London Investor Day. November 13, 2006

Transcription

1 London Investor Day November 13, 2006

2 Safe Harbor Before we proceed with our presentation, we would like to point out that the following discussion will contain forward-looking statements from industry consultants, QUALCOMM, and others regarding industry trends, anticipated future results, potential market size, market shares, and other factors which inherently involve risks and uncertainties, including the rate of development, deployment and commercial acceptance of CDMA-based networks and technology and fluctuations in the demand for CDMA-based products, services or applications. These and other risks and uncertainties relating to QUALCOMM s business are outlined in detail in our most recent 10-Q and 10-K forms filed with the Securities and Exchange Commission. Please consult those documents for a more complete understanding of these risks and uncertainties. This presentation includes a discussion of "non-gaap financial measures" as that term is defined in Regulation G. The most directly comparable GAAP financial measures and information reconciling these non-gaap financial measures to the company's financial results prepared in accordance with GAAP have been included at the end of this presentation.

3 Steven R. Altman President, QUALCOMM

4 Intellectual Property Position ~5,100 Sep 06 Cum Foreign Patents ~25.8K ~1,500 ~4,100 ~1,900 Issued CUM U.S. Total Issued & Applied ~7.4K 6 Granted Granted and Applied Sep 05 Sep 06 Industry recognized patent portfolio essential for all 3G CDMA standards Patents essential / applicable to GSM/GPRS/Edge products Over 960 issued patents and pending patent applications for OFDM/OFDMA (Over 270 from Flarion) Technology and Standards leadership

5 QUALCOMM s Intellectual Property Strength QUALCOMM innovations for CDMA voice and data represent fundamental IP in any CDMA/WCDMA system and have been repeatedly improved upon by QUALCOMM as the CDMA standards have evolved WCDMA/HSPA+ standards path mirrors the CDMA/EV-DO path and is built upon QUALCOMM's core patented wireless data technologies Advanced data capabilities and features for GPRS/EDGE, WCDMA/HSPA+ and CDMA/EV-DO technology paths enabled by using QUALCOMM inventions In parallel, QUALCOMM has developed extensive expertise and IP in other technologies, including GSM, OFDMA and MIMO

6 The Value of QUALCOMM s Patent Portfolio Has Been Established By More than 135 Arms-Length Negotiated License Agreements (Examples of QUALCOMM licensees) NOKIA Standard Royalty Rate < 5% of the Wholesale Selling Price of a Complete CDMA/WCDMA Handset Approximately 90% of third party royalties are derived from subscriber unit sales

7 QUALCOMM Continues to Sign New CDMA2000/WCDMA Licenses All 135+ CDMA Cumulative Number of Licensees WCDMA

8 QUALCOMM s Licensed Portfolio Has Grown Substantially While Average Royalty per Handset ($) Has Declined Significantly ~5.1K Standard Rate Established H06 Cum US Patents Filed Royalty $ per Unit Standard royalty rate has not increased since 1991

9 Established Fair Value of QUALCOMM s Patent Portfolio Three Primary Elements of Consideration 1. Up-Front License Fee 2. Ongoing Royalties at Standard Rate 3. Royalty-Free Cross-License for QUALCOMM s Chips/Software Value of QUALCOMM s Patent Portfolio

10 How QUALCOMM's CDMA Licenses Generally Work A Licensee receives a license under either all of QC s patents or those that are issued or applied for within an agreed upon Capture Period. In the latter case, patents outside of the Capture Period are unlicensed Patents Issued or Applied Capture Period - Royalties are paid for the life of the patents licensed within the Capture Period Over the years, we have amended more than 25 of our Subscriber Unit License Agreements to extend the Capture Period without materially changing the royalty terms of those agreements Most of our licensees now have an unlimited forward Capture Period for our essential patents

11 WCDMA Subscriber Unit License Extensions 60+ WCDMA Subscriber Unit License Agreements Only 4 licensees WCDMA Subscriber Unit royalty obligations will expire during the next 10 years for the limited number of patents licensed under their Capture Period. These 4 licensees will require an extension. Nokia is one of the four Other than Nokia, the earliest to expire is in 2011 The vast majority of our WCDMA Subscriber Unit licensees, including some of the largest handset manufacturers, are licensed for all present and future essential QUALCOMM patents

12 Nokia License Negotiations Qualcomm has a license agreement with Nokia which in part expires on April 9, 2007 Discussions continue between Qualcomm and Nokia, but our negotiating team is not optimistic that the parties will reach agreement prior to April 2007 If the parties are not able to reach agreement by April of 2007, then under the terms of the current agreement the following will cease: Nokia's right to sell CDMA and WCDMA handsets under most of QUALCOMM's patents (including many essential patents) Nokia's contractual obligation to pay QUALCOMM royalties for certain products under the terms of the current agreement QUALCOMM's rights to sell components under Nokia's patents

13 Nokia Says Things Have Changed Since : Nokia enters into subscriber license 2001: Nokia signs new agreement covering all CDMA (including WCDMA): Agrees to continue to pay royalties to QUALCOMM for subscriber equipment at the same rates established by the terms of the original cross-license agreement in 1992 [July 3, 2001 press release] At Nokia s request, the agreement includes an option, expiring at the end of 2008, to extend the same royalty terms beyond April 2007 Our portfolio was worth these rates in 1992 and 2001

14 So what has changed since Nokia last agreed to our royalty rates? QUALCOMM s patent position has grown exponentially WCDMA is deployed in 133 networks / 55 countries, and rapidly growing * HSDPA launched in 65 networks / 39 countries * QUALCOMM has entered into more than 40 additional WCDMA license agreements at our standard rates (for a total of 70+ WCDMA licenses) Nokia s royalty payments to QUALCOMM have increased 9 fold on an annual basis, and continue to grow Nokia faces stiff competition from manufacturers enabled by QUALCOMM Nokia has tried but failed to establish a significant royalty bearing CDMA/WCDMA licensing program * Source: GSA - 3G Stats, October 10, 2006

15 Patent Portfolio Quality From Nokia s 3Q 2006 Earnings Conference Call: In addition to our vast quantity of patents, we also believe that the quality of our patent portfolio is second to none and thus stands up well to those of Qualcomm and others. - Rick Simonson Nokia, CFO Really? How many companies have taken royalty bearing CDMA or WCDMA licenses from Nokia? Who are they? Any major players? QUALCOMM Patent Portfolio Over 120 companies with royalty bearing CDMA2000 licenses (including Nokia) Over 70 companies with royalty bearing WCDMA licenses (including Nokia)

16 Nokia s Self-proclaimed WCDMA Patent Share in December 2005 Nokia Capital Market Days Presentation, Dec 2005 Nokia now attempts to value patent portfolio by simply counting alleged essential patents Nokia s self-proclaimed WCDMA patent share is approximately 13%

17 Nokia Doubled* its Self-proclaimed WCDMA Patent Share Based on Conclusions Drawn from the Goodman-Myers Report Nokia Capital Market Days Presentation, Dec 2005 Nokia IPR Landscape Presentation, Oct 2006 * Note: Share increased from ~13% to ~25%; percentages from Goodman-Myers 2005 Report.

18 Nokia s Frequently Quoted Goodman-Myers 2005 Report is not only Fundamentally Flawed but also Biased Funded Entirely by Nokia FRI hereby states that the published study authored by Drs. David Goodman and Robert Myers entitled 3G Cellular Standards and Patents was sponsored by the Nokia Corporation headquartered in Espoo, Finland. No other entity funded the study in any way. - Emmett Murtha President, Fairfield Resources, Inc.

19 Litigation Exposure Example of Revenue Exposure Magnitude Comparison If a WCDMA chip price is 10% that of the Handset and If Nokia WCDMA handsets sold are 2x QUALCOMM WCDMA chips sold then Nokia WCDMA revenue exposed is 20x QUALCOMM WCDMA revenue exposed WCDMA Mobile Handset WCDMA Wireless Chip Nokia Devices QCT MSMs Nokia QCT

20 Possible Litigation Result Scenarios Given the differences in WCDMA revenue exposure, the amount of any royalties payable by QUALCOMM to Nokia would not materially impact the royalty rate paid by Nokia to QUALCOMM Nokia Theoretical Rate Payable to QUALCOMM 6% 6% 6% 6% QUALCOMM Theoretical Rate Payable to Nokia 2.00% 1.50% 1.00% 0.50% Net Rate Received by QUALCOMM 5.90% 5.93% 5.95% 5.98% Even in the unlikely event that Nokia were to obtain as much as a 5% royalty on QUALCOMM s CDMA2000 chipset revenue, QUALCOMM would only need to obtain a 0.5% royalty on Nokia s GSM/GPRS/EDGE handset revenue to break-even * * Based on QUALCOMM s estimates of relevant Nokia and QUALCOMM revenue over the next 4 years

21 Who is Complaining to the European Commission that QUALCOMM is Dominant? Nokia Texas Instruments Ericsson Broadcom NEC Panasonic #1 Handset Supplier in the World #1 Wireless Chipset Supplier in the World #1 Infrastructure Supplier in the World

22 The Complaint: Message to the European Commission From October 28, 2005 Press Release by EC Complainants: The companies believe that Qualcomm s anticompetitive behaviour has harmful effects for the mobile telecommunications sector in Europe, as well as elsewhere, because carriers and consumers are facing higher prices and fewer choices.

23 Very Different Messages to Investors From Nokia s 3Q 2006 Earnings Conference Call: And maybe I just add to that final comment, that in fact in the third quarter, the top four margin contributors for us were wideband CDMA products so in that way, the market is there, and will continue to be there. - Olli-Pekka Kallasvuo Nokia President & CEO From Texas Instruments 4Q 2005 Earnings Conference Call: 3G revenue was the biggest factor driving our year-on-year growth. - Ron Slaymaker Texas Instruments, VP and Manager of IR From Ericsson s 2Q 2006 Earnings Conference Call: but the network as such is not more expensive to build in wideband CDMA technology than in GSM. How fast wideband CDMA will come I think is very much driven by where handset prices are, and they are quickly coming down. - Carl-Henric Svanberg Telefonaktiebolaget Ericsson, President & CEO

24 Update - Complaints to the European Commission QUALCOMM has submitted its response to the six complaints We expect the EC to continue its informal investigation for now This process can take years Complaints are factually inaccurate and without merit Status Elsewhere South Korea Japan

25 Broadcom Update U.S. District Court dismisses Broadcom s antitrust complaint ITC ALJ s interim decision finds QUALCOMM does not infringe 2 of 3 asserted Broadcom patents and recommends against downstream remedy ALJ does not recommend a ban on importation of QUALCOMM s chips, alone or in customers handsets QUALCOMM contests interim infringement finding on other patent and is seeking commission review Deadline for full commission decision is February 9, 2007 Other Patent Cases QUALCOMM s infringement action against Broadcom set for trial on January 9, 2007

26 Cumulative WCDMA Royalty Rate Myth: Cumulative royalties for WCDMA essential patents are between 25% to 30% of the handset price Reality: Cumulative royalties for WCDMA essential patents are not significantly higher than 5% of the selling price of handsets sold in Europe Large manufacturers typically trade essential patents royalty free with other large manufacturers, and have difficulty charging royalties to small manufacturers QUALCOMM chipset customers significantly reduce payments to other manufacturers due to pass through rights they receive from the use of QC chips

27 WiMax Royalties Myth: WiMax royalties will be zero, very low, or lower than 3G royalties Reality: There will be WiMax royalties and there is tremendous uncertainty about what the actual rate will be. We see no reason that the WiMax royalty will be less than 3G, and it may be significantly higher than 3G WiMax Forum conducted a study finding 1,550 WiMax related patents held by over 330 companies QUALCOMM has over 960 OFDM/OFDMA-related patents and applications, including many of such patents that are applicable to WiMax Who will play a role similar to QUALCOMM in 3G to enable smaller, new entrants to compete in the WiMax market?

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29 Summary QUALCOMM s licensing terms represent a fair return on our fundamental pioneering innovations and continuous improvements QUALCOMM s broad licensing program promotes vibrant competition within the industry QUALCOMM has not increased its standard royalty rate while its patent portfolio has grown substantially Licensing model reduces royalty stacking CDMA2000 WCDMA

30 Thank You!