CC Notes:
First I should note that this conference call was one of the oddest I've ever heard. Jacobs et al seemed to really want to talk the expectations down. For instance, at multiple points the analysts asked questions about what the company expected to do to expand handset shipments next year given that they are at or near capacity now. After side-stepping the question repeatedly, they finally answered, very reluctantly, that they had plans for significantly expanding capacity at other sites if it is required. And not only was the company odd, so were the analysts. For instance the first analyst started with the statement "The Gross Margin was significantly above what I was looking for." which was worded as if the company had disappointed him by exceeding his estimates.
1) Backlog: At end of FY98 was only 2.0B vs the $2.3B at the end of last year. Explained that this is the result of the fact that lead times have shortened as the industry finishes it's start-up.
2) Next Quarter (Q1 - 99) Revenues:
a) Infrastructure sales will be flat to down since there were a lot of shipments to Mexico in Q4. But shipments to Mexico will continue all of next year.
b) Royalties will be flat this quarter due to increased numbers of phones being sold (Xmas + general growth), but decreased ASP. (Note - this is a very odd claim given that they have grown pretty substantially Y/Y and if ASP declines more than offset increased units then perhaps they should get out of the whole business<g>).
c) Expect number of chips sold to be up slightly this quarter.(Note - This is also pretty odd given that this is Christmas.)
d) Number of phones sold should be up slightly this quarter due to Christmas, and in just about their only show of real optimism, they expect to ship substantially more Q phones with their greater margins. In particular they expect to ship up to 100,000 Q phones per month. Also, there will be even less impact this quarter than last due to need to rework phones.
3) Next Year Results:
a) Infrastructure is expected to be up substantially next year, but they do not have a firm idea of exactly where that growth will be coming from. (Note - as should be expected from the fact that backlog is only 2Q of rev's) The listed a variety of places from which they expect big growth, but the two most emphasized were the US (like the US West contract) and India.
b) Next years handset sales were estimated as being up due to shipments of more high end products, but the predicted number of units was not any greater than the current monthly output. Under repeated questioning from the analysts they admitted that they had contingency plans to increase production outside of San Diego if required. (Note - they said that the current capacity of Brazil is 20 to 25 thousand phones per mo)
c) They expect that next year the operating expenses will drop as a percentage of sales, and they expect that gross margins will continue to climb. However they didn't want to predict how Gross Margin would change since it is very affected by product mix.
4) Japan had problems with their start up due to the fact that they went directly to 6 sector base stations and this caused some sort of problem with standby times. This has currently been fixed in the handsets, but is in work for the basestations (Note - From the conversation I think that either fix alone is sufficient to fix the problem, and that the problem really lies with the basestation, but it wasn't particularly clear. It may be that both fixes are required at once.)
5) China CDMA future is currently very unclear. Russia is a concern due to economic uncertainty; Qualcomm is concerned that Russians will not be able to buy phones and service and thus the finances of the companies buying infrastructure is uncertain - hence Qualcomm's postponement of revenue recognition of $29M from Russia in Q4.
Clark |
