Qualcomm Inc (QCOM)

[Jim Mullens]

FWIW- Notes from Bill Keitel’s presentation at Pacific Crest on 8/12. (my summation, definitely not verbatim)
Presentation and slides link- http://www.qualcomm.com/IR/ir74.html

1. Nine months into the year- Revenue up 30%, EPS up 40%
2. Cash and Marketable Securities at $5B thru June, up $1.8B for 9months, averaging $600M/ qtr.
3. Initiated Stock repurchase program and dividend issuance this year.
5. QSI will generate $500M in cash this year.
6. QSI commitments at approximately $600M, will shrink to less than ½ due to Ericsson commitment which will expire in November 03.
7. QWI revenue could grow substantially from BREW.
8. CDMA market at 13% of worlds subs now. Qualcomm has a 75 to 90% Market opportunity.
9. Replacement rate for CDMA handsets averaged about once every two years last year.
10. Qualcomm’s CDMA chipsets offer a complete solution- hardware, software, and reference design and have had a very high degree of on time deliveries.
11. Audiovox conference call revealed that time to market with new phone designs is extremely important as the estimated life of a new handset design is about 9 months. The life cycle of a new design is very short.
12. MSM segmentation- today’s production volume is mainly from 5xxx series, with some 6xxx.
13. Note- MSM 6xxx Segmentation MSM Roadmap chart enhanced since the Spring meeting to show that virtually all new chips will include dual mode capabilities of GSM/GPRS- MSM6500, MSM6700, MSM6300, MSM6200, MSM6250, MSM6275, and MSM7xxx series.

(It appears to me that Qualcomm is serious about entering the GSM market. )
14. Qualcomm has a leading position in bring WCDMA to market-
…..6 vendors committed to use Qualcomm chipsets
…..J-Phone is now offering WCDMA phones with Qualcomm chipsets in volume production
….Qualcomm continues to lead in network IOT
….Continue to expect significant ramp in WCDMA in late 2004/ early 2005 with commercial volumes(10M).
15. BREW
……Operators have choice of in how much of BREW service they wish to use form Qualcomm (1 piece or all).
…...8 carriers with commercial operations now, many more in test.
16 China- 12 Million subs now, and continue to expect 20M target by YE will be met.
……New programs this year- 1X, pre-pay, data services w/ BREW, LBS w/ gpsOne.
17. India- Current 6M handset sales estimate is realistic, may be conservative.
18. N Amer- Verizon Data ARPU with BREW at $7.50/mo, PCS Data $9 ARPU- over 90% of PCS devices sold are 1x
19. What to expect in 2004
China- 2 New “CDMA” operators (at first I thought CDMA2000 and almost came out of my chair, but Bill probably included WCDMA in the CDMA category )
India- Significant penetration to come
Brazil- Growth form VIVO integration and TDMA to CDMA conversions
SE Asia- CDMA starting in Indonesia, Taiwan, Vietnam
WCDMA- More commercial launches, commercial handset volumes beginning 2004/5 (10M)
World Phone- Chipsets to support GSM market which Qualcomm has “0”% market share now

20. Q&A- Moderator asked for questions and dead silence followed- he said’ “amazing, no questions” ,
and then started asking his own. Others followed later.

A. March handset sales were 26 million from carrier reports (mfg to distribution channel), June at 25M approximately (to distributor). Qualcomm never discloses specific market share of CDMA chipsets. Share grew quite significantly this past year to all time high in June quarter. Going forward expect a slight decrease.

B. Nokia competition/ chipset pricing pressure. Q is careful in how they approach the pricing process with respect to market share concerns. The Q chipset offers better value in being a complete solution as price is not sole determinate (track record of on time deliveries, complete solution- hardware/software/ref design/ full support, pin compatibility). Q has had to face formidable competition in the past and at times did not elect to cut price.

C. Competition from WiFi/ 4G technologies.
+ First immediate competition is EDGE which is no where near comparable in performance to 1x and EvDo.
+ WiFi- Customers value ubiquity with one price for all you can use and will look to carrier first. Some carriers may choose to selectively add WiFi hot spots in high data traffic areas for wireless spectrum saving.
+ OFMA (Flarion)- Key is to look to the past for time and process to get to market. How long does it take for new technologies to get to market considering standards approval process, stability, designing/ mfg new multi mode devices. There is no substantial improvement over CDMA with OFMD.

D. ASPs in 12 to 18 months- Key to modeling is determining growth in high end devices vs low end devises. In 2004, high end devices will include WCDMA and EV-DO vs low-end devices with MSM6000. Don’t think there is any indication that growth in low end will exceed growth in high end. Low end markets include Latin Amer, China part low/high, India part low/ high, Japan/Korea- high, N Amer- mid range.

E. Inventory- March quarter was higher than normal. Normal inventory is about 13 +/- weeks in channel. April was about 17 weeks. Believe it will be largely normalized by the end of September.