Notes from CC Q&A, some already expertly reported by Jon:
Overall call and commentary consistent with IMJ's response to the BW article.
1. "lumpiness" in CSM orders--i.e., slow in Q3; 1x CSM orders should be good in Q4 (Schrock);
2. Discussions on 3G licenses with NOK and MOT continue, but IJ has no date on "when discussions will conclude". IJ twice ducked questions on potential litigation against W-CDMA equipment vendors that do not have 3G licenses from Q (Piecyk and Ching, I think, but did note that both NOK and MOT have licenses for earlier Q patents.
3. Schrock puts actual Korea roll-out of 1x in calendar Q4; there will be some MSM5000s shipping in FYQ4, but "not much"; more in FYQ1. [This doesn't compute for me: If the Korea roll-out is calendar Q4, I would think operators have to begin demanding chips in some volumes with a longer lead time than the same quarter in which the roll-out takes place.]
4. ASP erosion on track, 20% per annum. Both Irwin and Don made the point that both ASPs and the royalty impact from attached rates should stabilize [and might improve??] as MSMs move through 3100s and into MSM5000 series/1x. [When WIL functionality is incorporated, that should also improve ASP metrics.]
Cabi queried difference between unit increase in QCT of 36% vs. 6% revenue increase and wondered if it was due to ASP factors. TT referred to revenue decline in QWS and price breaks on volume shipments as the reasons, but TT fumbled [imo] the question on Korea impact on revenues and ASP, which was corrected later on by Schrock and Sulpizio, both of whom confirmed that the subsidy ban was having an effect
on ASPs.
5. Sulpizio was careful to note that "analysts project" sales of 90mm to 100mm CDMA handsets in calendar 2001, without, according to what I heard, explicitly endorsing that estimate. Both Schrock and Sulpizio did mention estimates of 15mm ASICs in FYQ1/01 [that's a long way from a 90mm to 100mm annualized chip sale figure].
6. Schrock indicated, again in ASP context, that Q is winning PA slots with RFMD venture.
7. IMJ and Schrock responded to many W-CDMA royalty and standards questions--jist is:
(a) Q's rate is the same; Q is working on strategic alternatives for GSM network protocol stacks and other DS IPR required for a W-CDMA chip and there could be "announcements soon". Stated later, IJ said, we're looking at strategic alternatives for DS and GSM IPR "to allow us to maintain our rate". [I think I have that about right. Not that this is a big surprise, but this tells me that IJ believes that Q must improve its IPR position in non-core CDMA DS/W-CDMA or see its net royalty takeaway reduced.]
(b) IMJ's position starts from Q's IPR, and if third parties charge royalties for their IPR contributions, that will increase the cost of the equipment. His concern is that such third party IPR, if incorporated into the phones, will affect performance.
(c) He thinks Q will maintain a significant presence in this chip market, despite new competition from vertical players and OEMs. Q's expertise in CDMA engineering, functionality were cited. "Cost, performance and time to market, a/w/a third party additional royalties" are all important.
In one of the more intriguing comments of the CC, Schrock suggested that the vertical manufacturers "will still look to Q" for development and functionality (design/components?). Sulpizio said that "customers are asking to see W-CDMA samples". [Gee, wonder why?] See #11.
(d) IMJ: "our first concern right now is 1x chips, but as the W-CDMA market evolves, we expect to be ready with chips."
(e) Re. roaming issue--as in the BW response, IMJ expects multi-mode/multi-band to be ready before W-CDMA rolls out, [without much increase in cost].
(f) W-CDMA re. standards bodies. W-CDMA requires extensive testing. Certain issues (IPR??) are not defined, such as power control and "have to be addressed". [In a sequitur that I thought was a bit of a non-sequitur, IJ here went into a riff about GPS incorporation into W-CDMA chips.]
(g) Interestingly, Altman said that Q's royalty would be based on the selling price of the phone, including the portion thereof attributable to GSM components/functionality. [This will raise some issues across the pond!!]
(g) IMJ gave his assessment of DoCoMo roll-out: planning to roll out W-CDMA per the 1999 ITU standard, with limited functionality, with the roll-out progressing into 2002-2003 in accordance with later standards.
8. Q4 guidance from Sulpizio: chip unit sales could be down 2mm to 3mm chips from Q3, due to Korea, but other markets could cushion that somewhat.
9. Altman--same rates for high end handsets as for low-end, in response to Cabi question whether multi-media phones would result in higher revenues from royalty rates. 10 new licenses this year, in response to Roberts.
10. On royalty results, quarterly adjustment on the royalty accrual was similar to Q2; ASP of $200 for CDMA phone.
11. W-CDMA "silicon" samples will ship in February 01 (yes, Keith--heard same that you and others did), with commercial shipments "available" in Q4/01. [To whom will these be shipped--the $64 question]. These chips will contain all the WIL/VR/API functionality that CDMA2000 chips do.
12. IMJ said that developmental work on data-only 1x/ev has strengthened the development of the voice/data 1x/3x chips.
13. Ching/Merrill Lynch: will operating margins tend up with increase in ASPs implicit in MSM5000-equipped handsets? Schrock: gross margins will be fine, but don't look for [return to] 40% margins operating as R&D will continue to trend up.
14. G* phones--31,000 shipped in Q3 vs. 11,000 in Q2 [I think numbers are right], but revenues don't reflect the increase in QWS because of end of development contract/gateways and fewer OmniTrak units shipped. TT said G* was current in its A/Ps [yeah! now that $500mm of A/Rs have been converted to vendor financing]. Q trying to promote increase in MOUs. Maurice could give this triumvirate of pain (G*/LOR/Q) some hints.
That's all I had, folks.
Steve |
