高通 (QCOM) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Qualcomm first-quarter fiscal year 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded, January 29, 2014.

The playback number for today's call is 855-859-2056.

International callers, please dial 404-537-3406.

The playback reservation number is 3147-6192.

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

Mr. Kneeshaw, please go ahead.

Thank you, Brent, and good afternoon.

Today's call will include prepared remarks by Dr. Paul Jacobs, Steve Mollenkopf, and George Davis.

In addition, Derek Aberle and Don Rosenberg will join the question-and-answer session.

An Internet presentation and audio broadcast accompany this call.

You can access them by visiting our website at www.Qualcomm.com.

During this conference call, if we use non-GAAP financial measures as defined in Regulation G, you can find the related reconciliations to GAAP on our website.

I'd also like to direct you to our 10-Q and earnings release, which were filed and furnished respectively with the SEC today, and are available on our website.

During this conference call, we will make forward-looking statements regarding future events or Company results.

Actual events or results could differ materially from those projected in the forward-looking statements.

Please refer to our SEC filings, including our most recent Form 10-K and 10-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements.

Now I would like to introduce Qualcomm's Chairman and Chief Executive Officer, Doctor Paul Jacobs.

Thank you, Warren, and good afternoon everyone.

We are off to a solid start in fiscal 2014 and we are pleased to report record revenues this quarter, driven by strong growth in both QCT in QTL.

Steve will provide more color on the businesses but I did want to comment on the Executive changes we recently announced.

First, I'm extremely pleased that Steve Mollenkopf will become our next Chief Executive Officer.

He is an exceptional leader with a stellar track record over his 20 years at Qualcomm.

Throughout his tenure, he's played a critical role in developing a number of new technologies and strengthening our relationships with our industry partners.

This change will ensure Management continuity, will allow me to work on new technologies, and help set the future direction for the Company as Executive Chairman of the Board.

I look forward to continuing to work closely with Steve and the rest of the Management team.

Secondly, I wanted to thank our employees, customers, and suppliers for their support over my tenure as CEO.

We've seen tremendous change over the last almost nine years.

As I began my services as CEO, we were predominantly known as the CDMA2000 Company.

Fast forward to today and we've developed a broadly-licensed and diversified portfolio of technologies, not only from an air-interface perspective, but also in many other mobile technologies such as computing and connectivity, with an industry-leading approach of integrating these core technologies that define the mobile experience.

Looking back, we had a vision for what a smartphone could be and we worked together with our partners to bring this vision to reality.

It really dates back to the early 1990s when we had the idea to put the Internet protocols into CDMA.

We really knew that data would unlock tremendous opportunities for mobile devices.

We were the first to put GPS in phones, we developed the first Palm OS-based smartphone, we were pioneers in the mobile app space with our Brew App store, and continue to lead with innovations such as first gigahertz smartphone processor, and obviously, more recently, advanced multimedia technologies such as Ultra HD video capture and playback.

Looking forward, the opportunities are vast, as we work with our partners to help them expand their data capacity by up to 1,000-fold with solutions such as our small cells and other innovations such as LTE and unlicensed spectrum.

We are hoping to drive adoption of mobile technologies into several exciting new categories including automotive, healthcare, and the connected home with our industry-leading mobile computing conductivity offerings.

The AllSeen alliance was recently formed to drive interoperability for the Internet of Everything, which is based on the use of the AllJoyn software framework.

This industry leadership and vision has translated into strong business performance with revenues more than quadrupling and EPS more than tripling since fiscal 2005.

In addition, we have returned over $25 billion in capital to stockholders during this time frame, and recently announced our intent to return 75% of free cash flow to stockholders.

We expect that will more than double the amount of capital returns to stockholders over the next five years as compared to the last five years.

We continue to be extremely excited about the future.

We are still in the early rounds of global smartphone adoption; we're early rounds of the transition to mobile computing; and then we have this broad connection of the Internet of Everything.

So we have the right technologies and more importantly we have the team to execute on these opportunities ahead.

So we are pleased with the start to fiscal 2014 and I look forward to continuing to work with our team to drive growth in the years ahead.

Thank you and I'll now turn the call over to Steve Mollenkopf.

Good afternoon and thank you, Paul.

I appreciate your kind words.

I am humbled and extremely honored to have been named CEO-Elect of Qualcomm.

Under Paul's tenure as CEO, the Company has established a leadership position in 3G, 4G, and next-generation wireless technologies; developed a deep and diverse set of industry-leading mobile technologies; and has generated extraordinary results.

We are well-positioned to address the significant opportunities ahead and I look forward to guiding the Company during its next phase of growth.

Paul, I would like to thank you for your leadership and mentorship and I look forward to continuing to work closely with you in the years ahead.

I am proud to have been given this opportunity and I look forward to assuming the CEO role in March.

Turning to our fiscal first quarter, our QTL and QCT delivered strong financial results and we are off to a solid start to fiscal 2014.

In the quarter, we also returned approximately $1.6 billion to shareholders in dividends and buyback activity, consistent with the increased capital return targets that we outlined in November.

QTL had a strong quarter, in line with our expectations, with revenue and earnings before tax up 8% and 9% respectively, year-over-year.

Total reported device sales by our licensees was a record and above the mid-point of our prior guidance range.

Global smartphone adoption continues to be a key driver of royalty revenue growth, and in the fiscal first quarter, we saw increased sequential shipments by our licensees of smartphones in emerging regions.

According to Gartner, emerging regions smartphone shipments are expected to grow at close to 30% CAGR between 2012 and 2017.

Globally, Gartner expects approximately 7 billion smartphones to be shipped from 2013 to 2017.

In QCT, revenues in MSM shipments were up 12% and 17% year-over-year, respectively.

MSM shipments were above our expectations, driven by demand in emerging regions.

Actions taken to manage spending contributed to better-than-expected operating margins.

From an operating expense standpoint, our outlook for moderated year-over-year growth remains on track.

We are still investing in both the core businesses and new business opportunities, and with our expense management initiatives this year, we continue to forecast that we will exit fiscal 2014 at a lower operating expense run rate for the Company than we exited fiscal 2013.

Turning to China, we are pleased to see that the 4G spectrum licenses have now been issued.

We are working closely with the operators, as well as domestic and international OEMs to meet this new growth opportunity.

We continue to add single-mode OFDMA licensees, including in China.

Given the high degree of similarity between the TDD and FDD modes of the international LTE standard, and our position as the leading contributor to LTE, the royalties payable by our licensees under their single-mode OFDMA licenses are the same for devices that implement either or both of the TDD and FDD modes of LTE.

QUALCOMM continues to invest heavily in developing the leading and the most widely licensed portfolio of patented technologies applicable to 3G and 4G devices For QCT, the growth of LTE FDD and TDD in China, aligns with our strengths, both from supporting local Chinese OEMs looking to leverage LTE and build their business outside of China, as well as global OEMs hoping to leverage LTE growth to grow their businesses in China.

For each of these customer types, our multi-mode 3G LTE modem leadership and Snapdragon solutions, combined with our ability to support global launches, position us well.

We have over 70 3G LTE multi-mode designs with the leading Chinese OEMs based on our Snapdragon 400 chipsets for the high-volume handset tier.

We believe the recently-announced Snapdragon 410 with integrated LTE will also be the world's first 64-bit processor for the high-volume tier and will establish our 64-bit leadership there.

On the legal front, as we previously announced in November, the Chinese National Development and Reform Commission, or NDRC, notified us that it had commenced an investigation of us related to the Chinese anti-monopoly law.

The NDRC has advised us that the substance of the investigation is confidential.

We will continue to cooperate with the NDRC as it conducts its investigation.

Globally, the momentum of Snapdragon-based devices continues to grow, with over 1,350 designs announced or shipping, and more than 500 designs in the pipeline, including over 40 tablets.

We are pleased with our design activity and anticipate good volume growth in flagship tablets, such as the new LG G Pad tablet, the Samsung Galaxy NotePRO, and the Samson Galaxy TabPRO announced at CES.

Looking ahead, our newly-announced next-generation chipsets are progressing well and continue to demonstrate our leadership.

The Snapdragon 805 sets a new bar for performance in premium tablets and smartphones, with end-to-end Ultra HD capability and the world's fastest mobile CPU.

It is on track to ship in commercial devices in the first half of this calendar year, and will help our customers take advantage of increasing interest in Ultra HD across the entertainment and consumer electronics industries.

Our new 9x35 modem delivers our fourth generation of LTE and is on track to extend our LTE leadership into Category 6. We have already demonstrated the world's first 300 megabits per second LTE Category 6 data session on Ericsson infrastructure and we expect to see our Category 6 modem in data cards, hotspots, and smartphones this year.

Our overall Wi-Fi sales are strong and growing with unit sales this quarter up 50% year-over-year, and we have over 200 designs of our premium 802.11ac solutions in the pipeline.

Our RF360 family of products also continues to progress well.

Our envelope tracking solution has been shipping for a number of months and is in key devices such as the Samsung Galaxy Note 3, the Google Nexus 5, and the LTE Nubia 5S.

Our Dynamic antenna tuner recently launched in Nokia's flagship Lumia 1520 and our remaining RF360 products are on track to ship later this fiscal year as expected.

In closing, we are off to a solid start in the first fiscal quarter, and we see the year developing broadly in line with our previous expectations.

That concludes my remarks and I would now like to turn the call over to George Davis.

Thank you, Steve, and good afternoon, everyone.

Our first-quarter result came in above expectations on solid operating performance and the positive net impact of certain discrete items.

Fiscal first-quarter revenues were a record $6.6 billion, up 10% year-over-year, and non-GAAP earnings per share was $1.26, above our prior guidance range.

Our results this quarter included a $665 million gain, or $0.25 per share, related to the sale of substantially all of our Omnitracs business.

We also recorded a $444 million impairment, or $0.20 per share, in other expenses, related to the fab assets in our QMT business.

The remaining items in other expenses impacted results by an additional $0.01 per share.

In total, these items added a net $0.04 per share gain to results.

Excluding these items, our non-GAAP EPS would be $1.22 per share, or $0.07 above the mid-point of guidance, and $0.02 above the high end of our guidance range.

Results in QCT and in our treasury portfolio were the major contributors to above-expectation performance.

In QTL, total reported device sales by our licensee were a record $61.6 billion, up 16% year-over-year and above the mid-point of our guidance range, with an average selling price of $222 at the mid-point, and shipments of 278 million 3G/4G-based devices at the mid-point.

We saw strength in both emerging and developed regions, with increased penetration of smartphones into lower tiers.

Emerging regions continue to show the highest unit growth rates for 3G/4G -based devices.

QCT earnings before tax were above expectations, with record revenues of $4.6 billion, and record shipments of 213 million MSMs.

Revenue per MSM was lower sequentially, reflecting higher mix of thin modems and increased MSM shipments for emerging regions.

QCT operating margin was 20% in the fiscal first quarter, above our prior expectations, reflecting actions to manage spending in the quarter.

For the Company overall, non-GAAP combined R&D and SG&A expenses were below our guidance, decreasing 3% sequentially, primary driven by our QCT business.

Turning to capital structure, during the fiscal first quarter we returned approximately $1.6 billion to stockholders, including approximately $600 million of dividends paid, and $1 billion in stock repurchases.

As of the end of the first fiscal quarter, we had approximately $3.8 billion remaining of the $5 billion stock repurchase authorization announced in September of last year.

Cash flow from operations was very strong again this quarter at approximately $2.8 billion, or 42% of revenues.

Timing of shipments in Q4 and Q1 led to a higher than normal reduction in receivables, which was the major factor in our above-trend working capital and cash flow performance.

We ended the fiscal quarter with cash and marketable securities of $31.6 billion.

Now turning to our guidance for fiscal 2014.

Our outlook for the fiscal year is mostly unchanged, but we are increasing our earnings per share guidance to adjust for the above-expectation performance in the fiscal first quarter, modestly tempered by a somewhat softer outlook in our fiscal second quarter.

We expect fiscal 2014 non-GAAP earnings per share to be in the range of $5 to $5.20, up approximately 13% year-over-year at the mid-point relative to 2013, and up $0.05 at the mid-point from our prior guidance.

As it is still very early in the year, we are also holding our forecast for calendar 2014 3G/4G-based device shipments.

However, we do see some potential upside to our forecast, particularly related to LTE deployment in China.

We are also holding the mid-point of our calendar 2013 3G/4G device shipment estimate, although modestly narrowing the range.

As we outlined in November, we forecast improving trends in the second half of our fiscal year versus the first half.

We expect higher device ASPs for QTL and a better mix of leading parts in QCT, including the impact of LTE in China.

We also continue to forecast favorable trends and product costs.

For the second quarter of fiscal 2014, we estimate revenues to be in the range of approximately $6.1 billion to $6.7 billion, flat to up approximately 9% year-over-year.

We estimate non-GAAP earnings per share in our fiscal second quarter to be approximately $1.15 to $1.25 per share, up 3% year-over-year at the mid-point.

We anticipate second fiscal quarter non-GAAP combined R&D and SG&A expenses will be slightly higher, up 1% to 3% sequentially, reflecting modest growth in R&D.

In QTL, we estimate total reported device sales of $66.5 billion to $72.5 billion will be reported by our licensees in the March quarter for shipments that they made in the December quarter, up approximately 14% year-over-year at the mid-point, reflecting the busy holiday season.

We estimate that the QTL device ASP will be relatively flat sequentially.

In QCT, we anticipate MSM shipments of approximately 180 million to 195 million units during the March quarter, down 12% at the mid-point sequentially, and up approximately 8% year-over-year at the mid-point.

And we expect revenue per MSM to be up modestly on mix quarter-over-quarter.

We expect QCT operating margin to be approximately 15% in the fiscal second quarter, lower sequentially as expected, reflecting the impact of lower seasonal volumes and the effects of annual pricing resets typical for this time of year.

We continue to forecast QCT operating margins to be 18% to 20% for the full fiscal year.

That concludes my comments.

I will now turn the call back to Warren.

Thank you, George.

Brent, we are ready for questions.

(Operator Instructions)

Tim Long, BMO Capital Markets.

A two parter on the royalty line if I could.

Maybe could you give us an update?

It looks like again the calculated rate went down a little bit more.

Was there anything in there?

Are we getting more caps?

What is going on with that?

And then secondly, if we could just get your perspective on China, collecting in China, particularly as it seems like there has been a lot more three-mode products being announced relative to the five mode.

Do you think that changes the dynamic at all in collecting with the Chinese OEMs?

Thank you.

Hello, Tim, this is Derek.

On the rate question, again, we have gone through a number of times all the factors that move this thing around.

This quarter it is a combination probably of a few things.

The TRDS obviously was up again, another record.

So, again, we get a little bit of a drag based on the fixed elements of the revenue.

Also, just given the timing of the product launches, there was some discounting going on during this quarter that impacted the deductions that our licensees take and so that has also an impact, as I explained in New York a couple of months ago, and then a little bit of OEM mix again.

So a number of things bouncing around.

I do think based on the visibility we have into next quarter, that the rate should improve some into next quarter.

We still believe the range that we gave for the year is still what we think we are going to end up in and that was 3.1% to 3.3%.

On China, really not much of a change from again what we went through in New York.

Again, we are very active, we are continuing to negotiate agreements on single-mode OFDM in China, and we added some additional licensees to the mix here over the last quarter.

We've got a number of other discussions ongoing and expect some other agreements to get signed here hopefully in the next couple of months.

So we are just continuing to do the work that we started several years ago to make sure we are in a position to collect and still feel comfortable with that that will be the case.

Mike Walkley, Canaccord Genuity.

Paul, just wanted to say congratulations on a great job navigating some tough times as CEO with all those renegotiations a few years back.

And Steve, just wanted to ask a question to you about the QCT operating margins dropped to the mid-teens here in Q1, just on the seasonality.

But can you talk about how you feel on the cost optimization programs and some of the steps that give you comfort in the recovery in the second half of the year?

Thank you.

Thanks a lot.

I certainly hope we don't see anything like that for Steve starting off his tenure.

It was a lot of people decided that it was time to test our Management team and it wasn't the most fun thing to go through, but it was good to get it behind us and also to see -- with all the stuff that is going on in the world in terms of litigation -- that we are not in the middle of a lot of that stuff.

We are actually partners with a lot of those companies that we had battles with in the old days.

So that is -- it's nice to see that change.

But thanks for saying that.

Mike, this is Steve, with respect to be op margin, if I looked at the year, particularly if I look at the year, first half, second half, it is unfolding basically the way that we thought.

Q1 was pretty strong, and particularly strong, actually, in the emerging markets, which we were pleased to see.

So we are still confident in our outlook in terms of up margin guidance that we gave in November.

Just pleased to have a good quarter in the book in order to head our direction.

As you know, there is always some seasonality in this quarter and I don't think you're seeing anything more than that really in what you are seeing in the outlook.

Tal Liani, Bank of America Merrill Lynch.

I have two questions.

First is what was the impact of foreign exchange on the numbers in the guidance or what is -- how do you -- if you can explain even the broader picture of hedging and the impact on the P&L?

And then secondly, when I look at the numbers of your numbers for next quarter, they are below Street expectation somewhat.

When I look at your numbers for the year, you brought them up, and that means that you expect a second half recovery in EPS or second half recovery in the trends.

Could you go over the reasons for second half acceleration versus the previous expectations and what stands behind the increase in EPS?

Thanks.

Sure, this is George.

Let me start off with the FX impact.

We had a modestly positive impact in the first quarter.

As you know, it's really -- most of our exposure comes from our licensing business, and we have hedging programs in place to help us with that.

We expect the full-year again to be modestly positive after our hedging programs, but FX has not been a major impact for us over the last couple of years.

In terms of the second quarter and the full year, really actually the year is pretty much playing out in line with our expectations -- a little bit more positive in the first quarter, but we are seeing a little more softness in the second quarter.

Net-net the first half looks about, as we said, in the second half, it really -- we are not calling for anything other than the same environment that we expected going into the year.

We have said that we think that whether you are looking at devices or you are looking at potential sales around the world, China LTE looks like an area where there may be -- depending on the timing of -- there might be some more benefit that hits our fiscal year, which as you know, closes out a quarter before the calendar year.

Brian Modoff, Deutsche Bank.

A couple of them.

At the beginning of the call, you talked about being the early rounds of smartphone adoption and growth.

Can you give a little more color around that, looking at what we're seeing from a maturation standpoint in places like the US, but growth in emerging markets.

How do you see that playing out in terms of your ASP trends?

Second question, Steve, each of your main competitors in LTE in the last nine months has gone outside their company to acquire technology to try to compete with you in that market and none of them have really come to market with a product of any scale.

Can you talk about what you see for LTE competition in the year?

And then Paul, just briefly, can you give us a rundown on some of your focuses in terms of your venture ideas or venture investments as you move on to your next role?

Thank you.

Brian, this is Derek, let me answer your first question.

We look at -- obviously we look at the market as a whole, which we break up in developed and emerging regions and yet --while it is true that there is a fair amount of maturation of smartphone adoption in the developed regions, we do still think that there is a lot of things coming that will drive replacement cycles there and then bring the last bit of the tail over.

But then when you look at emerging regions, there is still a huge runway for growth there.

So when we look at it in totality, although the areas where we probably spend most of our time seems like the smartphone space is well penetrated, there is still a huge opportunity for us in the emerging regions.

Brian, this is Steve.

On LTE, yes, what we have seen -- a lot of folks obviously are working on LTE.

We are continuing to see strong design in activity.

What is happening -- we have an early lead, we are driving it across tiers, and at the same time, the feature set is turning over.

And one of the things that has been important for us, we -- since day one of our LTE solution, we have had the TDD mode in there, that has been exceedingly important in terms of being able to grow our business into China, which is a good thing.

But also what we are seeing in China is the effect where people want to use the LTE solution, that number one, has maturity and feature leadership, but also gives them the ability to deliver a product outside of China and to become a global smartphone OEM and not just a regional smartphone OEM.

So we are continuing to stay ahead of people in terms of technology and certainly maturity and scale, but the things that we bring seem to also be more important as well.

So we hope that continues.

We are going to continue to invest in that area as has been our practice.

In terms of stuff that I'm going to go look at in the future -- obviously, there is a whole set of projects that we have going on right now that I just think it will be nice to be able to spend a little bit more time hands-on with those projects and hopefully can help accelerate some of those coming to market.

Then farther out stuff that we haven't talked a lot about yet -- everybody's talking about 5G already so we have some good ideas for what 5G should be and the kinds of things that it should do, in addition to just being faster and more spectrum and more bandwidth and those things.

So I've got some good projects ahead of me.

Simona Jankowski, Goldman Sachs.

I wanted to congratulate both of you, Paul and Steve, on the new roles.

I just wanted to ask you first about your guidance as it pertains to QTL and device sales, in particular.

It was relatively strong, even though we've seen some of the major OEMs actually come in with slightly lower-than-expected results for the December quarter.

So I was just wondering if you can go into some of the drivers for that.

Is it emerging markets?

Is it tablets or any other categories?

And then relative to your unit guidance for MSM chipsets in the March quarter, it's a bit below seasonal.

I just wanted to dig into that a little more, if it's anything to do with market share or inventory or end demand?

If you can just give us a bit of color there as well?

Thanks.

Simona, this is Derek.

Why don't I start and if George wants to jump in and add something, he can.

As you know, at this stage of the game, we get a fair amount of visibility in from our licensees typically before we provide guidance.

So we do have a reasonable amount of confidence in the guide that we provided for the December quarter sales.

It is, again, a blending.

We see a lot of strength in the emerging regions, continue to see strength in places like China.

And although there was a little softness in the US, some of the other developed regions continue to do well, such as Europe.

We are going to probably see a little stronger tablet uptake as well and there is some evidence of that coming out of some of the statements Verizon and AT&T made this last week.

On the MSM front, what we're seeing -- and it is one of the reasons why we didn't up the number for MSMs for the full year.

We think some of the benefit that we saw in Q1 were MSMs that were being pulled in so maybe a little bit of a timing issue between Q2 and Q1.

But again, overall, the first half of the year looks very much like we thought it would and second half the same, so probably not a lot of news in those numbers.

Romit Shah, Nomura.

You basically reiterated guidance for full-year revenues, but the year is turning out to be a little bit more back-end loaded than I was thinking.

June is historically flat, which, if that plays out again, would imply that September is up north of 10% sequentially.

Is that the right way to think about the rest of the year?

That is my first question.

And then second, Steve, China Mobile indicated, I believe, in December that they expect to sell 100 million LTE devices.

That number seems like it is overstated but wanted to get your thoughts on that?

Thank you.

On the first half, second half, again, all I can is it really -- and we spent some time on this in the original guidance -- the year does look a little bit different than the historical pattern, with more of the earnings coming in the second half.

We still believe that is the case and also you get a slightly higher revenue rate in the second half of the year.

So in terms of any specific quarter, it is too early to comment beyond our second-quarter guidance, but our -- that is why when we raised our guidance it really was more just to reflect the outperformance in Q1 than a fundamental change in first half and second half.

And this is Steve, on the China Mobile forecast for devices, my guess is, if I remember correctly, that was a calendar year number, but -- and it is difficult for me to comment on the numbers, but I will say that the intensity with which the industry is getting prepared for the launch of LTE is quite high and if you look at our design in intensity and you look at the preparations that we are going through with the carriers, it is consistent with a big launch of that scale.

It is always difficult, as we have said before, to pick when those things happen and the start of the new launch is always difficult to pick, particularly as early as it is.

But we expect that to be a big -- a pretty significant launch when it occurs and we are getting prepared for it.

Ehud Gelblum, Citi.

A question for you on China.

Is there any reason that, with China Mobile having said they are going to stress three-mode phones rather than five-mode, is there any reason that your royalty rate on a three-mode phone would be different than on a five-mode phone?

Obviously, there is some difference because of the lack of 3G, but just if you can give us a sense as to the difference between those two?

And on that note then also, if the share of TD-LTE at China Mobile ends up being, let's say, roughly similar share-wise to what 3G looks like right now in China, given that you count a lot of the major Chinese players like Huawei, ZTE, Lenovo, Coolpad, as good customers of yours, and I presume, therefore, paying you whatever royalty rate they do pay you, if they end up getting the similar shares in the TD-LTE world as that develops, can you give us a sense as to what would that mean for the royalty rates that you would collect on LTE?

And then you made a comment, Steve, that there was a higher percentage of thin modems sold -- or George, you may have said that -- thin modems sold this quarter and that is what affected the ASP on your MSMs.

Is that a trend you're seeing of non-integrated chips in smartphones or is that an indication that 3G/4G feature phones are making a comeback?

Thanks.

Ehud, this is Derek.

Let me answer your first question.

We've talked a lot about some of the challenges we've had with collecting on TD-SCDMA in China and the things that we have been doing to either push things like five mode so there's WCDMA in the device or also the move to LTE should be a good one for us.

So our 3G deals would cover anything that you called a five mode, and in fact, in many cases, would cover the phones that are three modes, so absent the challenges we've had around TD-SCDMA, we wouldn't really have a need to negotiate new deals on those.

But like I said, we are signing a number of companies to the LTE licenses and so as we've talked about, we do expect the rate on -- what we call the single-mode LTE device to be lower than 3G.

Although I spent some time going through that in New York, if you recall, in terms of trying to explain the delta between the 3G and 4G royalty picture as a whole based on the companies that were signed up so far.

So maybe you can go back and think about that.

It's -- I can't really specifically comment on any particular licensee or any particular agreement and obviously we are going to have to see how the market develops in terms of three mode versus five mode adoption and who are the suppliers that get share moving forward.

Ehud, this is Steve.

Just one follow-up on that question, by the way.

What you're going to see in China Mobile because it is so big and because the launch is likely to happen across tiers, you're going to get a lot of attraction from international OEMs using their LTE expertise worldwide to exploit that technology change.

At the same time, you're going to see domestic OEMs looking to leverage their strength in China to be international OEMs.

Both of those trends we think are positive to our core businesses, which is important.

With respect to your high -- or to the number about the thin modems, I don't think there is really a trend there.

You could say that vast majority of our chipsets are actually shipped as integrated and that is really what most people do in the industry.

What you're probably seeing is just a concentration of some of the OEMs that use thin modems and how that might be associated with particular phone launches and the timing of those phone launches through the year as opposed to a trend.

Stacy Rasgon, Sanford Bernstein & Company.

First of all, I just wanted to dig in a little bit, you are guiding QTL ASPs for December shipments flattish.

You saw upside on chipsets, so, the chip in the December quarter from the low end, how do I reconcile those two things -- upsides from chipsets in December low end versus guidance for device shipments in December ASPs flattish?

Secondly, in the current quarter, the quarter that just passed, you had ASPs down but a lot of unit upside, which would imply a lot of growth at the lower end.

What does that actually imply for continued QRD traction?

You had said last year, the revenues in QRD were in the ballpark of $1 billion.

Do we read into the results that we just saw continued traction with QRD or more traction with QRD than we've had?

Stacy, this is Derek.

Part of this might be a little bit of timing in terms of the chip shipments versus when the devices actually get sold into the market and reported to us.

But we do see some strength in the emerging regions, really driving the Q4 results as well.

The ASP, as we said last quarter, we expect it to be in line in the calendar Q4 quarter versus Q3 and that's what we are expecting.

We do expect the back half of the year, which is consistent with what we have seen the last three years, to be stronger from an ASP perspective just given the timing of some of the iconic product launches we expect to see here shortly.

Stacy, this is Steve.

Regarding the QRD -- it was another good quarter for our emerging accounts.

I would probably categorized that group of accounts -- a lot of them use the QRD but this is really a new channel that we had to develop over the years.

It was a strong quarter for them in the December quarter.

We expect that continue to be a good channel for us moving forward, something we can also use our LTE leadership into as well.

So we were pleased to be able to see the upside there.

Rod Hall, JPMorgan.

Just a couple for you.

I just wanted to go back to China and see if you guys could talk about two things [working] there.

One is, maybe Derek, if you could -- can you give us any idea what proportion of the potential LTE volume is licensed or some idea how far through the licensing process for LTE you are there?

And then also if, maybe George, if you could comment or someone could comment, on the anti-trust ruling in China -- how that plays out?

Are you accruing for a potential fine there?

When do we get more firmed up in terms of what the impact might be financially from that?

And then lastly, Paul, I just wanted to ask you, could you give us an update on 1000x and where that is?

I know you guys had thought you might have some trials this year.

I just wonder how that is progressing along and whether we will see some trials on that this year?

Thanks.

Rod, this is Derek.

A little bit of a hard question to answer but let me give it a shot.

We have signed more than 50 -- it is more than 55 companies now -- to LTE licenses in China, but actually a large part of the volume initially here will be stuff that is actually covered by our 3G deals, certainly the volumes that go to China Telecom, China Unicom, the five-mode volumes at China Mobile.

Then also, as Steve mentioned, the international volumes that will be coming in to China likely will be of the same flavor.

So it is going depend -- like I said and we are continuing to be in discussions and sign additional companies as we speak.

So again, we are on track to doing the things we need to do, I just -- without knowing exactly who is going to have what share and how this is all going to play out, I can't really give you any more granularity than that.

Rod, this is Don, and George may want to add something, but just to be clear, you talked about an anti-trust ruling.

There isn't any ruling in China.

The articles that you read are speculating at this point.

There is an investigation.

We've talked about that.

We have been told by the NDRC that is confidential, but we are cooperating with them and we are going to continue to cooperate them and so at this point anything that anybody is saying is pure speculating at this point while this proceeds.

On the 1000x, obviously I don't want to announce other people's products -- we're supplying the technology, we've obviously a number of our own trials based off of our own products, but the traction with the customer base is good.

I feel confident that, that is continuing to move along.

There is obviously a lot of dynamics in the operator market between operators who have a lot of spectrum, operators who have fixed-network capabilities, and so there are certain ones who will be, I would say, more the leaders, and we are focused on driving the opportunity with those people, but it will be done through customers of ours who will deliver the product.

Kulbinder Garcha, Credit Suisse.

Just a couple of questions if I can.

On the addressable market growth for the overall business, the 15%, also unit growth you guys are talking about.

You mentioned, George, earlier on just that you saw some more upside to that number.

The things that we've heard suggest otherwise in the sense that you've had a number of large handset smartphone vendors disappoint near-term on volumes, gave relatively cautious guidance.

I understand the upside in China, so equally China Mobile's network is only really rolling out now; it may take some time.

The service pricing seems on bit on the expensive side.

So I'm still curious that there seems to be more downside [resistances for your performances] given those things we've learned than before, so what is that you're seeing that gives you the confidence that actually could surprise in the upside as we go through this year?

That is my first question on the addressable market and the confidence you have in that growth rate?

And then for Steve, is it the case that, when you initially were rolling out LTE chips, that they were meaningfully accretive to your ASP, either because of just the technology, the competition, as well as the fact that you were selling more integrated devices and higher [in subtracking] chips.

As we go through this year, will that level of accretion still hold or do you guys have to become more aggressive, even if your peers are not as competitive, just to ensure that you really dominate that segment?

How do you think about managing the business between those various levers?

Thanks.

Sure, let me start off with the size of the market and the outlook for 2014.

I tried to leave the message that, if anything, we have a bias to the upside in these numbers and sometimes in the year-over-year comparison when you see the US coming in a little bit softer than people may have expected, it is easy to lose track of the very high growth rates, certainly well above 15%, 20% type growth rates in emerging markets.

You're also seeing actually developed markets maintain overall their growth rates similar to what we saw 2012 to 2013, because you're seeing in a year-over-year comparison more strength in both Europe and Japan.

While the rates may not be comparable to emerging market growth rates, they are -- on a year-over-year basis, they contribute to our outlook.

And then the upside, we would assign to how the LTE deployment in China plays out.

And with respect to LTE or LTE pricing, you should really think of LTE as a tiered offering.

In the leadership tier, the high tier, we continue to -- it's a strong area for our pricing, we continue to have leadership there, we continue to drive there.

But we expect the lower tier or more the entry-level LTE feature set to be important and we assume that, that is going to be -- have to be priced at a different pricing level than what we would at the leadership tier.

I would also just generally say that the scale that will be built up in the LTE world will also spread to the developing market, as well, and provide some positive view on chipset ASPs relative to what you see really in the more commoditized 3G pricing in terms of the 3G chipset.

LTE -- it is definitely a tier and it is something that globally provides an upward trend in terms of pricing for us relative to what you would see in 3G.

Mark McKechnie, Evercore.

A couple of quick questions.

You might have answered these before.

But that chip QCT, you are looking at ASPs or pricing for those to track up in the March quarter.

Maybe you could explain that a bit, some of the drivers?

And then for George, some housekeeping-type questions on your guidance.

Specifically, how much interest income -- there was a pretty big differential -- you did $255 million of interest other expense.

I usually wouldn't dwell on that, but that was a pretty big mover for earnings.

Any assumptions or can you give us a sense of what you are assuming on your guidance for the full year on that line item?

Thanks.

Hello, Mark.

Thanks.

I will start with your last question first and then I will get to the QCT ASP.

On investment income, it is one of the things, actually, the performance on the portfolio, that we cited as part of the [adder] to, the outperformance in the first quarter.

As we have been accelerating return of capital, we have a portfolio that has a broad range of risk and so we are starting to take that risk level down as we draw down more cash for repurchase.

So you are seeing some gains embedded in the quarter associated with that.

And again, maybe, I would say above trend, maybe $0.02, $0.03 from that.

I wouldn't count on that every quarter.

That is really more a function of just making sure that we keep the risk level in the portfolio in the right place.

For QCT, really, what you are seeing is a little bit of a reversal of what you saw in Q1, which is that the mix, particularly of thin modems, will not be quite as high a percent.

That gives a natural lift to the ASP.

Tavis McCourt, Raymond James.

First a housekeeping question, George.

The $1.26 non-GAAP earnings -- does that include the Omnitracs sale?

I was under the impression that the previous guidance and full-year guide excluded that sale; just wanted to make sure we're talking apples and apples?

And then secondly, a question for Derek.

It's been an interesting trend; Nokia has now sold their business and kept the patents, Ericsson did the same, and now Google is doing the same.

What I'm wondering is, does that change the competitive dynamic of QTL at all, having multiple patents pools out there that aren't associated with device businesses?

Thanks.

Okay, let me cover the housekeeping.

As we said, the Omni gain was always going to be in non-GAAP, but when we gave guidance, we treated it as a discrete item so we guided excluding the discrete items.

We also had another major discrete item, which was the impairment on the QMT assets, so the net effect of that was $0.05 and then there was about another $0.01 of items in other.

So a net $0.04 benefit.

That is how when we talked about -- would be -- our performance would have been $1.22, if not for those, which is really the comparable apples-to-apples that you are looking for.

Still $0.02 above the upper end of the guidance range and $0.07 over the mid-point.

Tavis, this is Derek.

I don't think it really changes the competitive dynamics for QTL for our business.

We have obviously been very successful in establishing a value for our own portfolio in the marketplace, and the fact that other companies may decide to come in and become more active doesn't really impact our value proposition per se.

Both Ericsson and Nokia have had active licensing programs for many years and the way that they have positioned and valued their patents won't simply change based on whether they have an active business.

It might change in the individual deal, based on the relative exposure, but again they have been active and I don't think there will be a major disruption or impact in the industry as a result of it.

Mark Sue, RBC Capital Markets.

Paul, it's a matter of time before the smartphone market matures and it is one of the reasons that the stock multiple (technical difficulty) over the last few years.

As we look out over the next few years, what do you think will replace the smartphone market in terms of opportunities where Qualcomm can really dominate similar to what they did in smartphones?

If we look at tablets, for example, the attach rates have been low because of the pricey data plans -- [all in all] it seems like a niche opportunity.

Just maybe how we should think about it longer-term?

And then just George, as [growth] matures for the Company and the free cash flow improves, any thoughts on your preference between the split between dividends and also share repurchase?

And longer term, can that 75% of returns move higher so that we could actually decompress [the top] multiples?

We are going to do better and better in the computing space.

I agree that it has been not as successful as we had hoped in the past in terms of attach rates.

The operators are getting better at that.

We are also building other technologies -- obviously, LTE and then license [bands] should do a lot.

Some of the small cell stuff should do a lot there.

But the other part is just mobile as an enabling technology into other areas.

You can see the beginnings of things -- automotive space, yes, those numbers are relatively small, but people talk about the Internet of Everything as only low value, low-margin devices.

There is going to be a tiering of different kinds of devices so there will be high-value segments in the Internet of Everything.

There will be also the very cheap ones but then we are talking about high volumes also, so there is going to be some growth there.

And then you look out, and there is a bunch of areas where we can do things that are just adjacent to the phone, additional content in the phone.

Obviously, to this point, the display investments have been not as quick to come to fruition as we had hoped, although the wearable space is a really interesting part, but -- also connected home spaces is quite interesting.

So a lot of opportunity for that going forward.

We have some other display technologies as well that are getting a lot of traction with the Pixtronix technology, which is more applicable to larger displays.

That is a nice licensing business.

We have got a bunch of other things in the hopper.

The vehicle charging and we are looking at working with partners on that in terms of a larger play there, as well.

So, there is a broad range of technologies out there that we are working on that will drive a reasonable amount of growth going forward.

Mark, just to answer your questions on the capital structure and return of capital.

What we've said is that we expect to grow double-digit top line and bottom line over the next five years.

And really largely driven by the core businesses that we see today, and with that, we expect strong cash flow to continue.

We are going to grow the dividend rate ahead of earnings is what we've committed to.

We are going to return 75% of global free cash flow and so then you will see a large -- what isn't going through dividends will obviously go via share repurchase.

As Steve mentioned in the script, we expect to more than double the return over the next five years from what we returned in the past five years.

Thank you.

This ends our allotted time for questions and answers.

Dr. Jacobs, do you have anything further to add before adjourning the call?

I just wanted to say thanks again to everybody for all the support over the years.

It's been a great run as CEO, both measured by the financial metrics, but also by the way we have expanded the business and the way the Company operates.

It is really not one person that does that; that is our employees, our partners, all my colleagues here have done just an amazing job over the years, and I'm looking forward to letting Steve take the reins as CEO and drive the Company forward.

I am very, very excited by the future.

It is going to be very fun to see how we have this expanding impact of mobile and that is -- I'm saying that given the background of how much it has already impacted all of our lives.

So it is going to be great to be able to refocus some of my energy on innovation.

I don't think I'm going to be presenting at any future earnings calls, but if you guys want, I may show up for Q&As.

I hope to see you guys at -- or some of you, at least -- at Mobile World Congress.

Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.