Qualcomm EPS Conference Call Notes
On a slow weekend, I thought I would post my notes on the upbeat Qualcomm EPS Conference Call last Thursday. Despite the fact that Qualcomm has generally been quite accurate in its forecasts in the past, I am blown away by the skepticism from the analysts updates since the call.
Qualcomm EPS Conference Call
July 25, 2002
qualcomm.com (67 minutes)
biz.yahoo.com
My preliminary comments
What follows is a rough transcription of the Qualcomm EPS Conference Call on July 25th. I omitted some irrelevancies and did not attempt to correct or flag grammatical mistakes. I shortened many of the questions. For ease of reading, I referred to Qualcomm’s fiscal quarters by their month-ends, rather than by “second,” “third” etc. I have added bolding to some of the items that I thought were most important.
Dr. Jacobs made the initial presentation and gave a short statement at the end of the call but strangely did not speak during the Q&A. Tony Thornley seemed to be the host, allocating questions to Don Schrock or Bill Keitel as necessary.
Neither Dr. Irwin Jacobs nor Dr. Jeff Jacobs had questions directed their way. There were no questions about WCDMA or Telefonica’s announcement the day before, Europe, GSM1x (especially whether there had been progress in China), 1xEV-DO, 1xEV-DV, EDGE, BREW, new chipsets, the Deutsche Bank report about forklift upgrades to migrate from WCDMA Release 99 to Release 5 (even though Brian Modoff asked a question) and no follow-up questions to Dr. Jacobs about his statements about vocoders and diversity antennas and the advantages of CDMA over GSM, etc. Incredible! Once again the analysts seemed to be trying to fill in cells in their spreadsheets for the next quarter rather than inquiring about the shape of major future developments in CDMA and wireless.
Dr. Irwin Mark Jacobs
Corporate accounting and governance
Before we begin, I would like to say that Qualcomm fully supports the certification of financial reports by corporate officers, including myself, as well as efforts to rapidly restore trust and integrity in corporate accounting and governance. We have always taken our responsibilities seriously and we have done and will continue to do our best to provide investors with timely, accurate and helpful information within established accounting, legal and ethical guidelines. We have provided our certification for the June quarter results which will be filed with Form 10-Q within 24 hours.
Great June quarter results
The June quarter results exceeded our expectations. This strength is coming from the rapid commercial deployments of 1x and 1x-EV-DO networks around the world. As of the end of June, there were 13 million 1x users worldwide and this number continues to grow. CDMA 1x is the first 3G technology to market and thus occupies a unique position in today’s wireless market, providing an economic means for operators to both significantly increase voice capacity and to offer attractive data sources that will offer much needed new sources of revenue.
Increasingly, CDMA handsets include accurate position location services to meet FCC mandates here in the United States. CDMA handset manufacturers are gaining market share due to the quality, dependability and attractiveness of 1x. QCT is providing those manufacturers with industry leading chips and it too is gaining market share.
In the June quarter, QCT achieved record pro forma revenues and record shipments of MSM phone chips and CSM-equivalent voice channels; orders for the current quarter are strong. The majority of MSM shipments are now 1x - to support many network deployments taking place around the world. We have seen rapid success with 1x in South Korea and Japan, and North America is on the cusp of a significant ramp. Handset manufacturers are being pressed to support the demand for 1x from many markets – several instances in advance of network launch [Presumably Sprint has been pushing manufacturers for major quantities of full-featured color phones].
1xEV-DO Showcased at World Cup
The World Cup games in South Korea and Japan last month provided an excellent opportunity to showcase the capabilities of 1xEv-DO. South Korean operators, SKT and KTF, launched 1xEV-DO networks in time for the games, with great fanfare and with many handsets provided to visiting press and industry leaders – almost all could be seen snapping photographs with camera-equipped phones and immediately emailing them around the world, enjoying the rapid transmission rate of 1xEV-DO. KTF, which launched 1xEV-DO in May, has set a target of 800,000 subscribers by year-end.
KDDI
Japanese operator, KDDI, initiated 1x on April 1st and has signed up over 1 million subscribers and reduced its churn in the first 3 months of 1x operation. KDDI plans to have 7 million 1x subscribers by March of 2003 and also plans to have its initial launch of 1xEV-DO next spring, with full service by the fall of 2003. Color screens and camera phones are very popular in Japan as well as in Korea and we suspect will be well received worldwide. KDDI also has had great success with its gpsOne-based position location service, called EZ Navigation. KDDI has over 1.8 million EZ Navigation subscribers, with downloadable map and navigation applications being very popular. I believe that position location devices and navigation applications will quickly proliferate in most, if not all regions, of the world because of their usefulness and applicability for safety and security as well as navigation and concierge services.
U.S. Launches
We are optimistic about growth in the U.S. market, with 1x deployments underway or imminent by Verizon, Sprint, Alltel, U.S. Cellular, Leap and other CDMA carriers. Over half of Verizon’s footprint, or 132 million pops, is now covered by 1x. Sprint said last week that it already has sold 1.8 million 3G capable devices into their customer base even before the commercial 1x launch this summer. Sprint also commented that it expects 3G to be a catalyst for its business in the future.
BREW
Indeed, we believe that the combination of 1x networks and BREW applications is a powerful one, enabling operators to attract customers for personal use and increasingly for business enterprises, to raise average revenues per user and to retain new and existing customers with high quality voice and highly reliable data, supporting a broad range of applications. During the June quarter, we reached the 1 million mark for end-users who have purchased and activated BREW-enabled handsets. There were also a number of positive carrier announcements for BREW, including Verizon’s nationwide launch last month.
1xEV-DV
With 1x service rapidly expanding and with 1xEV-DO entering service, standards activities are focused on the evolution of 1x to 1xEV-DV – with significant progress in incorporating the standard as part of the ITU third generation family. As in previous evolutions of cdmaOne and 1x, the approach here is to utilize measurements and performance results from each fielded version to determine areas for improvements in voice and data quality and capacity while maintaining full backwards compatibility and a common radio frequency bandwidth.
One More Doubling of Capacity
Two improvements to be fielded within the existing standard are:
• A new variable rate SMV vocoder that can provide either greater voice quality with no change in capacity but will most often be used to provide today’s excellent voice quality with a significant capacity increase over 1x.
• Together with the introduction of handset antenna diversity, another doubling of voice capacity over 1x is anticipated with no standards change. Unlike GSM, a TDMA technology, CDMA immediately translates any reduction in average vocoder rate into a corresponding capacity increase, which is one reason that all companies are basing their third generation offerings on CDMA. When attempting capacity improvements in existing TDMA networks, improvement, for example with a GSM AMR vocoder, is limited since timeslot duration and the number of timeslots per second cannot be changed nor can more than one voice call be placed in a timeslot.
GSM1x
Work has also progressed on GSM1x, which allows existing GSM operators to introduce any of the CDMA2000 family while reusing GSM back-office network equipment – the same GSM equipment re-use capability that has been offered with UMTS but which can now be applied in existing or new spectrum for a now well-proven commercial radio technology. Qualcomm will continue to actively support all 3G CDMA technologies with standards efforts, chip and software development and test platforms and test activity to enable each to reach market as early as possible with high voice and data performance and desirable low-cost handsets. GSM1x provides operators with a now well-proven alternative path to 3G. |
