Welcome to the QUALCOMM First Quarter Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded January 24, 2007. The playback number for today's call is 1800-642-1687. International callers please dial 1706-645-9291. The playback reservation number is 4455-735. I would now like to turn the call over to John Gilbert, Vice President of Investor Relations. Please go ahead, sir.

Thank you and good afternoon. Today's call will include prepared remarks by Dr. Paul Jacobs, Steve Altman, Dr. Sanjay Jha and Bill Keitel. An Internet presentation and audio broadcast accompanies this call, and you can access it by visiting www.qualcomm.com. During this conference call, if we use any non-GAAP financial measures as defined by the SEC in Regulation G, you can find the required reconciliations to GAAP on our website. I would also direct you to our 10-Q and earnings release which were filed and furnished respectively, with the SEC today and are available on our website. We may make forward-looking statements relating to our expectations and other future events that may differ materially from QUALCOMM's actual results. Please review our SEC filings for a detailed presentation of each of our businesses and associated risks and other important factors that may cause our actual results to differ from these forward-looking statements. And now, it is my pleasure to introduce QUALCOMM's CEO, Dr. Paul Jacobs.Paul Jacobs: Thank you, John and good afternoon everyone. Let me begin by thanking the employees of QUALCOMM for their continued focus on innovation, execution and partnership. I am pleased to report this effort has resulted in many positive achievements for the industry, our partners and our business, as the worldwide number of 3G CDMA based networks and subscribers continues to grow. I would like to congratulate Sanjay Jha on his well deserve promotion to Chief Operating Officer. You all know Sanjay well from his great work in QCT over the years, and his promotion is a recognition of the fact, that he continues to drive our largest division to operate with world class performance and that he will take an increasing role in our new technology development. We are also very pleased to have Len Lauer…

Thanks Paul and good afternoon everyone. We continue to see an orchestrated attack on our enabling business model by a small consortium of companies, that refer to themselves as Project Stockholm. As you all know, the Project Stockholm Group consists of six companies, including Nokia, Ericsson and TI, the number one global suppliers of wireless handsets, infrastructure and chipsets, respectively. One of the major objectives of Project Stockholm is to try and decrease the royalties that some of the group became obligated to pay us, when they voluntarily signed their agreements with us. We believe, however that their attack is motivated by more than just a desire to reduce the royalties they pay. Unlike the Project Stockholm members, QUALCOMM makes our innovation available to all of our licensees, who in turn use our innovations to compete effectively with the members of Project Stockholm. The Project Stockholm companies hope to reduce the royalty revenue that we collect and thereby to reduce the funds available to us for reinvestment in creating new innovations that we share with their competitors. Given the objectives of the members of the Project Stockholm, the concessions that they are demanding in order to resolve their claims and the impact to our business where do we -- where we to accept their demands, it is very clear to us that it is in our best interest to continue to vigorously defend our business against these attacks and assert our own rights. Mounting of vigorous defense and asserting counter claims is expensive, but necessary. As Bill will discuss in more detail, we are significantly increasing our estimate of the legal expenses for the year. Litigation costs by their nature can be difficult to predict accurately. Predicting litigation costs in our current environment is even more challenging, given the large…

Thank you, Steve. QCT had a very good start to fiscal 2007. I would like review our results with you. In the first fiscal quarter, QCT generated revenue of $1.23 billion this was our third consecutive quarter of record revenue, year-over-year this represents growth of 19%. We shipped approximately 59 million MSM chipsets in the first fiscal quarter and as Paul noted this is the sixth consecutive record setting quarter for our shipment. Compared to the previous quarter, this represents growth of 5% and a year-over-year growth of 26%. QCT record performance can be partially attributed to the doubling of CDMA2000 and EV-DO chipset shipments year-over-year. This was driven by increased demand in North America and Asia for our products that enable devices which deliver mobile broadband services. We also enjoyed strong growth and demand for our CDMA2000 1X product led by the emerging market. Along with the continued growth in CDMA2000 1X we also saw continued growth in diversification of our key customer base. UMTS chipset shipments increased 66% year-over-year, we anticipate continued strong growth due imparts to the strong portfolio of our current customers as going into the new year based on their HSDPA and HSUPA leadership and to the expansion of our relationship with Motorola to collaborate with us on UMTS. Motorola's approval of MSM's for use in the UMTS devices was first announced this past November and our teams are working closely together to bring commercial products to the market. With 140% year-over-year increase QCT continues to set record numbers of CDMA2000 cell site-to-modem voice equivalent channel element shipment indicating that CDMA2000 EV-DO and EV-DO Revision A networks have been deployed across the world at an accelerating rate. The growth in demand for channel elements is also a leading indicator of future increase and demand for…

Thank you Sanjay and good afternoon everyone. We are pleased to reaffirm our calendar year 2007 CDMA-based handset forecast, as well as our most recent fiscal 2007 revenue and pro forma earnings per share guidance, reflecting continued healthy demand for CDMA-based products and services around the world. Our guidance includes the estimated $0.04 dilution from our recently announced acquisitions of Airgo and the Bluetooth business of RFMD. I'll now highlight a number of key items in our first quarter fiscal 2007 results. GAAP earnings for the first quarter fiscal 2007 was $0.38 per diluted share including $0.05 in estimated share-based compensation, $0.02 in tax benefits related to prior years, and a $0.01 loss attributable to QSI. Revenues increased 16% year-over-year, to $2.02 billion, and pro forma earnings per diluted share increased 10% year-over-year to $0.43 per share. QCT achieved new records for revenues in MSM shipments. Year-over-year revenues increased 19% to $1.23 billion and MSM shipments increased 26% to 59 million units. QCT's operating margin was 26%, down sequentially as we continue to grow R&D investments in new chip development, as well as increased legal expenses. QTL reported revenues of $600 million this quarter. We are deferring royalty revenue recognition for our licensee, Pantech. And for the foreseeable future we will record revenues on a cash basis, while they work through their debt restructuring plans. Our licensees reported approximately 76 million new handset units shipped in the September quarter. We estimate the average selling price was approximately $210 per handset, with WCDMA royalties representing approximately 44% of reported royalties. We believe WCDMA unit sales in Japan decreased sequentially as subscribers reduced new phone upgrades in advance of number portability. Estimated handset shipments increased sequentially for North America, Europe, South Korea and India during the September quarter. Inline with our expectation,…

Thank you, Bill. Before we go into our question-and-answer session, I would like to remind our participants that our goal is to address as many questions as possible before we run out of time on this call. Therefore, I would like to ask our participants to limit their questions to one per caller. Operator, we are ready for questions.

(Operator Instructions). Your first question comes from the line of Ittai Kidron.

Hi guys, couple of question from me. First, with regards to the chipset business. Can you give us little bit more color on how should we think about ASP erosion, given the mix of handsets and the continued decline in introduction of lowest cost or lower price WCDMA handsets, and second there was some discussion in the past about possibly you and Nokia are going into arbitration, is that a possibility?

This is Sanjay, may be I could take the chipset ASP question. We anticipate year-over-year less than 5% decline in ASP of our chipsets. This is driven by two factors, one, increase in EV-DO and DO Revision A and wideband CDMA chipsets. And that is offset by increase in low-end CDMA2000 and also now increasingly low-end wideband CDMA chipset shipment. Both of these low-end products are clearly in our strategic interest, and we are very motivated to drive both of those to marketplaces. But, a combination of these factors lead to around 5% or actually less than 5% decline in our ASP year-over-year.

As for the arbitration comment, this is Paul, since I was quoted on that. What actually happened in that interview was, I told the reporter that I thought the negotiations were not going anywhere, and therefore it seemed likely that some external event, whether it was deadlines or some judicial thing or some other external event might be the impetus that would cause things to move along. The reporter herself took that to be arbitration, although I specifically told her that, that wasn't the case necessarily and so that's where that came from.

Your next question comes from the line of Ehud Gelblum.

Hi thank you very much. Quick question vis-à-vis the December 21st announcement and the restatement of that numbers, of your expectations. Bill, the difference between when -- then when you said the high you would end up with revenue in the high-end of the range that was because of the 2.07 -- 2.08 and today we end up with 2.02. You had already known that Pantech would not be in the numbers and my guess is that some of the acquisitions you have made and some of the share shifts were probably known to you. Can you give us a sense as to what the differences were between what you thought on December 21 in terms of revenue and how we ended up today. And also if you could just give us little explanation in the interest income line which seemed very strong this quarter and partially down just a little bit?

Sure Ehud, on your first point on the new segment results, of course, it had no impact on our revenue. At December -- mid-December, I did think we are going to come at the high end; we came in slightly lower than that. There were few transactions that could have finished up the year-end that were a little less favorable than what I had hoped for. But nonetheless, I think it was a good revenue quarter, a strong quarter at that. On our investment income line, the team has been doing a good job there and quite notable as well, Cap gains are tax free to QUALCOMM because we are still consuming a capital loss carry forward. So I think the monies are prudently invested, but invested well nonetheless and so we are showing good returns there.

Your next question comes from the line of John Bucher.

Thank you. In the 10-Q you've mentioned the legal and bad debt expenses for the 82% operating margin in QTL, and then Bill, in your commentary you also mentioned that there were some expenses associated with the obtainment of some pass-through rights and some MDS. I am just wondering if there is anyway you can quantify or give us a feel for what percentage Pantech was versus the other things that depressed the operating margins and since you indicated that for fiscal 2007, you are expecting 86% margins, which of those are likely to be going away? Thank you.

Sure John. So -- of the factors I mentioned, there were a number that are contra revenue. Pantech was contra revenue, doing market development with customer is contra revenue and then there was a transaction, we mentioned where we acquired pass-through rights, that accounting will extend out over many years, but for the quarter alone a piece of that was contra revenue. Then the bad debt expense and extra legal expenses, those obviously are in the operating costs. The greater impact to the margins was the contra revenues as a whole. At 83% for the quarter I am expecting a good rebound into the second quarter and holding that pretty well throughout the year.

Your next question comes from the line of Maynard Um.

Hi, thank you. If I could, kind of a bigger picture for Sanjay. When you look at what's happening in the industry and the consolidation around the top five handset vendors. How do you feel about the level of competition on the chipset side? Do you expect to see further consolidation here and do you think that might ease ASP or any margin pressure in your business? Thanks.

Maynard, we certainly see the consolidation occurring in the handset space right now and my expectation, as I have indicated before is most likely there will be between 3 and 4 -- 3 or 5 chipset manufacturers, who will have the ability going forward to invest in R&D at the level that's necessary to stay competitive. And as you know today, I believe that I have counted 20 competitors and more are joining the queue rather than getting out. There has, of course, been some consolidation already, but as I say again more people are joining the 3G chipset supplier queue, than perhaps in the long-term can be justified. I see that there has to be consolidation, how that consolidation occurs is just not clear at the moment and I think that's one of the uncertainties going forward in wideband CDMA chipset business. We have indicated that we will participate if we [thought] its meaningful for us in that consolidation process. But I would also say that we view ourselves as one of the better positioned companies in terms of various different assets from a point of view of RF, power management, baseband, the protocol stack, multimedia capability, DSP capability, 3D graphics capability, processor capability. We view ourselves as well positioned with all the assets necessary to compete in that marketplace. So I think that the consolidation occurs, we will participate if it is meaningful for us.

Your next question comes from the line of Paul Sagawa.

Hi, thanks guys. So far, over the course of the last month, we have had a decidedly mixed commentary of the WCDMA market with one of your major competitors being quite cautious about their chipset WCDMA chipset business. Motorola, suggesting that the strength in 3G, in cheap 3G started to bud against its higher price 2G offerings. You guys actually sort of have, sort of a clean picture on the attractive WCDMA market that's growing. And I was just sort of curious as to how you place your generally positive forecast about the progression of the market into 2007 with more cautious tone sounded by Texan and Motorola's suggestion that perhaps the price points in WCDMA are coming down very quickly?

Paul, its Bill Keitel. I'll try and answer your question. Relative to one company's reports of weakness, actually I think what we are seeing in the market sinks pretty well with that, where in the case of Japan, the three major carriers there are having different results and quarter-to-quarter of different results as well. We saw a slowdown in WCDMA in the September quarter. We are expecting a good pickup in the December quarter. So I think that correlates with another company's report, but obviously I don't think that other company is selling into the CDMA2000 side, which has continued to do well for QUALCOMM. So that's in one respect, and then elsewhere on the -- you are saying that the price is coming down. I think Sanjay's business in many respects is leading that charge, and I think we are benefiting nicely from it. So we play across all ends of that market. I think other players are either just in the low-end or just in the high-end, and so their results can may be fluctuate a bit more than what ours will.

May be if I can -- Bill add a point to that one. One, is that we are actually seeing a positive order flow for us in UMTS in this quarter, and that generally for us means that some of our customers had good fourth quarter, because this is a seasonally variable quarter depending very strongly and how the sell-through for our customers played out in December quarter. So being able to see a better order flow this quarter is a positive sign for us. So, that is one reason why we are optimistic, both in CDMA2000 driven by DO and wideband CDMA. And the other thing I would say is that, the price coming down as Bill mentioned, with initiatives like GSMA and 3G for all, which is beginning to reset the price point for the low-end of 3G, and lots of carriers now are saying that from the middle and the high-end, they really want 3G phones rather than 2G phones. I think both of those two things, we see as positive trends and we feel we'll benefit from that.

Your next question comes from the line of Tim Luke.

Thanks. Bill, just as a clarification, it looked like in the other income line you had a gain on the investments, 63 million that took it up sequentially from 114 to 204. Can you just clarify where that gain came from, that would be helpful? And may be in addition as well -- in changing the accounting for royalty payments for QCT to QTL. Could you just give us what the revenues on the operating margin would have been for the segment just as once in this quarter, if you haven't changed them and you would just draw comparisons in -- for this quarter using the [authorized] system? Just what the QTL revenue would have been and the same for QCT?

Tim, I think I can answer that second one pretty succinctly.

Thanks.

Without that -- had we not -- the intercompany accounting change we made brought down QCT's -- sorry increased QCT's operating margin about 400 basis points, and it decreased QTL's operating margin about a 100 basis points.

And was it about -- what sort of revenue range would it have been and just for that [matter to work]?

You will find all those numbers by quarter going back and by year going back on our website.

Okay.

So there is a very thorough listing of a restated history for anybody that wants it on our website.

Very helpful.

And then on the investment income line, yes you will find it and it is in our queue as always $63 million of capital gains, up nicely from approximately $30 million the quarter before, and a couple of quarters before that was about $35 million. So I think many people are aware, markets have been going strongly and we are trying -- working very hard to use up our capital loss carry forward before it expires.

Your next question comes in the line of Tal Liani.

Hi. I have a clarification and a question. The clarification is something you said, Bill, about contra revenues. If I looked at the implied royalty rates, which is just your reported revenues divided by ASP times unit shipment, which you provided all these numbers. Then your implied royalty revenues -- sorry, your implied royalty rate went down from 4.6% to 3.7% in the last four quarters. That's a substantial decline. So I assume that royalty rate itself didn't go down, you probably have a lot of marketing participation programs or something like it that explain it and for this quarter alone for example which in excess of $100 million, [to adjust] its difference. So would you mind to clarify this, what are you doing there that sort of reduces the rate, that's my question. Thank you.

Sure. Yeah, I looked at how a lot of people calculate it and using our ASP information and our units and then using our royalty, and always there is a report that I expect most of you would have modeled about a 4.1% royalty rate last quarter and a 3.6% this quarter, so about a 50 basis point decline. First let me say, in no case have we reduced our royalty rates. We have said that last quarter and the quarter before that and that absolutely continues to be the case. So, the factors, as I mentioned are, number one Pantech, we are continuing to report the units and continue to report the ASP's as they give it to us, but I am not recognizing the revenue. We will recognize that revenue on a cash basis, as we receive it. Number two, you have a mix of licensees -- the mix of what each licensee sells every quarter can change. There are slight differences in the royalty rates, one that we have noted publicly, some years ago it was Ericsson, negotiated a favorable royalty rate when they purchased our infrastructure business and I think everybody knows that the Sony Ericsson, business seems to be doing quite well here of late. And then as well I mentioned the deal where we acquired, I think very valuable pass-through rights and as a part of that transaction, some of the accounting fell into Q1 contra revenue to QTL.

Your next question comes from the line of Brian Modoff.

Yeah, a couple of questions. First on those pass-through rights, can you talk about perhaps where you got them from and what kind of patents they are? And then Sanjay, you mentioned middle and high-end -- some of the carriers were wanting perhaps 3G phones rather than EDGE phones. Can you kind of talk about how your chipsets are helping to enable that, specifically when you have got some single chip architectures coming in Q3, what does that do to your margins, what does that do in terms of helping them on a [triple-bond] cast on their phones and where do you think your market share is in WCDMA chipsets at this point?

Let me speak a little bit about the pass-through rights we acquired. I can't say too much because we have confidentiality requirements, but I will say that they consist of patents that these companies claim are essential to WCDMA, essential to CDMA2000 and essential to GSM and they have a fairly significant portfolio and they have licensed quite a few companies under those patents.

Brian, the answer to your question about 3G replacing 2G in mid to high-end, I think there are two things that are going on, which are interesting; one is a significant number of carriers have set a fairly low price point above which they will only buy 3G and we believe that our MSM6245 and the single-chip RF transceiver chipsets will help drive that kind of price points and those kind of requirements from the carrier. Second thing that's going on is that lot of OEM's are now designing handsets based on wideband CDMA EDGE products, but are actually shipping it to carriers who have not even deployed wideband CDMA as EDGE-only products. There comes a point for them where it's not worth their designing EDGE phone, but rather designing a middle to high-end WEDGE -- Wideband CDMA EDGE device and shipping it to some markets as an EDGE device, even though those carriers have not deployed wideband CDMA. To the last point about our single-chip solution, I think that, that further drives these strengths, we expect that the price point at which carriers start to mandate 3G handsets as a requirement, 3G capability as a requirement will begin to come down and our single chip solution will enable that to come down still further, and I think that increasing voice capacity and increasing data revenue, you heard Vodafone talks about 29% increase in their data revenues. I think these two factors combine in driving this strength.

You next question comes from the line of Tim Long.

Thank you. Just a question Bill if I could on your unit expectations of the December quarter, 82 to 86, looks like about 8% to 13% growth sequentially. A lot of language about how strong India --

Tim, are you still there?

Ladies and gentlemen we have reached the time allotted for questions and answers. Mr. Jacobs are there any closing remarks.

Thanks. I think we are going to take one more question. Okay. Let's just wrap it up we were trying to get one last question in because, the last question disconnected. But, instead of waiting let me just wrap this up. So, just wanted to say we are very happy with the great quarter we just had and looking forward, I am extremely excited about the quarter we are in right now, with our MediaFLO launch coming up, demonstration of new technology with our pre-UMB trials. We have some new products, new partnerships. Obviously, we continue to fight these very expensive legal battles. But I have to say that I am very pleased with the results today, and of course we feel very strongly that our business model is the right business model for the industry that we reinvest to drive the industry forward with new and exciting applications and technologies and innovations working with all of our partners. And we will not be distracted by this. This business continues to execute extremely well, and that's what continues to keep us in a leadership position. So, thank you very much, and hope you will look forward to hearing about what we have in store for you next quarter.

This concludes the QUALCOMM first quarter conference call. We thank you for your participation. You may disconnect at this time.