QCOM 1/20/98 conference call summary. (Long)
Here's my notes from the call.
-Jim
Subscriber products division:
ramping up productions and yields, particularly in 2nd half of quarter
ASICS product division
continues to grow quarter to quarter
MSM-2300 released.
Wireless Infrastructure Division
New contracts in nigeria, bangladesh, the phillipines, ukraine
scheduled to ship to NORTEL for SPRINT PCS D & E block
continued work on CDMA system in Chile to launch in Santiago this spring.
OMNITRACS
10,000 new units, primarily oversees, but also domestic new contracts
to PST Vans and USP Truck
Messaging continues to grow on an annual basis.
Globalstar
accelerating
preproduction for testing already shipping
commercial gateways to ship mid-year
Eudora
acquired NOW software
Technology
public demonstration of GSM/CDMA vodafone in UK to release economic
results technology trials soon (should influence next generation
standards) Evolving IS-95 to add medium and high data rates and
increase capacity (95C and 95HDR) to be done in 1999 sometime
South East Asia
Good demand for ASICS, although somewhat reduced from earlier.
{tony's financials not transcribed}
Q (Colin & Company)
Q. More about gross margins on handsets.
Q. S. Korea more on exposure of licensing revenue.
A. Gross margins on handsets--yields are improving, especially in
2nd half of quarter. Subscriber business was profitable for the
quarter. Room to improve.
A. Significant portion of royalties comes from S. Korea manufacturers.
Royalties are growing from both Korea and export market. Royalties
will be down next quarter several million dollars due to Wan
devaluation, but net won't be that bad due to increase from increased
sales. QCOM phone sales in Korea were lower than expected into Korea.
Q(Albert Lin, Soundview Financial)
Will S. Korea carriers change plans due to Wan problems?
A. Sale of phones is more difficult into Korea. So Hansui ($60
million order) will be stretched out. There has been a backlog of
unfilled orders for phones in Korea. Internal sales seem to be moving
quite well. Expect to see Korea manufactures more competitive in the
export market.
Q(Greg Gilling, JP Morgan)
Last quarter you were capacity constrained. What about the next 6
months? What is the capacity?
A. Demand was good in the quarter. Dropoff in the demand (after
christmas) is less than last year. Still capacity constrained. Japan
CDMA sales is coming on line. No significant competition for CDMA
handsets other than Korean manufacturers. (WHere's motorola?)
Capacity of QPE is approaching 600,000 /month. Capacity may be
increased in the future.
Q.(Some guy from amsterdam)
Q. How much of production capacity is dedicated to Q phone and dual band.
Q. What about new subscribers in Korea.
A. Market in Korea was dominated by handset shortage. PCS and
Cellular in strong competition driving the market growth. Dual band
is in considerable demand. We are late in shipping 800 MhZ version of
Q phone, there is very strong demand for this. Should be shipped by
the end of the quarter.
Q Globalstar revenues, what is expected in this fiscal year.
A commercial gateways will be shipped at the end of this year and
beginning next year.
Q (Lin, Merrill Lynch)
Is Sony Z phone in minority interest?
Are contracts set to reduce phone prices throughout the year.
A. Yes. Z phone is reported.
A. Q phone has been selling at a high price, expect price reductions.
Impact on margins will be less than last year.
Q.(Tim Luke, Lehman Bros)
Q. What is the timeline for infrastructure to break even? Would you
expect ASIC shipments to increase into the next quarter?
A. Many of these early orders are for relatively low total contract
prices for the first phase of a system. We look forward to provide
significant further growth to these operators and break even/turn a
profit in the future.
A. ASIC division is going quite strong. Various phone manufacturers
will be entering the market soon. Many use QCOM ASICS. We expect that
business to be very good for us.
Q(Alex Cena, Bear Stearns)
Q. You have been very active in Mexican Spectrum auctions. Why?
Q. Early in the quarter, first pass yields on phones were 60%-70%
range, where are they now?
Q. What about handset shipments to Great Wall, China.
A. We have been pursuing a national license, bidding in all 9 regions.
As of yesterday, we were leading in all 9 regions. We expect to be a
significant awardee of licenses in Mexico. We are a 50/50 partner in
the bidding entity. We will bring in other partners, reducing our
share. We expect to provide equipment for a nationwide roll out there.
A. We are improving yields, but we aren't going to say numbers. Cost
of materials is also decreasing. We are very focussed on this.
Q(Raj Streetcamp)
111 million vs 47 million numbers moving around. What's up with that?
A. Some explanation with a lot of numbers.
Q(Nick Ramano, Fidelity Investments)
3 million one time gain accounted for in the minority interest?
Trying to ask if the subscriber business is profitable? Not very eloquent.
A It's lost in the numbers because of a bogus transfer price between
QPE and QCOM and sony.
Q Gross margins of communications systems increased from 23% to 25%, is
that from handsets?
A No, it's from everyting: ASICS, OMnitracs, handsets. We don't break
it out. ("No, I can't do that Nick.")
Q Litigation expenses in G & A, is it expected to be ongoing?
A Yes.
Q Korea, how big is it as a percentage of handsets (exports to Korea)
A Fairly small.
Q What about the Koreans exporting. Will it have impact on QCOM pricing?
A Central & South America, we are recieving reports that it may be a
factor. Our markets are still low there so it isn't significant yet.
In USA, impact hasn't been large yet, but it's still early. We will
work to bring down our costs.
(Some question about pricing pressures.)
(Some not very well posed question about inventory, shut up already Nick.)
Q (Brian Modock, BT Alex Brown)
Q What percent of ASICS sales are into Korea? Going forward LGIC,
Smansung, and SK Telecom have attempted to design their own ASICS will
they be a customer in the future?
A. Samsung is the largest customer of ASICs (QPE is second, depending how
you count it.) Korea is a significant portion of ASIC sales. There
will be competition in the future in ASICS, but it's a long term
issue. Not near term.
A. Japan CDMA is starting up. Most of the manufaturers are buying QCOM
chips. It's a growing percentage of chip sales.
Q (Jeff Schlesinger, UBS Securities)
Q Is Kiasaro (Japanese CDMA handset manufacturer) a customer now?
A. Don't know about Kiasaro. There will be several manufacturers
coming out with handsets to support the Japanese market.
Q What is your expectation for ASP declines across handset portfolio
in 1998.
A. Overtime prices will come down because of competition among CDMA
suppliers and GSM marketplace. Average selling price will come down.
By end of calendar 1998 CDMA phone pricing will be awfully close to
GSM phones.
Q (Mark McKetchie, Montgomery Securities.)
Q. Will Koreans have to redesign handsets for US market?
A. Long answer, but basically "no".
A. Can't tell from ASICS shipped whether phones are for Korea or US.
Q (Jeff Lipton, Hambrecht and Quist)
Q. Infrastructure business. Did revenues and gross margins increase
this quarter?
A. We don't discuss this. "I can't tell you Jeff."
A. Revenue was a small improvement quarter to quarter.
Q (Ned Duises, Doug Lane?)
Q What about Vodafone announcement? What's impact for CDMA in europe?
A. It's a technical demonstration that tricks the switch into talking
to a CDMA air interface, even though the switch is for a GSM air
interface. There is also an economic study ongoing. Over time,
phones that work in both GSM and CDMA interfaces will become more
popular. Lot's more that I'm not typing.
Q. When will it impact the bottom line?
A. Two years at minimum. Many operators are looking at 3rd
generation. Most are looking at a system that includes spread
spectrum CDMA. We think that operators will see the advantage of
moving to something available sooner.
Q Jim Reynolds (Whitbush Morgan)
Q Is there any impact from other SE Asia countries besides Korea
delaying CDMA rollouts, even if it's not your equipment.
A. Yeah, it affects Taiwan and Indonesia. Phillipines is okay, we
have an order there.
A. Please watch the superbowl this Sunday from Qualcomm stadium. We
are not going to take a Green Bay/ Denver poll. |
