QUALCOMM Incorporated (QCOM)

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QUALCOMM Incorporated (QCOM)

Q2 2011 Earnings Call

April 20, 2011 4:30 pm ET


Steven Mollenkopf - Executive Vice President and Group President

William Keitel - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Derek Aberle - Executive Vice President and President, Qualcomm Technology Licensing

Paul Jacobs - Chairman and Chief Executive Officer

Warren Kneeshaw - Vice President of Investor Relations


Craig Berger - FBR Capital Markets & Co.

Mark Sue - RBC Capital Markets, LLC

Rod Hall - JP Morgan Chase & Co

Tim Long - BMO Capital Markets U.S.

Parag Agarwal - UBS Investment Bank

Brian Modoff - Deutsche Bank AG

James Faucette - Pacific Crest Securities, Inc.

Ehud Gelblum - Morgan Stanley

Ittai Kidron - Oppenheimer & Co. Inc.

Timothy Luke - Barclays Capital

Simona Jankowski - Goldman Sachs Group Inc.

T. Michael Walkley - Canaccord Genuity



Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Second Quarter Fiscal 2011 Conference Call. [Operator Instructions] The playback number for today's call is (800) 642-1687. International callers, please dial (706) 645-9291. The playback reservation number is 56703245. 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, Marcello, and good afternoon, everyone. Today's call will include prepared remarks by Dr. Paul Jacobs; Derek Aberle; Steve Mollenkopf; and Bill Keitel. In addition, Steve Altman and Don Rosenberg will join the question-and-answer session. An internet presentation and audio broadcast accompany 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-Q and earnings release, which were filed and furnished respectively with the SEC today 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. Of specific note, we have excluded the Atheros business from our guidance.

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

Paul Jacobs

Thanks, Warren, and good afternoon, everyone. We're very pleased to report another strong quarter with record revenues as the demand for smartphones across an array of geographies and tiers continues to grow. Our product leadership and expanding set of industry partnerships position us to benefit from the strong secular trends in wireless. And as a consequence, we are raising our revenue and earnings guidance for the fiscal year. It's been another very successful quarter for Qualcomm, there's a lot to be excited about.

At the Mobile World Congress, we announced a variety of new industry-leading multi-mode modems and a new advanced micro-architecture for our Snapdragon family of processors, which we believe will continue to extend our power in performance leadership position in mobile computing. Our new architecture supports single-, dual- and quad-core processor-integrated solutions, as well as discrete application processor chipset, which will further expand addressable opportunity for our products. And as the first chipset provider for Windows Phone 7, we are pleased to see the announcement that Nokia would be adopting the Windows phone operating system and look forward to supporting that new collaboration.

Snapdragon family has been designed to help our customers efficiently support a range of device tiers and to speed time-to-market with features like software and hardware compatibility across chipsets. We're also pleased to be working closely with Microsoft on their announced plans to port the next version of Windows to ARM, further evidencing the accelerating convergence of mobility and computing.

On the Licensing front, I'm also pleased to report that we have resolved our dispute with Panasonic. We've now resolved the two disputes which had been impacting our ability to fully reflect the operational performance of QTL, and Derek will talk more about this later.

In terms of CDMA-based device-demand trends, the key drivers remain healthy and intact for the continued growth of our business. Demand for smartphones remains strong across multiple geographies around the world. According to Gartner, in the fourth quarter of 2010, sales of smartphones exceeded all PC shipments for the first time in history. And looking ahead, they're forecasting that sales of smartphones will exceed 1 billion units in 2015. Driven by an increased demand for smartphones around the world, wireless data traffic continues to accelerate.

According to Strategy Analytics, mobile data traffic more than doubled in 2010. They're expected to grow by 10x to 12x through 2015. To address the growth in wireless data, operators continue to make network investments in the latest radio technologies for both existing and new spectrum. According to the GSA, in the past year, commercial HSPA+ deployments rose 136%, and the number of LTE commitments grew to almost 200%, including the launch of 18 commercial LTE networks. According to CDG, there are now 13 operators committed to launching EV-DO Rev. B networks. And the migration from 2G to 3G continues around the world with Wireless Intelligence reporting that at the end of March, there are approximately 1.3 billion 3G subscriptions globally, up approximately 30% from a year ago.

In developed regions, we continue to see strong transfer smartphone adoption. According to CTIA research, as of the fourth quarter of 2010, the number of smartphones reported on North American carriers' network was approximately $78 million, representing a 57% increase from the year prior. Verizon Wireless recently launched the LTE-capable HTC Thunderbolt demonstrating our leadership in LTE smartphones and multi-mode technology. And additionally in North America, we're beginning to see the influence of affordable smartphones in the prepaid segment as smartphone penetration rates ramped at Leap and MetroPCS. According to GfK, in key Western European countries, smartphones with high-level operating systems accounted for 74% of 3G phones sold in December 2010, up from 44% a year ago. And in Korea, since the beginning of this year, each operator has announced plans to introduce 20 or more new smartphone models.

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