QCOM

QUALCOMM Incorporated (QCOM)

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QUALCOMM Incorporated (QCOM)

F3Q 2013 Earnings Conference Call

July 24, 2013 16:45 ET

Executives

Warren Kneeshaw - Vice President, Investor Relations

Dr. Paul Jacobs - Chairman and Chief Executive Officer

Steven Mollenkopf - President and Chief Operating Officer

George Davis - Executive Vice President and Chief Financial Officer

Derek Aberle - Executive Vice President and Group President

Donald Rosenberg - Executive Vice President, General Counsel, and Corporate Secretary

Analysts

Simona Jankowski - Goldman Sachs

Matt Hoffman - Cowen & Company

Tavis McCourt - Raymond James

Tim Long - BMO Capital

Mike Walkley - Canaccord Genuity

Brian Modoff - Deutsche Bank

Ehud Gelblum - Morgan Stanley

Stacy Rasgon - Sanford Bernstein

Kulbinder Garcha - Credit Suisse

Mark McKechnie - Evercore

Romit Shah - Nomura

Rod Hall - JPMorgan Securities

James Faucette - Pacific Crest

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter Fiscal 2013 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded July 24, 2013. The playback number for today’s call is (855) 859-2056. International callers, please dial (404) 537-3406. The playback reservation number is 15022636.

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

Warren Kneeshaw

Thank you, Brian, and good afternoon everyone. Today’s call will include prerecorded remarks by Dr. Paul Jacobs, who was not able to be on the call today due to a longstanding family commitment. In addition, Steve Mollenkopf, and George Davis will provide their comments and then Derek Aberle and Don Rosenberg will join them for the question-and-answer session. An Internet presentation and audio broadcast accompany this call, and you can access them by visiting our website at www.qualcomm.com.

During this conference call, if we use 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 results of the company. Actual events or results could differ materially from these 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.

And now to comments from Qualcomm’s Chairman and Chief Executive Officer, Dr. Paul Jacobs.

Dr. Paul Jacobs

Good afternoon everyone. I am sorry I can’t be with you live today, but I did want to give you my comments before passing it on to the team. We are pleased with our strong results this quarter with revenues up 35% and non-GAAP EPS up 21% versus a year ago. Licensing revenues were driven by strong smartphone sales in the March quarter and our Snapdragon and Gobi products were featured in an extensive set of flagship devices. The tremendous success of the business puts us in a strong position to return capital to stockholders.

During the third fiscal quarter and up through today, we returned approximately $2.2 billion. This includes dividends paid and approximately $1.5 billion in stock repurchases made under our previously announced $5 billion stock repurchase program. We’re confident in our business outlook and we will continue to return capital to stockholders consistent with this deal. I like to focus my comments today on smartphone innovation before turning it over to Steve for more comprehensive update on our QCT and QTL businesses.

I’m often asked about the potential slowing pace of innovation in smartphone. I can assure that we do not see it here at Qualcomm. The breadth of technologies that are being developed and the demand for new features and device capabilities from our customers remains extremely strong. Though we have seven major technology areas in which significant advances are continuing to be made including the modem, including RF, the CPU, the graphics processing unit, digital signal processing and multi-media, connectivity, sensors and displays. Innovation such as LTE Advanced, LTE Broadcast, multi-band RF front ends, ultra-HD video, augmented reality, computational photography, continuous interaction user interfaces, H.265 video compression, HD audio, sensor monitoring, 802.11ac (inaudible), indoor position locations, proximity based communication, wireless charging, new display technologies, mobile payment capabilities, security features, remote device management are some of the many features that will increase the utility of 3G and 4G devices any one of which could provide a catalyst for a smartphone user to upgrade.

Throughout the history of the industry we’ve a series of technology advancements that have driven new innovative devices which are fueled upgrade and replacement cycle. This has continued over the last several years as we have seen the introduction of many new technologies, including LTE, Dual and Quad Core processors, improved graphics, higher resolution displays and more capable operating system. In the near future we will see the broad adoption of LTE Advanced which doubles the peak data rate and provides higher average throughput.

That’s not all, the scale of the smartphone platform is unparalleled and it is at the center of technology innovation. New technologies used to be commercialized through discreet consumer electronics products. Today we see innovations moving rapidly in the smartphones. For example the first place most consumers will see high-quality ultra-HD video recording, is on a Snapdragon enabled smartphone.

Looking at this now from a regional perspective, there seems to be some concern that developed regions are becoming saturated with smartphones. The fact is that these reasons have been primarily replacement cycle driven for some time as handset penetrations are already quite high. The strategies (ph) already been cycling through devices and are used to doing so. Certain large carriers routinely provide incentives for subscribers to purchase a new phone every two years, and although we may see different programs or replacement initiatives in the future. These types of programs are working successfully and competitive dynamics stay with their continuance in the future. Interestingly there has been some recent plans launched by operators that could actually accelerate the replacement cycle, so we will continue to monitor those. In some our long term plans continue to include a very modest decrease in the developed region replacement rate.

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