William Keitel: That 20 cents to 28 cents estimate is obviously primarily revenue but there is an element in there for reduced legal expense, directly related to what we have been spending in the past on the Nokia matter. It is too early at this point to get into a discussion on total business model defense costs for 2009 but certainly the Nokia settlement agreement is a good and significant positive step.
Tim Luke (Lehman Brothers): For the September quarter, you are guiding a midpoint of 10 cents; for the full year fiscal 2009 you are guiding a midpoint of 28 cents. Could you give us some sense of what is impacting the boost of September as opposed to the weighted position throughout the calendar year?
Bill Keitel: There is an upfront payment and that will be amortized. I expect the amortization to extend back in time to when payment stopped forward through to the end of 20, 22 and then in 2009 we are looking for an incremental re-assumption of royalty payments on top of the amortization. That gives you a good sense of why the increase in 2009 versus estimate for 2008. However, having said that, we are still at an early stage on working through this.
Tim Luke (Lehman Brothers): Could you talk about the implications for some of your other licensing deals with your other partners of this landmark settlement?
Steven Altman: We do not believe that our Nokia agreement impacts our most favorite provisions which I think is what you are getting at in our other license agreements. However, I would say that if we offer the package at the terms of the Nokia agreement to other licensees, I would be very happy if those other licensees would accept the package of Nokia''s terms and conditions and provide us with the same value that Nokia will provide us under our new agreement.
Tim Luke (Lehman Brothers): The press release talks about an upfront payment from Nokia. Were you thinking that that will be something that you will be amortizing over the 15-year licensing deal and is there is some of that in the 20 cents to 28 cents guide?
Bill Keitel: Yes there is an upfront payment. It is a very significant payment and that payment we are determining how that will be converted into revenue and there will be an amortization schedule of that. We are still working through that hence the reason why we have given a fairly wide range to our earnings increment from the Nokia settlement agreement; but yes there will be an amortization of the upfront payments.
Tal Liani (Merrill Lynch): In the past you gave guidance of 25 cents to 30 cents for Nokia contribution and legal expenses were guided in the neighborhood of $300 million. If I am assume that you have reduced your legal expenses by $200 million of the $300 million, it is 10 cents plus for Nokia in 2009. If I take the high end of the range of 30 cents and your mid point for 2009 being 24 cents, is the discount around 40% to 50% to Nokia versus the prior expectations?
Bill Keitel: We are limited to what we can say given the terms of the agreement with Nokia and we certainly do not want to press on the terms that we do have. However, I would just add that my initial estimate on the legal expense increment of that number we gave for 2009 is less than what your assumption was. The number that we have said is more than $300 million in terms of total business defense for fiscal 2008. However, we also said that the outside legal fees that we have been paying, although it is the majority of it, we have indicated its more closer to the $200 million range and then the balance of that total business defense is other matters and in other areas including offsets to revenue.
In that $200 million range of outside legal fees, you have got monies we have been spending on the Nokia, trying to wrestle that one down. There has also been the Broadcom matter. You have got the EC and so there are a number of areas in that $200 million or so expense and just a portion of that has been Nokia.
Tim Long (Banc of America): A very strong quarter for Chip ASP’s, yet we are guiding the overall phone ASP in the June quarter to be down 5%. Could you comment on that?
Bill Keitel: The key item in that differential is to do with the time we ship a chip to the time a subscriber buys the phone. That is our estimated inventory channel that we try and track. It is not our inventory. It is others’ inventories. However, we indicated, we are forecasting that there is a bleed in that total inventory channel in the September quarter. That inventory channel will reduce and we think that one of the main regions that is driving some inventories is in the developing regions.
We expect ASPs of low end devices that cross the hurdle of revenue recognition for our royalty business to be a little bit different in terms of what is going through that channel relative to the MSMs were shipping is at the start of that channel cycle.
Dona Jackson (Goldman Sachs): In terms of the 4G aspect of the agreement, can you update on what percentage of your 3G licensee at this point have also signed on for your OFDM technologies and how you think that might change or accelerate based on this agreement?
Steven Altman: Under our CDMA agreement they cover multi-mode. As CDMA transitions, there will be lots of multi-mode devices. Those are covered under our CDMA agreements today. What I was talking about under the Nokia agreement is a single mode, or a device that does not have CDMA. It has all OFDMA and already the second Tier 1 manufacture with now the largest handset manufacturer in the world, signing an agreement to pay on going royalties through the term of the agreement is a significant factor that will likely accelerate the success of our OFDMA licensing program and allow us to sign other companies.
Today we now have, with the inclusion of Nokia, eight companies that have signed up to single mode OFDMA agreement.
Glen Young (Citigroup): Inventories are up again a little bit in the quarter after being up a lot last quarter. How do you think inventories will do in the next quarter?
Sanjay Jha: We have indicated that we are changing our business model a little bit in the sense that we are taking control of inventory earlier in the cycle of chip production. We therefore carry a little more inventory but we have a lot more control on how quickly we can turn them into parts and our responsiveness to our customers has improved. The second factor is that we had little shortage of parts back in the first quarter, or actually in fact what we had was some more digital dye and not enough analog dye to match it. That is working its way through our inventory cycle. I expect our inventory next quarter will be flat to down. Even with our current inventory, if you look at our revenue turns, our inventory turns per year is probably industry leading.
Glen Young (Citigroup): What is your comment on the overall demand environment for handsets?
Bill Keitel: In China, our expectations are a modest up-tick from the prior quarter in terms of unit consumption. In the European market, we think that the prior quarter was coming off a seasonal effect; dipped down as we expected and now we are looking for an up-tick in the next quarter.
In India, we see that continuing strong in terms of unit consumption. That is a region where we think vendors have stocked up high on inventory. It is a strong growth market but nonetheless we think inventories for that region are a bit overbuilt and so our forecast is an inventory bleed in terms of units consumed versus what goes into that chipsets going into the early stages of that channel.
In Japan, you are coming off a very strong quarter, a seasonally strong quarter and now we look for a seasonal decrease. Korea will be flattish, slight up-tick perhaps in the mobile replacement market and then North America is coming off a seasonal down quarter as expected and we are looking for some up-tick there. Then the last area is the rest of the world where we are still seeing a fair amount of 3G handsets being sold on to 2G networks and we have seen strong and steady growth in the rest of the world.
Mark Mckechnie (American Technology): Does Qualcomm actually get pass through rights on some of the Nokia GSM patents for your customers?
Steven Altman: We did not get pass through rights but we did get assignment of a significant number of patents which we would be able to offer as licenses to our customers. Companies that buy chips from us would negotiate with Nokia the terms of a license agreement to those companies. However, Nokia did agree to cap what royalties they would charge for customers that are using our chips in a fashion that I am very comfortable with.
Sanjay Jha: We have a position through some of the agreements that are already in place to pass more rights to our customers than we believe anybody else in the industry. We are already in a good position to pass through rights to our customers.
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