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Here’s the entire text of the Q&A from Qualcomm’s (ticker: QCOM) Q4 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Question-and-Answer Session

Operator

Operator Instructions Our first question comes from the line of Brian Modoff at Deutsche Bank. Please proceed with your question.

Q - Brian Modoff

A couple of questions. Sanjay, can you give us some ideas of your visibility on your business going into the current quarter? Second, you made a comment in the press release about your fine work in DO being adopted by HSDPA. Can you talk about how you see your current position for HSDPA? And then finally, have you approached any operators, talked to any operators in Europe regarding this complaint filed by competitors and any feedback from them? Thanks.

A - Sanjay Jha

Brian, we didn't hear you very well.

Q - Brian Modoff

Hi, one is visibility for your business, Sanjay? The second was, EV-DO's IT contribution to HSDPA? And the third one, have you had any discussion with carriers, especially in Europe, about the recent litigation?

A - Sanjay Jha

Could you repeat that from the beginning? I didn't catch all of it. Sorry.

Q - Brian Modoff

Can you hear me now?

A - Sanjay Jha

Yes, I can.

Q - Brian Modoff

Okay. Sorry about that. The first question was regarding Sanjay, your visibility on the current quarter, i.e. your backlog and how do you feel about the numbers you put out there? The second question is around the comment you made in the press release around your DO contribution, or what you developed in DO being significantly adopted in HSDPA. Can you talk about what your patent portfolio looks like in HSDPA? And then finally, on this recent complaint filed against you, have you talked to any operators in Europe, gotten any feedback from them on these allegations?

A - Steve Altman

Well you can do, why don't you do the backlog and the numbers? We heard the last question.

A - Sanjay Jha

I heard the first part of your three questions, three part question and I will address it. I feel very comfortable with the guidance that we provided you of 46 to 48 million, Brian. And unfortunately, I didn't catch any of the second and the third part. I know the second part was something to do with EV-DO, but I didn't get the detail.

A - Steve Altman

The third question was asking a question whether we had talked to carriers in Europe yet about the E.U. allegations. We have actually been focused on the manufacturers. We have had some conversations with various manufacturers. It's clear that this group of six companies had been going out soliciting other participants. And that they were turned down by some significant partners of ours who we've had discussions with. But we're continuing to reach out to our partners around the world about this issue.

Operator

Thank you. Our next question comes from the line of Mike Ounjian at Credit Suisse First Boston. Please proceed with your question.

Q - Mike Ounjian

Great. Thank you. Just looking toward the holiday season here, if we could get a update on whether there's anything we should be concerned about in the way of channel inventories? And also, just given the continued ramp of the MSM shipments. Should we be concerned at any point about any capacity constraints? Or at this point, is there good potential upside to extend demand is there? Also just to repeat Brian's question, I think the middle one that wasn't heard, I think would be interesting for us also to know. On EV-DO, I think if I understood the question correctly, was IPR contributions from EV-DO to the HSDPA standard. Really how much of the EV-DO technology was contributed to the HSDPA standard, given the intellectual property in that that as well.

A - Sanjay Jha

I'll let Steve take, or Paul take IPR question.

A - Steve Altman

Go ahead. Talk to the MSM.

A - Sanjay Jha

Okay. So the channel inventory issue, we believe the channel inventory is very much in the range that we have guided you previously that we consider normal. We consider 16 to 20 week channel inventory to be normal. We believe right now the channel inventory is very much in that range. So we have not seen any sign of any challenge inventory in any particular region. Your second question was, as we ramp our volume from what used to be 16 million unit run rate per quarter to potentially 46 to 48 million a quarter, this quarter, do we have any volume constraints from suppliers? Right now, we are able to meet that demand without any question and we have worked very hard to bring multiple sources for each of our products. We believe, as our volume ramps up, we will be able to meet most all of our demands. There may be one chip for one week where we have some difficulty meeting the exact number, but we expect that's the normal operational process. And we don't see, at the present time, any difficulty in meeting the accelerating demand we see in front of us.

A - Paul Jacobs

In terms of the EV-DO contributions to HSDPA, not just modulation techniques, but also protocol techniques have been put into HSDPA but also into GPRS and Edge. So the investments that we've been making to improve data capability on the CDMA2000 side have found their way into the GSM and WCDMA communities as well.

Q - Mike Ounjian

Great. Thank you.

A - Steve Altman

Also I'd like to remind everyone that we're looking to take one question from each participant. And so if you ask more than one, we'll pick which one to answer. Thank you.

Operator

Our next question comes from the line of Daryl Armstrong at Smith Barney Citigroup. Please proceed with your question.

Q - Daryl Armstrong

Thank you very much. Just wanted to check whether there was any benefit from the ending of the CDMA royalty sharing agreements recognized within the quarter you guys just reported?

A - Bill Keitel

Daryl, as I said, the improvement we had in fiscal 2005 was extremely modest. The benefit has all been targeted in fiscal 2006.

Q - Daryl Armstrong

Great. Thank you.

Operator

Our next question comes from the line of Maynard Um at UBS. Please proceed with your question.

Q - Maynard Um

Thank you. Can you talk a little bit about the strength in the reconciling items EBIT, was that the display business, the QMT? And if so, when does that become material enough to break out?

A - Bill Keitel

Yes, in the reconcile you've got a number of things. You've got the -- our display technology investments. You have some corporate R&D investments. And you also have some MediaFLO, where we're making investments to develop media flow opportunities outside of the U.S.A. operator side. I don't see breaking that out into a new segment for the next, certainly for the next year.

Operator

Thank you. Our next question comes from the line of Hasan Imam at Thomas Weisel. Please proceed with your question.

Q - Hasan Imam

Thank you. A number of the largest CDMA equipment vendors reported pretty weak CDMA infrastructure deployments. I think one major U.S. vendor, in fact, talked about operators delaying 3G deployments in anticipation of EV-DO Rev A. I was wondering if you could put the network deployment slow downs in perspective? Particularly as it relates to your CDMA handset guidance, as well as the infrastructure chips of business?

A - Steve Altman

I think we've seen strong demand for DO. As Sanjay talked about, in terms of chip shipments as you've seen from some of the carriers announcing their results, Verizon in particular just recently did that. So while there certainly is demand for a DO Rev A that's been articulated by the operators, we think the handset shipments will continue to go forward. And Sprint in particular also, has announced they built out their network and they're going to continue to do that through this year. So we think that that is actually continuing to go ahead well.

A - Sanjay Jha

If I can just make a comment about the CSM shipment, as you know last year, we had record CSM shipment and we thought that that was consistent with the very broad 1x roll-out. This year we've seen the CSM shipment being relatively strong but certainly not as strong as last year. Which perhaps is consistent with the view expressed by some infrastructure vendors that you quoted. But this is the normal cycle. And the strength that we've seen this year has been more geared towards DO deployment -- Verizon has deployed a significant amount in the United States and of course Sprint is rolling out that deployment. So I think that we're seeing cyclicality of technology deployment. I don't think that we see any more than that.

Operator

Our next question comes from the line of Brant Thompson at Goldman Sachs. Please proceed with your question.

Q - Brant Thompson

I was wondering if you could give us a little more thought around the need to ramp R&D so aggressively into next year. At what point or how shall we think about where your R&D scale is sufficient enough that that can start to tone down again or level off versus your revenue growth? Thanks.

A - Paul Jacobs

Okay. So although we are going to continue to ramp R&D aggressively, the rate is already starting to slow down in this last fiscal quarter and into next year, though it will grow still greater than revenue, as we're projecting. It is less. And the reason why is because the opportunities are ahead of us. So there's a number of things that are getting integrated into the chip sets now, from new modulation techniques to multimedia capabilities to graphics capabilities to processing, as we look at the new DO Rev A opportunities and beyond that DO Rev B, the idea of running multiple radios at the same time, multiple threads in the processors; all these things are adding new capabilities, generating, we hope, new revenues for all of the participants in the value chain. So it's really a recognition that the opportunities are strong ahead of us. And this is fairly traditional for us. We make large investments in R&D at these technology transitions and then we reap the benefits as those products then ramp to generate large revenues.

Operator

Our next question comes from the line of Bill Benton at William Blair. Please proceed with your question.

Q - Bill Benton

Good afternoon, guys. Could you just talk a little bit about your ASP thinking on the handset side? Obviously, you're looking for it to come down and then go back up in your guidance. Can you talk about your confidence around that and some of your deviation assumptions?

A - Bill Keitel

Sure, Bill. It's Bill Keitel, here. I think you saw last quarter, we finished one quarter $231.00, we forecasted $215.00 and we came in at $213.00. So I felt pretty confident about that forecast. We came in pretty close. I feel pretty good about the $206.00 forecast as well. You get the regional differences going on there. But we're expecting WCDMA and DO to increase, but at the same time, we're also expecting the low-end to advance. We've been pushing pretty hard there with our investments and we think we're growing the CDMA market as a result. So if you look market, or region by region, I expect Europe to be strong in the next quarter, Latin America to be strong, North America to be strong. In fact, as I look across all the markets those kind of stand out as the stronger growth. But I look at each region to have some growth, with maybe perhaps, the exception of Korea. They might be kind of flattish.

Q - Bill Benton

You would expect your deviation to still remain pretty wide? Or do you expect -- ?

A - Bill Keitel

Oh, yes. The deviation is wide. In fact, it's getting wider, just as it has for the last several years.

Q - Bill Benton

Okay. Thank you.

Operator

Our next question comes from the line of James Faucette at Pacific Crest. Please proceed with your question. Mr. Faucette, your line is open. You may proceed with your question, sir.

Q - James Faucette

I'm sorry. I just wanted to follow up on that question. As you look at your ASP improving for next year while you're expecting growth at the low end, have you had to moderate your expectations of growth for some of the emerging markets like India and China? They have proven they have a bit of a tough year. If so, what does that do for your longer-term outlook and strategy for the CDMA? Thank you.

A - Bill Keitel

James, I'm going to reserve, ask me this question again next week in London because we are going to get into our regional breakouts. But I would say that you've seen some moderation this year relative to our forecast and we have factored that into the 2006 and in our forward plans. Honestly, it's not that the market isn't going to happen. It's only the pace at which we get there. So in the case of those lower-end markets, the Chinas, India and Latin America; we work closely with the operators -- I think we got the products that they want and need. And we're in a tough battle with GSM.. But nonetheless, I think we're feeling pretty good about this forecast for ASP's next year.

A - Steve Altman

I would say that we saw strength in Latin America and we saw some improvements in India. We saw some pretty aggressive moves by Tawda in particular in India. So those two markets look like they're actually doing reasonably well. China, of course, we're still waiting for 3G licenses. And I think that the uncertainty around that will continue to have some effect on China Unicom going forward, though we're there trying to help them with their marketing as much as possible.

Operator

Our next question comes from the line of Louis Gerhardy at Morgan Stanley. Please proceed with your question.

Q - Louis Gerhardy

Good afternoon. I think this question is for Bill, but I just wanted to try to understand any complexities that the EC complaint might trigger here. And without singling out any one of the complaintants here, do any of them have license agreements that might expire in fiscal '06? And if so, does that create any reporting complexities if the two parties disagree on royalty rates?

A - Bill Keitel

Well, we're operating under agreements, Louis. So I don't see that complexity. From time to time we'll have a licensee that will perhaps dispute a amount here or there. They're generally small. They come and go. And it's never anything that even gets up to the point of an accounting question, really. I don't see anything on the horizon for next year.

A - Steve Altman

I agree with that. I don't see that being a issue.

Q - Louis Gerhardy

Okay. Thank you.

Operator

Our next question comes from the line of Tim Long at Banc of America. Please proceed with your question.

Q - Tim Long

Thank you. Question for either Bill or Sanjay. Could you help us understand the QCT line a little bit? Looking at the MSM shipments up about 11% sequentially and revenues up about 19%, last quarter we saw the MSM's be down sequentially and revenues were up about 3% sequentially. So you talked about modest ASP improvement, Sanjay, both quarters. But it looks to be something else going on there. So does modest mean mid to high single digits? Or are there other, and it also sound like the CSM's haven't been that strong, either. Is there just other chip set parts of the business that are doing well that's contributing to the better than MSM growth in that business? Thank you.

A - Sanjay Jha

Quarter-over-quarter our ASP improved by 7%, Tim. And driven really by pretty good, healthy traction in our multimedia and enhanced multimedia chip set, 6100, 6500, 6250, 6550 and 6275. Does that close the gap for you?

Q - Tim Long

Yes. I consider that better than moderate. That's great. Thank you.

Operator

Ladies and gentlemen, due to time constraints we will be taking one more question. Our final question is from the line of Mike Walkley at Piper Jaffray. Please proceed.

Q - Mike Walkley

Great, thanks. Maybe just another comment for Sanjay, here. As you look at the strong growth sequentially in you WCDMA shipments, can you talk about your visibility in that versus your predict on handset growth? Maybe the rate of growth of the two divisions? That would be just great if you would comment on your growth in WCDMA chips. Thanks.

A - Sanjay Jha

I feel very comfortable with the progress that we have made so far this year in getting market share in wideband CDMA. If you look at all the carriers who are launching 3G handsets and look at how many of the handsets that they're launching that use our chip set, I feel pretty good that we are increasing our presence in the wideband CDMA marketplace. Now how well these handsets ship and therefore, what is my eventual market share is obviously difficult for me to predict because there are lots of transactional issues; what subsidies do, carriers provide, what deal do the OEM and carriers do. That I don't have visibility into and I can't predict. But in terms of the numbers of handsets being launched and in terms of the handsets being launched with carriers who look to be very aggressive this Christmas, I feel very, very good. And as we've shared with you for the last three quarters, we've seen substantial increase in our wideband shipment. If I look at number of hand sets now being designed, based on our wideband CDMA chip sets, again I feel very comfortable. If I look at our leadership in HSDPA and then soon to be sampled HSUPA, again, I feel relatively comfortable with the progress we are making in UMTS. As I have shared with you a number of times, we continue to invest in that technology. I feel very comfortable that that's the right place to invest and we're seeing results that justify that investment.

Operator

Thank you. Dr. Jacobs, I'll turn the conference back over to you for closing remarks.

Paul Jacobs, CEO

At our New York analyst meeting I outlined three themes driving our growth; innovation, execution and partnership. Now, with the events of Friday, I just want to say that we will respond to our competition in whatever form is necessary. But I want to assure you that we will remain focused on what's made us strong; and that's leading the industry with technical innovation, executing to the commitments that we make to our partners and helping to drive their businesses and make them strong. It's been a record year for us. And with all the opportunities ahead and the growth that we see of our markets ahead of us, we expect an even better 2006. So I wanted to say thank you all for being with us today. And hopefully we'll see some of you in London.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you once again for your participation, and ask you to please disconnect your lines. Thank you and have a good day.

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