The pro forma R&D expenses increased 29% year-over-year.
- The increase was due to an increase in costs related to the development of integrated circuit products.
- The rise was also a result of next-generation CDMA and OFDMA technologies, the expansion of intellectual property portfolio and other initiatives to support the acceleration of advanced wireless products and services.
- The management reported that QSI R&D expenses were related to MediaFLO USA.
The pro forma SG&A expenses rose 16% year-over-year.
- The increase was mainly attributable to an increase in certain professional fees, primarily related to patent activities and employee-related expenses.
- The QSI SG&A expenses were primarily related to MediaFLO USA.
Without the potential effect of the settlement agreement with Nokia, the fiscal 2008 effective income tax rates are forecast to be 16% for total Qualcomm (GAAP) and 19% for Qualcomm pro forma.
- The Q3 GAAP and pro forma effective tax rates of 15% and 18% respectively, are lower than the estimated annual effective tax rates.
- This is mainly due to the change in the estimate of foreign earnings taxed at less than the U.S. federal tax rate.
Qualcomm Strategic Initiatives:
- The segment includes the company’s strategic investments, including the MediaFLO USA subsidiary and related income and expenses.
- The Q3 GAAP results included a 4 cents loss per share for the QSI segment.
- The third quarter QSI results included $88 million in operating expenses primarily related to MediaFLO USA.
Fiscal Year 2008 Fourth Quarter Outlook:
- The Q4 pro forma EPS are forecast to be approximately 49 cents to 51 cents.
- The company anticipates shipping 84 million to 87 million MSM chips during the quarter versus 68 million MSM chips shipped during the year ago quarter.
Full Year 2008 Outlook:
- The company pro forma revenues are anticipated to be in the range of $10.3 billion to $10.5 billion.
- The pro forma diluted EPS are expected to be between $2.11 and $2.13.
- The company is at an early stage of working through the mechanics of the Nokia settlement agreement and the preliminary estimate of incremental diluted EPS is about 7 cents to 13 cents.
- The management expects 30% year-over-year growth for CMDA-based device shipments.
Key questions and answers from the third quarter fiscal 2008 earnings call conducted by Qualcomm on July 23, 2008.
Brian Modoff (Deutsche Bank): In terms of the agreement with Nokia, do you see this perhaps engaging you with Nokia in developing your 3G baseband?
Steven Altman: This dispute between Qualcomm and Nokia has been a significant impediment to working more closely together and I think that both companies are going to look for a number of opportunities to work together now that this dispute is behind us. We look forward to it.
Paul Jacobs: I had a very good discussion with Olli-Pekka, as we were concluding the agreement and we both agreed to get together quickly to talk about opportunities for the two companies to collaborate. It was a theme of our discussions throughout this whole process that there was a lot of respect between the two companies and we thought that we could do a lot to drive the industry together and I look forward to taking advantage of those opportunities.
Sanjay Jha: You would probably know that we already work with Nokia through an ODM relationship based on our chipset and so I expect that we will certainly enhance that. Given that a major obstacle has been removed in the path of our further engaging with them on the MTS chipset, we will engage in understanding if there is a possibility for the collaboration there.
Brian Modoff (Deutsche Bank): Given that you are developing CSM for LTE, could you see Nokia and NSN being engaged in working with you on that product and how do you see this impacting the agreement and potentially the scale that it delivers? How do you see this impacting some of your competitors in the market?
Sanjay Jha: Some of the folks who have had preferred positions in a number of different accounts will view this as potentially an increase in competitive pressure for them. Our skills certainly enables us to deliver better products, do more R&D and stay in technology leadership and we hope to be able to use all of that to convince more customers in the marketplace to use our chipsets.
Mike Walkley (Piper Jaffray): How should we think about your legal defense in absolute OpEx dollars potentially declining in fiscal 2009?
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