is that there is quite a large number of frequency bands that are being specced for LTE, reflecting the fact that it is difficult to find spectrum for governments around the world.

So, then, you want to have the backwards compatibility to make sure that you have the global roaming capability.

We will, I think, see some single-mode LTE roll out, but I think the vast, vast majority of devices are going to be multimode, and therefore having all of that capability in there, in the single chip, is going to be very, very important.

Brian Modoff, Deutsche Bank.

A couple of questions.

Bill, on the settlement you got, was there any impact on the numbers from the settlement?

Did you get a payment in the quarter or is that coming in the next quarter, and if it is, can you quantify it?

And then, Steve, just on the market share on the application processor side of the business, can you talk a little bit about how you see Snapdragon market share shaping up over the next few quarters, particularly as you get the 8960 into the market?

Thanks.

Brian, this is Derek.

Why don't I take your first question?

Just to clarify, the renewal that we just announced is kind of the final remaining WCDMA subscriber extension.

That wasn't a situation where we had a dispute, and so there is not a disputed amount, in the past, where you'll see a catch-up.

It's really just a renewal of an existing deal.

Excellent.

(Multiple speakers)

Your question about AP market share, we're very pleased with that, actually.

As I mentioned in the comments, we saw -- from quarter to quarter, we saw a 32% rise, actually, in our integrated AP chipsets.

That's really across tiers, so we're quite happy about how that's looking.

Looking forward, as you mentioned the 28-nanometer devices do include integrated LTE, as well as all the other modes and wireless LAN.

I think what is going to happen here in next year is that the top end of the portfolio, it's going to be very, very important to have these high-end modems and connectivity integrated in very tightly with the apps processor.

We're seeing a significant amount of customer traction on this device, and that's one of the reasons why we really put the gas on it here in the fourth fiscal quarter.

Tim Long, Bank of Montreal.

Thank you.

Either Bill or Derek, if I could just follow up on the $38 billion to $41 billion total device revenue guidance for June.

Obviously, some of the OEMs in the June quarter have struggled pretty badly, and you're guiding that number up 5% to 10% or so, a little more than that sequentially.

Could you talk a little bit -- I know you mentioned the ASPs, but could you talk specifically about maybe the impact of some new Asian OEMs and maybe just give us an update on how much contribution now we're seeing from broadband, wireless, whether it's the modems and dongles or tablets, or however you want to couch that?

Thank you.

I think, Tim, we're going to stay away from any specifics on how one licensee or another is doing.

Let me try and give you a little more color around your question.

For this year, this calendar year, if you look on our website, you will see a little more detail of what we're seeing by region.

We called up the category that we have been identifying for WCDMA Asia, called it up pretty substantially.

We're seeing really good strength in China, and then across southeast Asia, Middle East, Africa.

China, the strength is with 3G, and southeast Asia, Middle East, Africa, we're seeing the GSM migration to 3G pickup pace.

Although we're seeing that uplift there, we softened a bit our forecast for WCDMA Europe.

I think the economic troubles there are holding back the consumer a bit.

And then, similar for India, we softened that a bit, but in total we're holding that.

So it gives you a little more color maybe by region of what we're seeing happening.

On the modules and data devices, that continues at a strong pace.

We're seeing embedded being a little bit stronger than the dongles themselves.

But overall -- eBooks as well, coming on strong.

So overall, we think the market there is pretty strong.

There are a number of -- a pretty wide number of product launches that are scheduled for later this quarter or early in what would be our first fiscal quarter, so we're looking for that to drive some further uptick in the market.

Simona Jankowski, Goldman Sachs.

Thank you so much.

Just wanted to ask you a question on the chipset guidance for next quarter, and I guess this is probably for Steve.

But just as far as, Steve, you're looking at only about a zero to 5 million unit increase sequentially.

That is a little bit lower than the Street was looking for, and I think some of us had basically been expecting a couple of the customers you referred to, such as -- whether it is a BlackBerry 7 or Nokia in there, as well as some other large customers in there as well.

I know you commented in your prepared remarks about some buffer build in the June quarter that might get worked down in September.

So can you just quantify for us the magnitude of that buffer build, and hopefully just help explain to us why we're not seeing more of a sequential lift?

Maybe your first part of the question -- obviously, I'm going to try to shy away from talking about any particular launch for an OEM.

But I think it's important -- or it's pretty difficult, I think, sometimes, to get the timing of launches.

However, that being said, we are quite bullish in terms of how our forward-looking share, the trajectory on it from what we have seen so far, so we are quite positive in it, and I mentioned in my remarks that we are ramping our -- essentially the resources that it takes in order to support customers.

So, that's really the first part.

The second part about the buffer build, as I mentioned the -- I think there was a -- certain OEMs had a reaction to the Japan crisis, which was to make sure that they had product on hand.

It's not a large number, but we are working through some of that with some of the OEMs to work through it.

Obviously, and I'm sure it's well known, that crisis or that supply chain event in terms of the disruption is really behind us now, which is a good thing.

Ehud Gelblum, Morgan Stanley.

Thanks, guys.

Appreciate it.

A couple of questions around, Steve, first of all, the QCT operating margin, the EBIT margin of 19.6%, declined a little bit from last quarter.

You said it was in line with your expectations.

Did Atheros have an impact on that at all, and if it did, can you take that out so we can see what it would have been on an apples-to-apples basis?

And then, how should we be looking at that for next quarter?

Does it go back up again?

You'd been talking previously that when you get into 28 nanometer at the end of the year, going into next year, you are sort of now there with the 8960, that we'd see that bounce back up again, so I want to make sure that we're still -- or just to understand what the trajectory of that is going forward?

And then, you also were talking about spending some extra R&D and OpEx at the end of this quarter, going into next, for some opportunity that you see happening.

I'm wondering, that 120 to 125 MSM is next quarter.

If those opportunities you are talking about come through, would we see that impact next quarter?

So, could that 120 to 125 be significantly higher?

And give us a sense as to what the odds are around -- or the standard deviation around that number is, if some of those projects that you seem to be eagerly working on the R&D side come through.

Thanks.

I will take the first part of your question on the QCT op margin.

For fiscal Q3, the Atheros was about a -- it was about [50] (changed by Company after call) basis points impact to our operating margin.

That number should decrease a bit going into the next quarter, but just modestly.

For the quarter, look for operating margins in QCT to be in that similar range as Q3.

As we commented, we're not at this point seeing a significant increase in the MSM volume.

And as Steve noted, he is stepping up his R&D because of some opportunities that we see here in the near term.

Maybe I can provide a little bit more color.

This is Steve.

On the R&D investment, it's really a combination of things.

The majority of it is things I would consider to be more one-time events in the sense that they are increases in terms of integration platforms that we use internally to develop the devices or tapeouts or things that you would do that accelerate the program because you're confident in it or you have more confidence in it.

We also -- as we announced in the quarter, we announced a small acquisition which closed in the September quarter.

That is also now in the results -- or in the OpEx forecast as well.

So, very much on track in terms of how we guided you in terms of op margin trajectory and what we expect.

And then, looking into next year, we tend to invest into units a little bit ahead of -- more than one quarter ahead, I think, in terms of the volume ramp, so it's really the products that we think are going to ramp in fiscal year 2012.

Rod Hall, JPMorgan.

Thanks for taking my question, guys.

Just a couple.

A quick one on the inventory.

I think, Bill, you said you expect CDMA inventories to decline a little bit again in fiscal Q4, down toward 15 weeks.

I'm just wondering, do you think the 15- to 20-week range is normal going forward, or do you think we should be expecting normal inventory levels more down toward the 15-week level?

And I guess that leads on into another question, which is do we -- are we you guys thinking vendors are going to be running into the end-of-year season pretty light on inventory, generally speaking?

Have you seen them cutting back on inventory levels, maybe anticipating a little weaker demand?

Sure, Rod.

We are expecting -- we think we've seen a little bit of inventory consumption in the June quarter and we're expecting a bit more in the September quarter.

We think going out of the fiscal year, we'll just be a nod below that average 15- to 20-week channel inventory level that we have seen for several years.

I think it is best to assume that that channel holds down at a relatively low level.

This has been in line with our forecast all year, that the global economy is a bit stronger, but it is not -- certainly not that robust level that I think a lot of vendors are going to want to step out too much on inventory.

Frankly, I hope it holds at this level.

I hope maybe, overall, the channels has maybe just gotten a little bit more efficient since the 2008-2009 crisis.

But for the time being, I think it is best to assume it stays at the lower level.

We will share our updates on what we see for fiscal 2012 when we're in New York in November.

Jeff Kvaal, Barclays Capital.

Thanks very much.

I was wondering if you might comment a bit on opportunities in the China region for vendors?

How do you feel about your position in the China market in general, and then with the domestic vendors overall?

That would be helpful.

Sure, this is Steve.

I'll talk about it from the perspective of chipset sales, that's what you're asking.

We have, really for some time, had a strong relationships with the Chinese domestic manufacturers.

I think in -- for some time, we have been supporting their export businesses, I think, as a big portion of our business, and I think recently here with the launch of 3G over the last several years, it has become more of a domestic-produced, domestic-consumed type of product for us, which is very good.

We also, over the last year, augmented our product to support, I think, a different class of customer, a customer that has less R&D in China, primarily for the emerging markets, as well as China.

And we have seen a fair amount of traction in those customer channels, primarily coinciding with the advent of mass-market smartphones happening with the rollout of 3G in some of these regions.

So it has been -- I think it has been a real strong success for us over the last several years, over different types of products.

We're pretty bullish about it moving forward.

I would just say -- this is Paul, as I said in my prepared remarks, I just got back from a couple of carrier events where they were bringing their suppliers in to sort of rally the ecosystem.

I gave the lead keynote address on both of those events, and I think it really just shows the kind of influence that Qualcomm has in the market that the operators want to make sure that we're there to give the technical roadmap to their suppliers and to make sure that everyone knows sort of where the industry is going to head, where they're going to drive new services from.

And the relationships that we have, both on the manufacturer and the operator side in China, are extremely strong right now.

Mark McKechnie, ThinkEquity.

Great.

Thanks.

Congrats on a good quarter, guys and gals.

A couple of questions here for Bill, just housekeeping.

Interest income, that investment income is a big swing factor.

What do you have envisioned for your guidance here in the September outlook?

And then, also Bill, if you could tell us how much onshore cash is remaining following your Atheros acquisition, and then I have a quick question for Derek after that.

Sure, Mark.

On the investment income side, what we have been doing now for some time is including in our guidance, obviously, dividend and interest income, but what we've been doing for some time now is reaching out and including investment gains that we think we are highly confident will be realized, net investment gains for the quarter.

So, that is included in the guidance we shared with you.

From here on out, it is up to our investment managers as to whether they see opportunities.

There is about $1 billion unrealized -- net unrealized gain on the total portfolio.

So as they see opportunities to move their -- it's primarily fixed income that they would realize further gains.

On the onshore/offshore.

The onshore today and towards the end of this quarter should be in the $6 billion to $6.5 billion range, so you have 13 to 14 offshore.

Great.

Thanks for that, Bill.

And then, Derek, you mentioned -- I wanted to understand on these licensees.

It sounds like you took care of one.

That was the next do.

Can you lay out for us what kind of milestones or other events that we could see with licensees on that front, or how long is it clear sailing, and maybe give me a little -- some of the bigger legal events coming up?

Thanks.

So, I think we have talked about this quite a bit historically that we had four companies several years back that we needed to extend their WCDMA subscriber royalty obligations between now and the end of 2017.

And so, with this last renewal, we haven't really gotten more specific about what happens after 2017, but I think what you can take from today's announcement is that we have all the extensions done that we needed to get done within that timeframe, and I think, you know, as we've said, we generally have very long-term agreements with our licensees, and I think we all feel very well positioned today following this final renewal.

Stacy Rasgon, Sanford Bernstein.

Hi, guys.

Thanks for taking my question.

First of all, you said you had one penny's worth of EPS upside from -- upside in QTL.

How did you get that when your QTL results came in below the midpoint of your guidance?

Can you also -- I mean, was it higher royalty rates or what?

I was also -- one more question on Krait.

So you're sampled and now it is shipping some time next year, beginning of next year.

You said it is going to support one of, I guess, the integrated connectivity solutions from Atheros.

My understanding was the Krait chips in general were going to have connectivity integrated directly on the die.

Can you verify -- does the MSM of the chip that is coming there, does it have connectivity capability that is integrated on the die?

It doesn't sound like it.

And if it doesn't, can you give us some feeling for what your connectivity integration roadmap actually looks like going through -- I guess going into 2012 as you roll those products out?

On your EPS question, it has to do with the mix of licensees.

The TRDS was pretty spot on with what we expected, and we saw some favorability because of the mix of licensees.

This is Steve.

I'll take the first part of the Krait question, and maybe ask Craig if he can handle the second part.

He probably has better answers than I could give.

But the 8960 device has, in addition to the application process or the GPU, all the multimodem functionality and GPS.

It does have integrated wireless LAN.

It is part of the digital die, but the radio is actually outside (multiple speakers) of the device.

We have, I think, a little bit different approach to integration than some of our competitors, and maybe, Craig, if you could provide a perspective on that, that would be great.

Sure.

This is Craig.

Obviously from my Atheros background, we've been on both sides of this debate.

But one of the key things is the attach rate of WiFi is really going up to very high levels, pretty much in all smartphone and tablet platforms.

There is substantial benefits to integrating a significant part of the connectivity functions, not just WiFi but also Bluetooth FM, and as you know GPS has been integrated actually for a long time.

We can deliver much high performance.

There are benefits in terms of reducing overall system-level power.

The solution ends up contributing a much smaller increase in PCV size, so the solution area is smaller and that is critical for more compact devices.

And of course, I think there are benefits around cost as well.

So this is a trend that will fan out, I think, across many of the future MSM chips and other similar platforms in the future.

Kulbinder Garcha, Credit Suisse.

Great.

Thanks very much.

This is actually Deepak for Kulbinder.

First, just a clarification for Bill.

Bill, you said you expect a significant uptick on CDMA device volumes into calendar 2012.

I guess beyond just normal seasonality, is anything driving that view?

And then, Steve, for you on Snapdragon, there seems to be a lot of design activity ongoing as there has been for some time.

Looking forward, do you see Snapdragon as best positioned for the smartphone or the tablet market, and maybe just give us your thoughts on how you see the tablet market, ex Apple, evolving?

Thanks very much.

I may have been a little confusing.

Let me clarify.

We're expecting an uptick in the fourth calendar quarter, which would be our first fiscal quarter of 2012.

As we mentioned, we're seeing a lot of new devices being prepared for launch that we think OEMs, carriers, and consumers are going to be taking advantage of.

Perspectives on chipsets for tablets and phones.

In some cases, the same device will be used for high-end phones that will be used for tablets.

You've seen that in the market.

And then in other cases, you may have a more specialized device.

We have recently added both of those tiers into our roadmap.

The difference between them may be a small amount of performance delta, but also different interfaces that are required in a tablet perhaps than a phone, depending on the class of tablet.

In terms of the overall market, our perspective is quite bullish over the long term.

If you look at mobile computing, we think that will really grow up and take a fairly significant share of the traditional laptop space, really driven by the software that is being driven on phones.

That software is getting better every day, and I think as that happens, you will see, I think, a little bit more diversity in terms of supply base -- or suppliers into that market, as well as the market itself growing, both of those things being good things for Qualcomm and the industry.

Mark Sue, RBC Capital Markets.

Thank you.

Steve, since we can't predict exact timing of new handset launches, perhaps you can give us your qualitative thoughts on share gains at strategic OEMs, and are we at a point where there is more at stake at particular customers as opposed to the past when it is typically a dual-source opportunity?

And Bill, the uplift in ASPs, is there some concern that it may be short-lived?

I ask because we're seeing sharp ASP declines in smartphone prices from the Asian vendors, and they're worried that today's smartphones will be tomorrow's feature phones.

In terms of how the share picture looks to us, it really doesn't look that different than what it has historically for us.

A number of our traditional customers have had second sourcing programs for some time.

We've been able to, I think, really drive technology and maintain the most profitable segments of their business.

And then, also, just in terms of the dynamics, over the last 10 years or so, there has always been one or two OEMs that we haven't been able to get into, for one reason or another.

Historically, it's been Nokia, for example, if you go back many years.

Now, today, the market really looks much more accessible than it probably was five years ago in terms of overall side.

Still, the business, though, looks very similar.

It is a technology velocity business.

You have to drive technology as fast as possible.

We think that environment is existing now in the marketplace.

Let me answer your question on ASPs.

I think as we see the penetration of smartphones into the mid and lower tiers, it's actually, we view, a very good thing for our business.

I think longer term, you are going to see declines in the overall ASP that we report to you, just given the mix of volume from developed markets into emerging markets, and also maybe from the top tier down into the mid- and lower-tier smartphones.

But what we expect to see with that is very stronger growth in volume.

What will lead to the combination of those two things is continued strong growth in the total reported device sales that is the base of the royalty business.

So, I think all of those trends are happening, but they will come together in a positive way for us over the long term.

James Faucette, Pacific Crest.

Thank you very much.

I had a couple of questions, I guess, related to operating margins, and I will let Bill and Steve, you guys kind of suss that out as you will.

First, you've given pretty good detail as to how you expect operating margins in QCT to develop in the near term.

Can you talk a little bit about your long-term target -- stated long-term targets of getting that business up into the mid- to high 20s range, and how you would perceive that happening either from a timing standpoint, as well as what conditions you would expect to come together to get margins to that level?

And then, secondly, I wanted to kind of follow up on the last question as it relates to competition.

Can you give maybe a little more insight as to where you're -- what you're thinking in terms of pricing trends and where you feel like you -- what segments of the market you may see more competition versus less going forward, and how we should think about the potential for share of movements in the different segments?

Thanks.

On the op margin, James, this is Bill, I'll give you some thoughts, and I don't know, Steve can jump in if he wants to add anything to it.

But historically, you look back at Qualcomm on the chip side, we have enjoyed north of 25% operating margins for an extended period of time.

The environment -- I think we went through this in some detail in New York last year, the environment and how we think we can open up a smartphone mass market.

The combination of those has led us to the lower op margin than what we have historically seen.

As we said in New York back in November, we are targeting to improve that operating margin in the out years.

We will give a refresher on that at New York, but I don't think you're going to see much of a different outlook going forward.

We do expect in the out years to be improving that operating margin for QCT.

Parag Agarwal, UBS.

Steve, did you see any [busharta] programs from the September quarter into the December quarter?

And also on the December quarter, just wondering, is it possible that the December quarter could be stronger than seasonality, given that there's softness in the September quarter?

Sure.

I think your first question, I think, was really -- I was assuming the question was about our products.

Our products really remained on track for -- that I've mentioned in the past.

In terms of how that translates into customer designs and their schedules, it's a little bit difficult for me to be in a position, I think, to refer to their schedules.

So I'll be very careful not to do that.

And then, I'm sorry, the second part of your question I missed.

Now that the September quarter is kind of seasonally soft, is it possible that the December quarter could be seasonally strong?

Yes, I want to hesitate from giving guidance for December.

It is just a little too early for us to do that.

So it's probably something we'll check in with in New York.

Okay.

Another question on the mid-range to low-end smartphones, you indicated that you should start seeing some momentum there.

So just wondering if you are seeing the momentum there or what is the outlook for that segment of the market?

It is -- we have seen over the last year or so pretty strong demand for mass-market smartphones.

It is one of the environmental factors, I think, supports Bill's answer to the last question.

So it continues to be a strong portion of our business and it has been for several quarters.

We don't anticipate a change in that.

Craig Berger, FBR.

Hey guys, thanks for taking my question.

I guess the first thing I wanted to dig into is on the GTL ASPs.

What do you think is the sustainability as more smart feature phones mix in, and how should we think about the next few quarters?

Then I have a follow-up.

Thanks.

Obviously, we're seeing some good strength here.

Derek, I think, gave some good color on that.

The only thing I would add to what Derek said was, which aligns with what Steve Mollenkopf just said on smartphones, we are seeing ASPs on average increase in any number of emerging markets now.

And we really think it is this mass-market smartphone getting into the areas of the world that a lot of us don't track, otherwise, that closely.

So, the ASP strength that we saw in our fiscal Q3, that we are seeing in our fiscal Q4, that Derek talked about, a good part of that is just emerging markets where we are seeing ASPs -- the average ASPs actually increase.

So how long that holds, we will see, but the appetite for smartphones across the world is quite strong, and it's got a ways to go in terms of penetration.

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?

Thanks again, everybody, for joining us.

I think the results and our guidance really highlight the fact that, around the world, the smartphone excitement is continuing.

As we look beyond that to mobile computing and new tablet devices coming to market, I think there's just a lot to look forward to.

Really happy with this sampling of the 8960.

It is probably one of the most exciting chips we have ever launched, and as we look ahead to our strategy Internet of everything and also continuing computing enterprise and networking.

The acquisition of Atheros just really fits nicely, and it's been going extremely well.

So, excited about where we are sitting, even more excited about the opportunities ahead.

So thanks, everybody.

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

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