QUALCOMM Incorporated (QCOM)

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QUALCOMM Incorporated (QCOM)

Q3 2011 Earnings Call

July 20, 2011 4:45 pm ET


Steven Mollenkopf - Executive Vice President and Group President

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

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

Mohamed Elkatted - Day By Day

Deepak Sitaraman - Crédit Suisse AG

Mark McKechnie - ThinkEquity LLC

Rod Hall - JP Morgan Chase & Co

Matthew Hoffman - Cowen and Company, LLC

Tim Long - BMO Capital Markets U.S.

Parag Agarwal - UBS Investment Bank

Jeffrey Kvaal - Barclays Capital

James Faucette - Pacific Crest Securities, Inc.

Ehud Gelblum - Morgan Stanley

Unknown Analyst -

Simona Jankowski - Goldman Sachs Group Inc.

T. Michael Walkley - Canaccord Genuity



Ladies and gentlemen, thank you for standing by. 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.

Warren Kneeshaw

Thank you, Marcello, 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. 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 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.

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. 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 MSM 8960 chipset based on 28-nanometer process technology. The MSM 8960 is a dual-core solution which uses our next-generation micro-architecture called Krait with integrated multimode modem technology, including EV-DO, Dual-Carrier HSPA+ and both the TDD and FDD variances 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'm pleased to report that we have now successfully completed this remaining renewal. The Licensing business continues to be well positioned for strong growth ahead and this latest renewal again demonstrates the established value to the industry of Qualcomm's patented invention.

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 is 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 MSM 8960, further underscores a 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 addition.

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 3 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 7 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 remain 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 U.K., the Vodafone smart and the LG ego feature phone were both operated -- both offered at GBP 75 as pay-as-you-go devices, further blurring the lines between the pricing of smart and feature phones.

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