Welcome to the Qualcomm third quarter fiscal 2015 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded July 22, 2015. The playback number for today's call is 855-859-2056. International callers, please dial 404-537-3406. The playback reservation number is 78002754. I would now like to turn the call over to Warren Kneeshaw, Vice President of Investor Relations. Mr. Kneeshaw, please go ahead.

Thank you and good afternoon, everyone. Today's call will include prepared remarks by Steve Mollenkopf and George Davis. In addition, Dr. Paul Jacobs, Derek Aberle, Cristiano Amon, Murthy Renduchintala, and Don Rosenberg will join the question-and-answer session. I would like to highlight that we issued two press releases today, our fiscal third quarter earnings release as well as a release announcing our strategic realignment plan. Both are available on our website along with associated slide presentations. Please visit our website at qualcomm.com to access these along with the audio broadcast that accompanies this call. During this conference call, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. As well, we will make forward-looking statements regarding future events or the future business or results of the company. Actual events or results could differ materially from those projected in the forward-looking statements. Please refer to our SEC filings, including our most recent 10-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's Chief Executive Officer, Steve Mollenkopf. Steven M. Mollenkopf - Chief Executive Officer & Director: Thanks, Warren, and thank you all for joining us. Today's call will have a different structure than prior calls given the significant announcements we made today. I will focus my remarks on the strategic realignment plan and some brief updates to the business and industry environment. George will then spend a few minutes reviewing our third quarter financial results and outlook for the remainder of the fiscal year. We will then take your questions. Today, we are announcing a broad package of initiatives designed to increase stockholder value and position the company for success in an ever-changing industry environment.…

Thank you, George. Operator, we are ready for questions.

Your first question comes from the line of Mike Walkley with Canaccord Genuity. Please go ahead.

Great, thank you. Steve and George, maybe you can just share with us a little more on the cost reductions. Can you help us think about the cadence to reach this run rate? Is it more linear through fiscal 2016, or is it more front-end loaded? And then could you talk on maybe any program that you might be shutting down? Thank you. George S. Davis - Chief Financial Officer & Executive Vice President: Yes. Hi, Mike. This is George. The cost savings will come in over time, as you would expect, throughout the year. We'll have some front loading, but we see costs actually based on the timing that's required for meeting the roadmap requirements and other factors spreading it out. But we expect the cost savings to be fully realized by the end of the year. And if you average out what we expect, we think about $600 million will come out in the fiscal year. Steven M. Mollenkopf - Chief Executive Officer & Director: Mike, this is Steve. Just very quickly on programs. Essentially what we're doing is we're going to protect our IP roadmaps. We are not going to withdraw from tiers. We're going to do some changes to how we're doing things and where we're putting employees, and obviously, we'll be out talking to customers and making sure they're comfortable with that as well. But I think you're looking at a case where we've had some significant growth and we're trying to get our cost structure in advance or trying to react to what's happening in the industry and get ahead of it, and I think we'll be healthier as a result. But we're going to definitely be continuing to invest in the roadmap.

Your next question comes from the line of Tim Long with BMO Capital Markets. Please go ahead.

Thank you. I just want to get back into the chip business here. I get the moving parts around units and market share, and it sounds like a little build this quarter and a little burn next quarter. But if I average the two of them and just divide by the TRDS units and compare that to the few quarters before that, it looks like about 10 full points of market share reduction. And at the same time, it looks like ASPs have come down and gross margins dip into 40% or maybe even lower for that segment. So is there something else going on competitively, other than the Samsung vertical integration and the channel build? It seems like we're at a step function down in market share above and beyond the high end at that one customer. Steven M. Mollenkopf - Chief Executive Officer & Director: Hi, Tim. If you look at the fourth quarter effects that we're talking about, they're effectively all premium tier. I know Derek may want to jump in, in a minute, on the TRDS point. So our design traction in the premium tier has not had any change. So we did cite that we had lower volumes at one vertical OEM, which you could describe it as share loss. But overall, it's really the fact that we have this concentrated environment and a very large impact on a number of our premium tier customers as a result of that. The other piece is we cited in China that certain handset models using our chipsets had lower demand than was forecasted going into the quarter.

Your next question comes from the line of Tavis McCourt with Raymond James. Please go ahead. Tavis C. McCourt - Raymond James & Associates, Inc.: Hey, thanks for taking my question. Steve, I was wondering if there's any way you could quantify the impact of the Snapdragon 810 issues, whether it's some of your customers choosing to use prior-generation chips or any expenses that you've had to incur that are abnormal related to that. And then secondly, I know you've looked at the separation in the past. Can you remind us the logic of having QTL and QCT together, at least the major points that came to a conclusion in the past to keep these together? Thanks. Steven M. Mollenkopf - Chief Executive Officer & Director: Sure. Why don't I ask George to handle the first one? I'll be happy to do the second part about separation. George S. Davis - Chief Financial Officer & Executive Vice President: Sure. In terms of the Snapdragon 810, I think probably the biggest single impact as we look at the year – first off, again, much like the fourth quarter, it's almost entirely attributable to changes in the premium tier and certainly the socket loss at a major vertical customer. And so that would typically have been a customer for the Snapdragon 810 for their new-generation devices. But it's also been a factor of the impacts that are happening in the premium tier overall, that we're seeing SKUs other than the leading SKUs that are not selling through at the levels that customers thought that are impacting some of our premium tier chipsets as well. So the only other thing from a cost standpoint is we have had some increased E&O and certainly some portion of Snapdragon 810 is a part of that. But overall, it's really been more a function of the significant shift in demand that we've seen throughout the year. Steven M. Mollenkopf - Chief Executive Officer & Director: And with regards to the separation, I think each individual time that we've looked at this, the circumstances were different. I think we've looked at it a number of times over the last decade and a half. Today, given that we're on the other side of the NDRC investigation, the structure of the industry, how we're looking at the market, I think it's time to take a fresh look, and I think that's what we're describing. There's no foregone conclusion either way here. But we want to make sure we do a thorough look to make sure that we're looking at all ways to drive shareholder value. One of the reasons that we look at our board composition, we do have some new eyes coming in that can help us look at that as well with some unique experience, so we're going to go through the process and we will update you shortly.

Your next question comes from the line of Blayne Curtis with Barclays. Please go ahead.

Hey, thanks for taking my question. George, I just wanted to clarify on the timing of the OpEx cuts. I thought I heard you say $600 million this year. I just want to make sure that it was – obviously, the fiscal year ends in September. When did those cuts start and how linear is that? And then I just wanted to better understand the inventory picture here. You mentioned 25 million units. Does that clean up this issue? And then I just wanted to – as you look into China, in terms of differentiating your – you said you're investing in your modem. I think one of the issues is that you haven't had the market move to carrier aggregation. Just any progress on moving the market ahead in terms of getting the carriers to actually roll out more carrier aggregation to create an advantage? George S. Davis - Chief Financial Officer & Executive Vice President: Hi, Blayne. This is George. On the $600 million, my point there is that we'll take $600 million of the $1.1 billion run rate out in fiscal 2016. I didn't mean to imply 2015, if that's how it came across. In terms of the inventory, we're really going to have to see how it plays out. We certainly are coming into the quarter with a significant overhang that we didn't forecast coming into the quarter. And so we will – I mean in the previous guide. So it will really depend on how our customer sell-through plays out in the quarter. Steven M. Mollenkopf - Chief Executive Officer & Director: With respect to the carrier aggregation question in China, China Telecom has already launched. It's starting to work its way through the design cycle and through the ecosystem. China Mobile is expected to launch at the end of this calendar year. And we think this will be a good dynamic and has been anticipated in our roadmap, as you may know. The other dynamic that's happening in China is just also is just the desire for the Chinese OEMs to be exporters, and that's also been a good trend for us. But we're looking forward to this carrier aggregation launch happening in China.

Your next question comes from the line of Kulbinder Garcha with Credit Suisse. Please go ahead. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC (Broker): Just a couple of questions. One just on clarification on the cost savings. All these are gross numbers. So are you guys going to be reinvesting some part? And I'm trying to figure out of the $1.1 billion how much will actually drop to the bottom line that might enhance profits over the longer term. Can you just speak about how you think about reinvestments? And then for Paul or for Steve, on the separation point of QTL and QCT, I just want to understand what the basic arguments are because in the sense that previously I was under the impression that there's joint R&D and there's clear synergy between it. What are the dyssynergies of separating these businesses now, especially I think one thing that is maybe very different versus the past is that the QTL business has achieved... George S. Davis - Chief Financial Officer & Executive Vice President: Kulbinder, we can barely hear you. Can you speak more closely to your... Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC (Broker): Sorry, let me start again. I was just saying that first of all on the cost savings side, how much of them will be reinvested? And furthermore, will some of the $1.1 billion, that's a gross number I think, how much drops to the bottom line, how should we think about that? And then on the separation point, can you please just give us the pros and cons of separating in the sense that right now QTL license is so much of the handset industry, it's almost achieved a large part of what you needed to do to be with QCT in the first place? Is now the right time to separate? What's the dyssynergy of separating, for example? I'm not asking for a number, but what are the arguments we should think about? Thanks. George S. Davis - Chief Financial Officer & Executive Vice President: Kulbinder, the cost reductions are meant to be reductions relative to the run rate that we had in 2015, so they are effectively net reductions in that sense. We'll certainly spend some more in certain areas of the company, but it's a pretty broad-based reduction, and the $1.1 billion is meant to be the amount of savings that are coming out pre-tax.

Kulbinder, this is Paul. We don't want to get into a lot of the details on separation arguments because we're going to do a fresh review, and there are really no preconceived notions right now. So I think it's best if we leave that situation as it stands and allow the new directors, the outside advisors to make some decisions on their own.

Your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead with your question. James E. Faucette - Morgan Stanley & Co. LLC: Thank you very much. I wanted to touch on the cost reductions. You've talked about OpEx reductions, and I am wondering how much improvement in cost of goods and gross margin, particularly on the chip business, may be attainable. I guess I'm interested in that simply because if I look at what you're targeting for a run rate exiting next fiscal year and apply that to just the QCT gross profit you put through this quarter, it would indicate a better operating margin then you've even targeted for next year. So I was just wondering how we should think about COGS and that as a cost reduction effort. And my second question is back on the demand. I guess I'm wondering how long you think it will take to work through this inventory because 25 million units roughly, as George outlined, is a huge proportion of the customers that you have in that high-end segment. And so I'm just wondering how long you think it will take to put through and get through that inventory adjustment? Thank you. George S. Davis - Chief Financial Officer & Executive Vice President: So most of the cost savings that we've talked about are coming out of OpEx, although there are engineering activities within cost of sales that are part of the overall $7.3 billion base that we've talked to. In terms of COGS, we've had, as you know, for some time a significant focus on improvements in our supply chain, including some long-term agreements, some prepayment activities. We've said that we expected to start to see the fruits of those things after 2015 and getting through the initial ramp of 20-nanometer. So most of the savings we're focusing on here are really OpEx related, but we will continue to look for opportunities to improve COGS. And we have not forecasted margin improvements as part of this exercise, but of course that's something that we'll be focused on as well. In terms of the demand, the 25 million is really the number of units that is below what we had anticipated in the fourth quarter, which accounts for really the bulk of the revenue and margin decline that we're seeing. It's not necessarily just the inventory balance. So it's not – as you know, the inventory, we can look into the channel and we can certainly clearly see significant build across that channel, but to know exactly how it will come out would be hard to forecast. We just know it's going to have a significant impact in the fourth quarter.

Your next question comes from the line of Timothy Arcuri with Cowen & Company. Please go ahead. Mr. Arcuri, please make sure that your line is not on mute. Mr. Arcuri, please make sure that your line has not been muted. Your next question comes from the line of Stacy Rasgon with Bernstein Research. Please go ahead. Stacy Aaron Rasgon - Sanford C. Bernstein & Co. LLC: Hi, guys. Thanks for taking my questions. My first question, I just wanted to clarify. It doesn't look like you took your global unit forecast for QTL for calendar year 2015 down. That's still sitting at 1.560 billion, which suggests you're not seeing any further degradation in the second half versus your prior outlook for the global market. I just wanted to verify that and ask you how confident you are that there are no impending headwinds building in the market itself in the second half of the year. And for my second question, on chipsets and the 16% margin guidance, I know you said you're not factoring in anything improving in the market. But at this point, why shouldn't we be factoring in the prospect for the market getting worse, given a lot of the issues that seem to be hitting here on margins in terms of competition and mix and everything else, at least to me, would appear to be structural rather than something that would be fully in your control?

Stacy, this is Derek. Why don't I take the first one? I think we looked across the market. There are obviously some puts and takes, a little softness we're seeing in the premium tier and a little bit slower early parts in China for the year. But as we look at the full year, we do think that will reaccelerate in China in particular. And the net-net of the overall reevaluation of the market we still feel confident in the prior forecast that we put out there, so we're not going to adjust it at this time. Steven M. Mollenkopf - Chief Executive Officer & Director: Stacy, on the planning assumptions that we used, we think that the second half gives you a pretty balanced view. We saw weak mix in the third quarter. We obviously see a very difficult environment in the fourth quarter. And really it's meant to be a planning assumption so that we can give some sense of where we see the company and QCT in particular on margins coming out at the end of next year. We believe there are certainly upsides and downsides to that planning assumption, but to try and forecast what that means for 2016 until we get closer is too difficult at this point. So we'll do that in November, and we'll have a better view whether we're in a weaker or stronger situation.

Your next question comes from the line of Timothy Arcuri with Cowen & Company. Please go ahead. Timothy M. Arcuri - Cowen & Co. LLC: Thank you. I had two. First of all, George, relative to the new QCT operating margin targets by the end of next year, when you say that that doesn't assume any improvement in the industry, does that mean to say that it assumes that QCT revenues stay in this low $3 billion per quarter range? George S. Davis - Chief Financial Officer & Executive Vice President: Tim, what we've said is that we're assuming that the conditions of the second half of fiscal 2015 continue. And so you can – but saying I'm not going to guide 2016 revenues.

Your next question comes from the line of Tal Liani with Bank of America. Please go ahead.

Hi, guys. You've said in the past that you may consider acquisitions in order to grow to the markets. The fact that there is a business change as well as a big restructuring plan and you need to deal with all these issues, does it mean that they're going to put any M&A aspirations on the back burner more and focus internally on the other things you announced? So that's question number one. And question number two, when I calculate the implied price for MSM, what are the puts and takes this quarter when it comes to the price? I'm trying to reconcile your verbal comments with the price change. That is not very different from what we expected. So what are the puts and takes there? And then what's your best guess – again, not in terms of numbers, but in terms of the drivers – what's your best guess for what's going to impact this implied price in the coming quarters? Thanks. Steven M. Mollenkopf - Chief Executive Officer & Director: Tal, this is Steve. I'll give my answer to the first one. Perhaps my colleagues can jump in on the second one. With regards to M&A, we obviously have CSR outstanding and getting to the point soon here where we hope to be talking about that as something that influences earnings, obviously something that's accretive to our fiscal year 2016 plan. I don't think we've made a change in terms of our M&A stance. I will say that when we look at the management team and what we're focused on, we're very focused on delivering this cost plan. I think right now, we look at that and we say that really positions the business in a way that will really benefit the shareholders and drive value. So that's what we're focused on. George S. Davis - Chief Financial Officer & Executive Vice President: Tal, on the revenue per MSM in the third quarter, you're right. It wasn't terribly different than expectations as the quarter pretty much on an operating basis came in where we thought it would. But you did see higher MSMs. Those are really part of the story of us having stronger than expected share in the low tier in China in the third quarter. That just created a little bit weaker mix. We're actually seeing some of that. As we said, we expect to see lower low-tier volumes in China in Q4. That was already in our forecast in our prior guidance. So we actually get a little bit of mix benefit in the fourth quarter even though overall it's not as strong as we would have thought because we had a much better premium tier mix in our original expectations.

Your next question comes from the line of Rod Hall with JPMorgan. Please go ahead.

Hi, guys. Thanks for taking my questions. So I just had two. I guess the first one is back to the MSM chip unit guidance. Even once you reconcile this back, the difference between the guidance and last quarter or this quarter you just reported, we're still flat quarter on quarter, which is abnormal seasonality. Typically in fiscal Q4, you see unit volumes on MSM up. And it doesn't sound like, even after all the reconciliation, you're expecting that. So I just wanted to just ask you guys if you could talk a little bit about why the seasonality is somewhat abnormal this year. Is it a demand issue? What's going on with seasonality once you make all the adjustments? And then the second thing I want to ask you is maybe just a little bit longer-term question, which is we know about the vertical integration into one ODM. I'm just curious. What probability, Steve, would you assign to further vertical integration, especially up in the high tier? Thanks. George S. Davis - Chief Financial Officer & Executive Vice President: So on the seasonality, again, I think the effects that we're seeing in the marketplace of concentration and again, as we said, the pullback in unit share that we're seeing in the low tier in China, I think those things dominate our view of the MSM situation I think much more than the seasonality adjustment would explain. Steven M. Mollenkopf - Chief Executive Officer & Director: This is Steve. My view on the vertical aspect, I would argue that what you're seeing was probably more of a product cycle issue versus a general trend. The overall difficulty of delivering MSMs or delivering something like our MSM is actually getting harder. And the same dynamics, particularly with concentration in the industry, the same dynamics that occurred over the last decade and a half to people like Nokia or Motorola with a vertical strategy, I think still happen with chipsets today. So I think I don't see that as a trend that's going forward now. Clearly with our planning assumptions for planning our OpEx, we wanted to put the business in a position where it is less susceptible to those individual design wins, which I think is part of our cost program, but I think it's going to get harder and harder. The other thing I would note too is that feedback from customers and particularly customers who you may be worried about with respect to vertical aspirations have been strong with respect to our Snapdragon 820 and other designs. So I feel like our roadmap is getting a warm reception broadly, and we just have to continue develop on it and get our cost structure in the right spot.

Your next question comes from the line of Mark Sue with RBC Capital Markets. Please go ahead.

Thank you, gentlemen. I understand the OpEx issue and also the potential split, maybe some consideration for the issue related to the maturing smartphone market and the change, possibly permanent change, in your customers who want to do their own chipsets. So perhaps how Qualcomm can quickly move into new markets to find a home for new chipsets, and are they large enough to replace the substantive smartphone market? Steven M. Mollenkopf - Chief Executive Officer & Director: This is Steve. I think our challenges are – the smartphone and the handset business continues to be an attractive market. I think we need to get our profitability up in that opportunity, which is why we're taking these changes to our cost structure and get ahead of what we see happening in the market. But equally, I think there's significant growth available to us as we leverage the IP roadmap that you develop in smartphone SoCs and take that and really fan that out into a number of new markets. If you look at what's happening across the board from every major consumer electronics industry, they're all trying to embrace the smartphone, and part of what we are doing is moving resources off of the phone space into supporting those new markets. So if we can boost profitability in our home market and take opportunity of these new or take advantage of these new opportunities in adjacent markets, I think we'll have the business back on a good track for growth.

Your next question comes from the line of David Wong with Wells Fargo. Please go ahead.

Thank you very much. The cost cuts that you are contemplating for QCT, do they have any effect on the number of foundries that you might consider working with or on future technologies that you might be putting chips currently in design? Steven M. Mollenkopf - Chief Executive Officer & Director: This is Steve. No, really we're trying to protect our IP roadmap. And obviously with the scale that we have, getting changes and making sure that we're optimal from the supply chain point of view, particularly COGS, is very important in terms of driving value. So we're continuing to protect those opportunities.

Your next question comes from the line of Brett Simpson with Arete Research. Please go ahead.

Thanks very much. You mentioned, Steve, that you won't be withdrawing from certain tiers in QCT. But can you share with us with your business activities on the low end consistently make money as we continue to hear about aggressive price cuts in this segment, particularly in the last couple of quarters? So just can you give your perspective there? And, George, just following on from the last question, on COGS savings in QCT, that wasn't mentioned as part of the cost review. I'm just wondering whether you think there's an opportunity to improve gross margins in QCT since your scale is way more than any of your rivals and you are diversifying with different foundries. Should we expect any savings at the COGS line? Thank you. George S. Davis - Chief Financial Officer & Executive Vice President: So let me take the COGS savings question first. We have had, like I said previously, we've had a keen focus on leveraging our scale throughout the industry to make sure that we have competition for the volumes among our foundry partners, and we believe we have a very good roadmap to maximize the cost of our use of that supply chain over time. And we had cited as part of the reason we would be off on margins at the start of this year that we are really coming out of a situation where we had, at 20-nanometer, a less than optimal COGS situation. That being said, volume matters, and we've seen some of the issues that came with lower than expected volumes, so we're not quite seeing some of the benefits. As volume recovers, we would expect to see that. But the basic structural changes that we need to make in terms of working with a broad range of very…

Your next question comes from the line of Edward Snyder with Charter Equity Research. Please go ahead.

Thank you very much. There have been several mentions of a more focused look at expanding into markets that are already in prices you have or very closely adjacent products you are going to develop. It seems to make sense. Where does that put you on the RF side of the business? I know RF360 has been a big initiative for you for the last several years, and you're still working on that. Does that change your view of moving into that vertical? And then in terms of investment in QTL, I know that you put out a notice about more regulatory action from Europe. What's your thinking now on the settlement you had in China spreading to other geographies? Although the laws are different, it seems like there's still a lot of interest from other regulatory agencies in maybe changing Qualcomm's licensing agreements. If you can comment on that, I'd appreciate it. Thank you. Steven M. Mollenkopf - Chief Executive Officer & Director: Ed, this is Steve. The opportunity to grow content in the device we think still exists, particularly in an environment where the LTE band proliferation continues to be very wide. We're actually quite pleased with the RF360. It's still early days. I think we have something like 350 OEM designs already on the parts, and we think that that will build over time as we start to add more capability. But the environment for growing content in the phone we still think is a good opportunity for us.

Ed, this is Derek. On the regulatory question, actually the European Union investigations that were I think announced this last week or so, really it's just a new phase of the proceeding, and it's still relatively early in their process. But it's focused really not on the licensing program of the company. It's really focused on chipset pricing and rebate type agreements. So again, as we look at it, we've commented on this quite a bit over the last couple of calls. We do believe that the result in China is unique to China. And although we could very well have other regulatory proceedings to deal with, we're very confident in our ability to defend against those.

Your next question comes from the line of Srini Pajjuri with CLSA Securities. Please go ahead.

Thank you, just a question on the China comment. You said it's taking a little longer than expected to improve the collections. I'm just curious. What actions, if any, can you take locally in China to improve collections going forward?

This is Derek. Actually, there are a couple of drivers here. As we said coming out of the resolution with NDRC, we were going to need to go through this process of offering new terms to our licensees. We're getting pretty far along in that process. We've made progress. But as we noted last time, this is going to take some time, and it's a bit hard to predict. We've given you our best view on the timing of when we'll be able to conclude agreements. But some of these things take a bit longer than others, and so that's going to probably have some impact. We now think that just pushing some units out of our fiscal year into next year that we thought we may be able to get earlier, but again, it's not a change in our view as to whether we'll be able to ultimately collect royalties on those units. It's just more a question of timing. So really the process is to get these new agreements in place and get companies that were previously unlicensed for three-mode devices signed up. And again, we're going through that process now and have companies that have signed agreements and are reporting royalties to us now on three-mode, but we still have some work to do there. And then beyond that, it's a lot of the things we've talked about in the past in terms of ratcheting up the level of auditing and compliance activities in China. And ultimately, if necessary, which we always try to do everything we can to avoid this, but if we have to, enforcing the terms of our contracts that are in place there. So we're going through that process now, and we'll be updating you as we continue to progress there.

This ends our allotted time for questions and answers. Mr. Mollenkopf, do you have anything further to add before adjourning the call? Steven M. Mollenkopf - Chief Executive Officer & Director: I'd like to thank everyone for being on the call today. We are excited about our growth prospects, and the major initiatives announced today will put us in an even better position to lead the next wave of growth for the company and our industry and enhance value for our stockholders. Implementation of the plan is underway, and I look forward to updating you on our progress on a regular basis.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.