James Faucette (Pacific Crest): Do you have broad access to their IP portfolio for incorporation into your chipsets and products in the future?
Steven Altman: The answer is yes. We have full access to all their patents to be able to incorporate all their patented technology into our chips.
James Faucette (Pacific Crest): You mentioned a little bit of an extending of the replacement cycle particularly for WCDMA. I assume that has happened primarily in Europe. Can you comment whether that is in fact the case and have you seen extending of replacement cycles in any other areas?
Bill Keitel: We have anticipated an extension on that replacement cycle from the outset of the year. We think 2007 is around 47% rate and we think 2008 will end up at about 43% rate. We are looking at that extension broadly across many geographies. In this case, our updated guidance for unit shipments of all CDMA technologies in 2008, we saw that cycle just widen a bit more than what we had previously expected. You are correct about Europe.
Kulbinder Garcha (Credit Suisse): On the pass through rights, it sounds like Nokia would be able to cross buy some of your own license fees. What does that mean for the cumulative industry royalty rate for WCDMA especially given the concerns many years on this and what confidence can you give on outbound costs if the litigation is years down the road?
Steven Altman: My experience has been, and I believe it will continue to be this way, that royalty stacking in CDMA and WCDMA has been really a myth. We have a substantial pass through rights from many companies and those will obviously continue to exist. When you think about Nokia and their licensing program, they are going to the extent they want to establish a licensing program and collect royalties; negotiating with companies like Samsung and Motorola and LG, these are other companies that have substantial patent portfolios, significant patents as well and so, when you look at Nokia''s business, their business is primarily a handset business and they do not drive the same value that we drive with respect to IPR and royalties.
It will be typical in this industry for these large handset manufacturers to do royalty-free cross-licenses and I suspect that is what will continue to occur. Thus many of our important and large customers and our important and small customers will not have the royalty stacking issues that you referred to. In addition, when they use our chips, they have agreed to cap the royalties they would charge at levels that our customers will be able to compete quite well.
Kulbinder Garcha (Credit Suisse): The 7 cents to 13 cents EPS guidance or impact from Nokia assumes an accelerated impact that will not be there on an ongoing basis in 2009. Is my understanding right?
Bill Keitel: Recall that Nokia stopped paying Qualcomm royalties after the first week of April 2007. In this settlement agreement, both parties have agreed the amount that covers both the past and defines the rate for the future. As we pointed out, there is a significant upfront payment and I expect we will amortize that payment from over that entire cycle from April 2007 through the end of 2022. Then there is a resumption of royalty payment on top of that.
Again, what we expect to record in this fourth quarter fiscal quarter of 2008 will be a payment that reflects due consideration for the use of our IP from April 2007 through the fourth quarter of fiscal 2008. In then next year, there will be an amortization and a resumption of payments as well.
Richard Windsor (Nomura): It would appear that Nokia has got some discount and that you are making up that value by getting some or they have assigned to you some of their patents. Could you really get value from those patents and seeing you charge a flat rate for all your patents, how are you going to derive value from the patents that they have actually assigned to you to make up the balance of value?
Phil White: We received some valuable patents in a number of areas including some areas that we haven’t licensed today such as GSM.
Don Rosenberg: There are lots of ways that one derives value from patents; patents from offensive perspective or licensing perspective. There is also a defensive value to patents as well. Thus there is a lot of value to good patent portfolio.
Brett Simpson (Arete): On USB, modems and data cards, some of your customers are seeing some significant growth, for instance Huawei, ZTE and Unipeir. Can you give us a sense of the size of the business that you have and what growth outlook you see as markets like China, Russia and Brazil start to launch services over the next 12 months?
Sanjay Jha: Indeed we are seeing significant growth and in fact that is one of the places where our customers like Novotel, Sierra, and Option, Huawei and others have done extremely well in driving marketplace both in terms of driving sales for us but also for the carriers driving data ARPU and data revenue.
We see continued growth in that and while the USB modem, data card business is very strong, the Gobi initiative means we are enabling embedded modules and with the prices we have, we see more and more laptops being embedded with these modules. That is an important marketplace for broadband wireless data.
Brett Simpson (Arete): You made an acquisition in Bluetooth and WiFi a few years back and we have not seen the product as yet. Can you give us a progress report and when you expect to start booking revenues for connectivity?
Sanjay Jha: We are already in Bluetooth booking revenue for Bluetooth shipments. Our shipments per quarter are already in multiple million units. We are doing extremely well in Bluetooth. In WiFi, we have had some challenges and we are now focused on integrating WiFi cores into our higher end chipset and that has become the strategy as opposed to focussing exclusively on the laptop marketplace. We see the largest growth of WiFi now being driven by handsets and smartphones and that is our focus in WiFi.
Maynard Um (UBS): Looking at your fairly strong MSM guidance, can you help us balance the macro-economy with your guidance and also how that balances with your comments that handset channel inventories will come down next quarter?
Bill Keitel: In terms of the macro environment, we are probably going to bid against the tide which is what many people or parties or organizations have been saying in the last couple of months. CDMA technologies are progressing very well this year and there are some of the older technologies that are starting to drop-off. The other aspect is we serve the entire world with CDMA technologies and we sell where others might be more regionally focused or products that are more segment focused in one segment or another. We are worldwide and the company has got the broadest chipset portfolio of any supplier into this 3G market.
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