Quick and dirty notes on cc:
Enable Q and SPINCO to evolve independantly and pursue growth opportunities difficult for a single company.
Chip sets must support multi-mode, multi-band, multi-network. SPINCO can evolve without encubrances of QCOMs large licensing business.
IJ is Chm of both, Jacobs is Pres of QCOM. Tony is CFO of Q and COO. Steve EVP of QCOM. RIch CEO of Spinco. CFO named later.
Expand capabilites and reach of both businesses.
Rich:
Spinco is ind leader in ic's and software. Dedicted team of 1000 engineers. Will offer exising and new customers end to end solutions for all CDMA devices and equipment. Focused on CDMA 3g--CDMA 2000 and WCDMA.
Higher level of integration and functionality. Extend leadership into multi mode, band network ICs. QCOM assign a portion of its patents. SPINCO will use those patents to negotiate cross-license agreements.
Paul Jacobs:
Strong partners with interest in pushing CDMA as fast as possible. This completes this transformation from a verticle to a horizontal model. Eliminate conflict between chip sales and royalties. QCOM will collect royalties. Simplifies license business. New sources for license and royalties. Will expand patent portfolio through own development. QCOM will retain ownership of some of SPINCOs inventions. QCOM wireless and digital media businesses will focus on growth and building foundation for wireless internet.
QCOM will focus on demand for high speed wireless data. WIll fund internal development, acquisition, yadayada. Continue to broadly grant licenses.
Questions:
Tim Luke: GIve sense of timelines. SPINCO now able to access more strategic technologies like GSM
IJ:
IPO early fall. S-1 is filed. By then separation will be largely accomplished, but under the control of QCOM. minimum 6 month for divestiture (my word) to take place, but before August 2001.
GSM is part of plan. More to say about technical progress (later). SPINCO will be able to arrange IPR agreements to move ahead with these various technologies.
Steve:
QCOM's IPR portfolio is vast and broad. No other is close in terms of CDMA. A portion of that IPR will be assigned to SPINCO. GSM companies will need licenses from QCOM and SPINCO. SPINCO will trade technologies. QCOM remains in same royalty (exactly) position.
IJ:
All engineers in QCT go to SPINCO. HDR engineers go to SPINCO. Very large group. Israel, UK, Colorado engineers got to SPINCO. QCOM will continue to add to its patent pool. Will have significant group of engineers. Both companies will innovate. SPINCO= chip sets and software. QCOM focus on innovation and extend capability of wireless, including CDMA.
Going forward QCOM will be able to attain ownership of IPR generated by SPINCO.
Engineers in Snaptrak moving to SPINCO.
Mark ROberts:
Example of other companies in industry that are going to be royalty companies. How will royalties be calculated by existing royalty customers.
IJ:
No comparable companies in this industry. QCOM has not only royalties but other businesses, investments, and new wireless innovations for use of CDMA. Digital cinema. QCOM will be using engineers in healthy fashion to grow new ares.
NOK rates for 2G will not change, for example. QCOM will continue to license for CDMA. Spinco will build ICs.
"Royalities continued to be calculated and paid as they curretly are."
Question:
Be specific about difficuties this separation solves in GSM negotiations.
IJ:
Intent is not that SPINCO will be collecting royalties but using patents to negotiate cross licenses. Will continue to sell chip sets. Don't expect that royalties will be a significant rev stream for SPINCO, but will remain so for QCOM.
With respenct to what problems are solved, there is always is some aspect wwhen one has multiple businesses, Trying to be certain these are cleaner situations with SPINCO doing cross licensing with greater manufacturing capabilities.
Mark Matechney (sp):
Would separate businesses be worth more?
IJ:
Two companies able to focus on core competentcies and not constrained by other's business. QCOM innovates new technologies but not subject to mfg pressures. SPINCO can work out agreements with other mfgrs an enhance its products.
Focusing specifically as a pure play, SPINCO will add value. QCOM not mfgr so it can expand its value.
Provide asurance that QCOM will continue to collect royalty rate. SPINCO can access new technologies as others do to expand its market.
Question:
Different royalty rate for those who used chip sets versus those that did not?
No difference, but some advantages from using QCOM ASICS, will work to make that continue.
Bear Stearns:
Change arrangement with vendors with ERICY or LU (favored nations)?
Raising 100M ($). What is purpose of new money? Dilutive?
Answer:
Spinning will not change existing relationships with licensees. Licensees will remain as licensees after spin.
WRT IPO, final amount being decided in several weeks. Do not think it is dilutive in signifcant way.
S&P:
Total revenue:
Pro forma just ended 1.2B for Q. 965M for Spinco. Op Margin for SPINCO = 37%.
Question:
Does SPINCO get a royalty free license.
Answer:
In essence, yes, in exchange for patents from SPINCO going forward.
SPINCO will need to negotiate its own cross-licenses.
SPINCO will get a portion of "essential patents" and "useful patents".
Question:
How will this help resolve CDMA handset resistance.
IJ:
Most 3G will use CDMA. 2.5G currently using CDMA. The issues as to some claims that some forms of CDMA will not require patents we do not agree with and will not change as result of spinoff.
Multi-band, mode, network is addressed because SPINCO can work out cross licensing agreements and move ahead.
Best explained--in order to obtain what SPINCO needs, other companies require license from QCOM and SPINCO. SPINCO will grant cross license to get technologies, but others will still have to go to QCOM.
This avoids reduction of CDMA fees by QCOM, but allows SPINCO to negotiate x-licensing and QCOM to continue charging royalties.
Question:
How does this speed up GSM license acquisition? Growth rate profile of SPINCO?
Answer:
Multi mode chip set required late next year, early 2002 by countries deploying CDMA200 and WCDMA. Multimode chip set out in about a year without extra cost of acquiring patents by cross licensing.
Does not speed it up, new announcements by end of calendar year with other negotiations.
Question:
Op Margins, any expectations going forward?
Answer:
Not disclosed or discussed, but essentially the same as QCT segment, so take your own assumptions in growth.
Question:
Management teams?
Answer:
QCOM: IJ= chm and ceo. Paul = president. Tone= CFO/COO. Altman i ofc of chm
SPINCO: Rich = CEO, IJ = Chm, Don = Pres and COO, CFO later.
Question:
Explain what patents SPINCO will have.
Answer:
Two categories: Must haves and commercial advantage patents. Portion of each go to SPINCO. Splitting portfolia allows SPINCO to negotiate cross licensing. There will be no double dipping, as SPINCO will not be collecting royalties.
Question:
WIll companies have to go back to SPINCO to negotiate new licenses?
Answer:
NO. Spinco is not a royalty company. SPINCO will trade cross licensing to be able to compete at a product level.
Question:
WIll this reduce QCOM royalties?
Answer:
No, be careful to have no impact. Provides assurance that QCOM will have no need for cross licensing. Will continue to attain CDMA value.
Question:
What does this do for QCOM relative to access to GSM and other? Does it inhibit you further.
IJ:
QCOM is not trying to mfg multimode equipment so does not need those patents.
Spinco will have that need. THus one reason for seperation so SPINCO can get cross license.
QCOM will be with respect to wireless, will focus on wireless innovation focused on CDMA. Will work hard to grow in particular wireless internet access.
Re-invent reveneu stream into other strategic opportunities. Fundamental strategy.
Conclusion:
IJ:
yadayada moving forward, participating fully in very rapidly growing wireless market. |
