Don Schrock at Banc of America Securities. veracast.com
Here are my rough notes on Schrock's upbeat presentation on September 25, 2002. The analysts seemed hung up on whether there is an inventory build but Schrock does not see one at all. I'll go with Schrock! What follows is selective, omitting in particular generalized comments of items well covered by the slides. qualcomm.com
Qualcomm is the only company in world whose chips work with every base station in every country in the world - China, India, Korea, Japan, Brazil, U.S. 18 carriers have launched 1x - 120 1x phones available. Last year Qualcomm passed TI in revenues to become the world’s #1 wireless chipset provider in terms of revenue in the world. Last year we segmented the 1x market – low-end, high-end, 1xEV-DO, WCDMA. We were the only company that brought 3 different 3G technologies to the market in the same year – 1x, WCDMA and 1xEV-DO. In 1x where we’re seeing growth, we’ve already segmented the market when our competition is still trying to get the first ones to the market.
We’re a systems company that has been taking that systems knowledge and putting on chips and software to serve the CDMA market. We’re doing interoperative with 9 different WCDMA infrastructure providers. We’ve already done 384 packet data. We’re working with Vodafone very closely.
We saw that position location services were going to be huge. We have 4 chips available with position locations. Key for our position location is accuracy – what street corner you are on. KDDI already provides 40 different location based services (not e911) – services that let you find things. Every CDMA sold by KDDI has position location. Unicom is pushing to get to it quickly. Position location is a very critical piece of our strategy.
9th generation of chipsets introduced in 2002 – the MSM6000 family. Key to MSM 6000 family is Zero IF, which is a proprietary solution. We committed to be in volume production of a Verizon quadmode phone (AMPs, CDMA 800, PCS CDMA and gpsOne) by September and we are there.
6100 and 6300 are scheduled for sampling in Q3 – this happens to be Q3 and they will ship by the end of September. In past 5-1/2 years, “we have not missed one new product introduction of a very complex technology.” 6100 will sample our first silicon in September and is a very important chip – strong multi-media chip– Asian markets and Sprint’s Vision. This will be the first chip to support Release A – it can go 307k data speed and it will do simultaneous voice and data. It has a brand new ARM 9 microprocessor with JAVA acceleration (see p. 20 of slides). MPEG4, camera interface – almost every phone in Japan has a camera, a lot in Korea, Sprint’s Vision. True 3-D. All integrated on the chip.
In addition to upping our guidance for current quarter for chipset shipments from 19 to 20 million, we also said that the next quarter “would be significantly above 20 – you have to make your own judgment about what ‘significantly’ is.”
Q&A
Did pricing play a roll in the increase in volume?
If you mean, did we cut prices to gain volume, the answer is No. We are gaining market share – Motorola, for example – how many 1x phones is Nokia shipping - not very many. The other point is the markets are strong – Sprint, Verizon; Korea is still good. KDDI has gained subscribers over competitors. China take-up is starting – orders from Samsung for 1x - and also seeing orders starting to come from India. It’s market and market share and it’s not inventory build. We’ve executed.
Samsung’s announced re 1x chipset development?
Samsung is our largest customer – we have a strong partnership with KT Lee and his whole team – we’ve had for years. Samsung is clearly a company with semiconductor capability to do probably anything they wanted. But the key is our execution. It used to be that Samsung talked about Philips - we’re going to use Philips next year, and then it was we’ve developed our IS-95A chip. They did and they sold 200,000-300,000 of them but by that time we were two generations ahead of them. So they declared victory and stopped it. What we know about this one – it doesn’t have near the horsepower that we have. They’ll probably sell a few of them. It’s the same time of year for pricing negotiations. What we do know is they are ordering strongly. They are using all of our 5000 chips and they are designing with 6050, awaiting our 6100 sample, they’re using out 6200 – WCDMA/GSM. They’re buying all of our current generation and have signed up to use the next generation.
In the Journal, a China Mobile executive commented regarding 1x vs. WCDMA – watching developments Japan where KDDI is doing very well? Any color?
I read that article and it was a very careful article – we’ll continue in this path unless… The key is what is the “unless.” 2003 will be a very interesting year for WCDMA. We are pursuing it heavily. If it goes, we are going to be one of the leaders in it. But the longer it goes to the right, the longer 1x has to really get entrenched. China Mobile has to do something to counter Unicom’s 1x with position location etc. That “something” isn’t going to be GPRS.
How can you be so sure that it’s not just inventory build?
We do see the different market places. When you have this kind of share, you have reasonable visibility into some of the other market places and developments with customers, etc. We do see that the demand is strong – they are pushing us for product. It isn’t like we have a lot of product – they’re pushing us to get product – China, Sprint, Verizon. Verizon has the Motorola phone and massive advertisement with BREW.
If you ship significantly more in December, what happens in March?
We’re not totally sure of that one. March is typically a soft quarter. I would not be surprised to see it go down a little bit. Position-wise, relative to anybody in the industry, with this type of execution over 5-1/2, we have chipsets with features that no one else has. We are very well positioned as a company.
How should we think about long-term ASP trends from here since replacement cycle has tightened up already and with incremental penetration coming in Third World Countries where voice is the application?
Two trends going on. Latin America and India may see trend toward low-end but we have low-end chipsets. But the other counterbalancing one - Japan is still high-end, full featured chipsets – and this counterbalances lower cost chipsets for India and Latin America. They’ll tend to balance each other out.
Inventory levels at Samsung? Revenue recognition?
We recognize revenue when we ship to our customer – typically 30 days we get paid. Samsung is expediting – which tells me they don’t have a lot [of inventory].
Market stays at the low-end?
Samsung is not at the low-end – it has avoided that space, even in China. They’re adding capacity presently for these kinds of [high-end] phones that they make money on – not a low end guy.
50% reduction in bill of materials? Price differential of 1x vs. GPRS?
It is a 50% reduction in the number of components, not overall price. I don’t know what it is relative to GPRS – GPRS is clearly more expensive than a GSM phone. There are lower cost [CDMA] versions that are already done (e.g. 800-mode only). Japan is 800 only and that is already out. For WCDMA, we already have the GSM transceiver integrated into ZIF and those will ship in December quarter. You just segment out to cover all the markets. Dollar per phone stays about the same.
Assumptions for total worldwide CDMA subs and 1x subs in ’02 and ’03?
We don’t talk about subs. What’s important for Qualcomm is handset sales. Still looking at 80-85 million handsets for this year. We will announce our ’03 forecasts on November 7th when we report.
How do you know that there is not an inventory build with the phone manufacturers?
You can’t make sure 100% but what we are seeing now is an expedite mode which tells us they don’t have much inventory. We would not be giving guidance if we did not see an increase trend. They’re pushing us pretty hard for product and we are pushing our suppliers. We see pretty much the whole picture – we look at the different carrier forecasts, we look at the different handset manufacturers forecasts – we’re not perfect but we probably have as good a visibility as anyone could have. Right now we just don’t see what people are writing about - we don’t see an inventory build. March quarter may be less than December due to seasonality. But March seasonality might not happen – China and India (how fast will they launch) have yet to be played out.
Lead times for chipsets?
In the semiconductor industry, there have been no great breakthroughs in semiconductor lead times – typically 12-14 weeks for the full cycle. We may quote 6-8 weeks but we’re shipping out of dyebanks[?]. |
