QUALCOMM Incorporated (QCOM)

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F3Q09 (Qtr End 06/28/09) Earnings Call

July 22, 2009 4:45 pm ET


John Gilbert - VP, IR

Paul Jacobs - Chairman and CEO

Steve Altman - President

Bill Keitel - EVP and CFO

Len Lauer - COO

Don Rosenberg - EVP, General Counsel and Corporate Secretary

Steve Mollenkopf - EVP and President of Qualcomm CDMA Technologies

Derek Aberle – EVP, President of Qualcomm Technology Licensing


Maynard Um - UBS

Brian Modoff - Deutsche Bank

Tal Liani - Bank of America/Merrill Lynch

Mark McKechnie - Broadpoint AmTech

Mike Walkley - Piper Jaffray

Tim Long - BMO Capital Markets

Tim Luke - Barclays Capital

Simona Jankowski - Goldman Sachs

Phil Cusick - Macquarie

Kulbinder Garcha - Credit Suisse

Matthew Hoffman - Cowen & Company

Anil Doradla - William Blair

James Faucette - Pacific Crest

Glen Yeung - Citi

Adam Benjamin - Jefferies

Stacy Rasgon - Sanford Bernstein

Mark Sue - RBC Capital Markets

Craig Berger - FBR Capital Markets

Tavis Mccourt - Morgan Keegan



Welcome to the Qualcomm third quarter fiscal 2009 conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, this conference is being recorded July 22, 2009. The playback number for today’s call is 800-642-1687. International callers, please dial 706-645-9291. The playback reservation number is 16320448.

I would now like to turn the call over to John Gilbert, Vice President of Investor Relations. Mr. Gilbert please go ahead.

John Gilbert

Thank you and good afternoon. Today's call will include prepared remarks by Dr. Paul Jacobs, Steve Mollenkopf and Bill Keitel. In addition, Steve Altman, Len Lauer, Don Rosenberg and Derek Aberle will join the question-and-answer session. An internet presentation and audio broadcast accompanying this call, and you can access it 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 would also like to direct you to our 10-Q and earnings release, which were filed and furnished respectively with the SEC today and are available on our website.

We have also furnished the SEC our financial statements and related footnotes in the extensible business reporting language XPRL format as required by the SEC. We may make forward-looking statements relating to our expectations and other future events that may defer materially from Qualcomm's actual results.

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

And now it is my pleasure introduce Qualcomm's Chairman and CEO, Dr. Paul Jacobs.

Paul Jacobs

Thanks John and good afternoon everyone. I am very pleased with our strong operating performance in this uncertain economic environment. Revenues were at the high end of prior guidance, operating income exceeded our prior guidance. And pro forma combined SG&A and R&D expenses were 5% lower year-over-year and well below our prior guidance.

Worldwide demand for 3G remains robust and despite the global economic uncertainty we anticipate another strong quarter of demand for our chipset in fiscal Q4. We are raising our fiscal 2009 revenue and operating income estimate given the strong underlying fundamentals of our business.

Before commenting further on the business, I would like to welcome Dr. Young Koo Cha as Senior Vice President of Qualcomm and President of Qualcomm Korea. Dr. Cha's extensive experience in the high tech industry, academia in the Korean government is a great addition to our management team and we look forward to his leadership in this key region for our business.

Our business continues to generate strong operating cash flows, which enables us to return capital to our stockholders. As of June 28, we've returned over $10 billion of capital for shareholders since fiscal 2003. We also recently announced another quarterly cash dividend payable on September 25th of this year.

While we did record additional impairments on our marketable securities this quarter those impairments were significantly lower than previous quarters. In addition recent improvements in financial markets have greatly reduced our net unrealized losses from 898 million at March quarter end to $25 million as of June quarter end.

Turning to the business QCT shipped a record number of chipsets this quarter [an] increase of approximately 9% year-over-year. We believe the CDMA inventory channel has largely stabilized yet remains near historically lower levels consistent with our prior forecast. In addition CDMA based device shipments by our licensees in the March quarter were at the high end of our prior guidance and increased 4% year-over-year.

World wide 3G adoption continues to accelerate where as GSM shipments continue to decline. According to wireless intelligence 3G subscribers grew 28% year-over-year to approximately 830 million as of June. In Western Europe WCDMA subscribers grew 52% year-over-year compared to an 8% decline in GSM subscribers.

In addition according to the industry analysts forecast, 3G handset shipments are expected to eclipse GSM shipments for the first time in 2010. The 3G enabled handsets are forecast to be over 60% of total handsets shipped in 2012. The 3G echo system is vibrant and consumers have an extensive choice of competitively priced feature rich devices to keep them connected informed and entertained.

The GSA reports that approximately 94% of WCDMA operators have launched HSPA services and the number of HSPA devices has grown by over 120% year-over-year to more than 1,600 devices by over 180 suppliers. In addition the number of HSPA enabled notebooks has more than tripled in the same period. Also according to the GSA and operator announcements, there are now five HSPA plus commercial networks and more than 25 additional operators have announced plans of testing, trialing or deploying HSPA plus technology.

CDMA2000 continues to be successful in both developed and emerging markets. And, according to the CDG is approaching half a billion global subscribers. India reached a significant milestone this past May, surpassing 100 million CDMA2000 subscribers of which approximately 50 million were added in the past two years.

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