Operator: Ladies and gentlemen, thank you for standing by. Welcome to the QUALCOMM Fourth Quarter and Fiscal 2013 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 November 6, 2013. The playback number for today's call is 855-859-2056. International callers please dial 404-537-3406. The playback reservation number is 87075999.
I would now like to turn the call over to Warren Kneeshaw, Vice President of Investor Relations. Mr. Kneeshaw, please go ahead.
Warren Kneeshaw - VP, IR: Thank you Brent, and good afternoon, everyone. Today's call will include prepared remarks by Dr. Paul Jacobs; Steve Mollenkopf and George Davis. In addition, Derek Aberle and Don Rosenberg will join the question-and-answer session. An Internet presentation and audio broadcast is accompanying this call and you can access them by visiting our website at www.qualcomm.com.
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. I'd also like to direct you to our 10-K and earnings release, which were filed and furnished respectively with the SEC today and are available on our website.
During this conference call, 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-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements.
I'd like to remind our listeners that our New York Analyst Day will be held on Wednesday, November 20. To attend in person, you must be a financial analysts or institutional investor. The analyst meeting will be webcast for those of you unable to attend in person. Consistent with past Analyst Days, we will be providing guidance disclosures at that time that are in addition to those provided in our earnings release on this call.
Now, some comments from QUALCOMM's Chairman and Chief Executive Officer, Dr. Paul Jacobs.
Dr. Paul E. Jacobs - Chairman and CEO: Thank you, Warren and good afternoon, everyone. I'm very pleased with QUALCOMM's performance this past fiscal year. We delivered record revenues of $25 billion, up 30% versus last year. Earnings, total reported device sales, and MSM chipset shipments also set records as our technologies continue to underpin the global growth of Wireless data and our semiconductor solutions are used across the industry's flagship smartphones. We increased our dividend for the 11th consecutive year and returned approximately $6.7 billion to the stockholders in the form of buybacks and cash dividends in fiscal year 2013.
Looking at the fourth fiscal quarter, we also delivered record revenues, which came in near the high-end of our guidance, due to the strength in both our Licensing and Semiconductor businesses. Earnings would have been well ahead of guidance, if not for a legal charge we recorded in the fourth quarter. We're pursuing post-trial motions in the District Court and we'll pursue all options on appeal as necessary and remain confident in our position.
We made excellent strategic and operational progress this year. We delivered our industry-leading third-generation 3G LTE multimode modem, grew our share of semiconductor content in a wide array of devices and expanded our Licensing program. Further, our strategy to support the LTE TDD migration path for the wireless operators in India was successfully executed. We just completed the final step in transferring full ownership of the Indian BWA entity that holds the 4G spectrum we won in the 2010 spectrum auction to Bharti.
We also announced the planned divesture of Omnitracs. As you know, Omnitracs was one of our first businesses and helped fund our investment in CDMA. I'd really like to thank all the employees, suppliers and customers who helped contribute to the more than 25 years success of the business. We really look forward to hearing about your future accomplishments. We expect that transaction to be completed during our first fiscal quarter of 2014. While we haven't included the estimated $0.22 to $0.25 per share gain on the sale in either our first fiscal quarter or annual guidance.
Looking at the fiscal 2014, we are expecting solid growth but at a lower rate than what we delivered in the last few years. This is partially due to the exceptionally strong year we just completed which included share gains and content share gains in QCT. In fiscal 2014 we are facing some mix and demand factors which we currently expect will moderate our QCT growth. In light of this we are taking near term actions Company-wide to prioritize investments, stay focused on growth but also control expenses in order to deliver operating profit growth in excess of revenue growth.
Fundamentally we believe our long term growth drivers remain very much intact and we are aligning our resources to continue to capture those opportunities. We continue to see smartphone adoption grow at a rapid pace across the globe. According to Gartner approximately 225 million smartphones were shipped in the second quarter of calendar 2013 representing a 47% year-over-year increase. This is especially true in emerging regions where smartphone demand is being driven in part by the migration from 2G to 3G. Looking forward Gartner is now expecting 1.8 billion smartphones will be shipped in 2017.
In the September quarter we saw the launch of new devices with expanded capabilities based on QUALCOMM products. Some of these new capabilities include the launch of Ultra-HD video, LTE carrier aggregation and support for additional frequency bands for global roaming. We will continue to focus on expanding our share of content and devices and making good progress with our Wi-Fi and RF front-end solutions. We see multi-mode 3G LTE as a catalyst for growth in network enhancements and smartphone demand.
Going to GSMA Intelligence, approximately 100 million new LTE connections are expected to be added in calendar year 2013, representing a 57% year-over-year increase from 2012, and it is approximately 22% of total net new connections.
China remains an important opportunity for smartphones. With the upcoming launch of LTE, we expect increased demand for smartphones across many tiers of devices. It is not just about smartphones, the impact of mobile on other industries cannot be overstated. The mobile ecosystem is driving innovations in health care, automotive, education and of course computing, which is creating new opportunities for QUALCOMM, from both a chipset and the licensing perspective.
Smartphone experiences are driving tablet designs as evidenced by the increased innovation and demand for 7-inch tablets, including Snapdragon-based tablets from Google and Amazon announced this quarter. In addition, several operators have recently introduced new data plans that could be a positive catalyst for 3G, 4G adoption in tablets and in other consumer electronics devices.
Now all these trends are helping to drive data demand globally and in order to address the growth in data operators continue to evolve their 3G networks, upgrade the LTE, evaluate new spectrum opportunities and evolve network topologies to include the introduction of small cells.
This past June, we announced our FSM Solution that integrates our 3G and 4G technologies with advanced 802.11ac and n Wi-Fi to enable fully featured low cost small cells that are designed to provide superior performance with greater power efficiency.
We will discuss the many growth opportunities we see ahead and the strategies and actions we're pursuing to capitalize on them during our upcoming New York analyst event. I look forward to seeing many of you there.
So to wrap up, we've completed another outstanding year at QUALCOMM. I'd once again like to thank all of our employees and partners for their commitment, innovation and leadership. We have tremendous opportunities ahead and we're positioning the Company to capitalize on these, while carefully managing our cost structure.
Overall, QUALCOMM remains well positioned for continued growth. We've grown revenues at a compound annual rate of more than 30% over the last three years. Building off of this very strong fiscal 2013 base year, going forward for the next five years, we expect that revenues and earnings per share will grow at double-digit compound annual growth rates. We expect to return significant amounts of capital to stockholders consistent with this outlook.
I'll now turn the call over to QUALCOMM's President and Chief Operating Officer, Steve Mollenkopf.
Steve Mollenkopf - President and COO: Thanks, Paul, and good afternoon, everyone. I will provide some comments on both QTL and QCT businesses. In fiscal 2013, QTL delivered record revenues and earnings, up 19% and 18% year-over-year respectively, driven by greater than expected 3G, 4G device shipments and increased ASPs reported by our licensees.
We now have over 250 royalty-bearing 3G licenses. Over 90 single-mode OFDM licenses, and we believe our 3G and 4G portfolios are the most widely licensed in the industry.
Through our broad licensing program, we continue to foster innovation and enable a large and growing ecosystem that benefits wireless consumers worldwide.
QCT also grew significantly in fiscal 2013, delivering record revenues and earnings, up 38% and 39% year-over-year, respectively driven by successful share and content gains. During the year, we continue to lead in LTE with our integrated modem solutions and delivered significant product enhancements across all key technology vectors, including the modem, processor, graphics and connectivity with unmatched world-class integration.
For 2014, we are forecasting another year of strong growth in QTL. We expect 3G/4G device shipments by our licensees to grow 15% at the midpoint in calendar 2014. Our fiscal 2014 3G/4G device ASPs are estimated to be between $216 and $230, down slightly by $3 or 1% year-over-year at the midpoint.
Returning to QCT, our outlook for fiscal 2014 builds off of the significant successes of fiscal 2013, our leadership across key technologies required for modems and SoCs for smartphones and mobile computing continues to position us well across flagship designs and key customers. We expect fiscal 2014 QCT year-over-year growth to moderate somewhat compared to recent years, including the very strong growth we delivered in fiscal 2013. Our position at the high tier and with the big OEMs is strong, driven by modem and application processor leadership and is expected to remain strong through 2014. The high tier continues to be increasingly concentrated, however, which impacts our product mix, as well as, our revenue and related operating margins.
We also expect strong growth in the low and mid-tiers, driven by emerging regions, including the anticipated launch of LTE in China in the second half of the fiscal year. We continue to see growth in China across all smartphone tiers and what we refer to as our EA or Emerging Accounts, exceeded $1 billion in revenue in fiscal 2013.
Our participation in the RMB 1,500 and above smartphone tier is strong, enabled by both Chinese and multinational OEMs. Fiscal 2014 is shaping up to be another favorable year with Chinese OEMs, as we build on our strength in the high tier enabling OEMs to drive LTE solutions in the mid and low tiers during 2014 in China and other emerging regions.
We expect the launch of LTE in China to change the dynamics there as international OEMs leverage their worldwide LTE leadership to increase their positions and Chinese domestic OEMs move up tier and leverage their LTE position in China to export internationally. Both of these expected trends are beneficial to QCT's position as all of our LTE chipsets include both the FDD and the TDD mode. We are currently shipping integrated chipsets across multiple tiers to support initial volume expected to start around the Chinese New Year.
In light of our near-term outlook moderating following a strong 2013, we are slowing the growth rate of our spending. We believe we are now offering the QCT business at scale and with our expense management initiatives this year we forecast that we will exit fiscal 2014 at a lower operating expense run rate than we exited '15 – exited fiscal 2013. In addition to operating expense initiatives we have projects underway to improve product costs within QCT, including driving supply chain efficiencies and designing cost optimized solutions for the very price competitive low tier.
It is important to note that we expect 2014 quarterly QCT operating margins to trend differently this year as compared to previous years and in particular we expect them to strengthen in the second half of fiscal 2014. This reflects the quarterly demand profile and product mix we expect including the growth of LTE in China as well as the anticipated customer device launches throughout the year. In addition the cumulative effect of the product costs and operating initiatives we are undertaking, improve the margin profile over time.
Accordingly we expect to exit the fiscal year at a high point, above 20% operating margin, instead of peaking in the first fiscal quarter as in prior years.
Looking ahead, we believe we continue to be well-positioned versus our competition. In fiscal year 2013, we delivered our third generation LTE solution, well ahead of the competition. It features LTE Carrier Aggregation with Category 4 supports all major standards and voice and data mobility scenarios and is available on a standalone or integrated basis.
Our LTE solutions now span the high-end to the volume tier and are well-positioned globally across FDD and TDD opportunities.
The LTE feature set required to be successful will continue to evolve at a fast pace, driven by competitive dynamics in United States and Asia compounded by the number of RF bands required to deliver high data rates and capacity to the consumers.
We continue to lead in mobile optimized application processors and this continues to be an area of investment for us as in the past. We have successfully grown our tablet design pipeline including such notable designs as the Amazon Kindle HDX, the Google Nexus 7, the LG G Pad, Sony Xperia Z and multiple tablets with Samsung and Nokia.
We see strong traction and a broad design pipeline for RF 360 front-end products which include the envelope tracker, antenna tuner, PA with integrated switch and RF POP. The envelope tracker has shipped commercially in handsets in September and the remainder of the solutions are scheduled to launch, as expected, throughout the fiscal year.
We also continue to make great progress with our mobile Wi-Fi and connectivity solutions building off our successful acquisition of Atheros.
Our 802.11ac product continues to have strong design traction with over 150 smartphone design wins including many with top-tier OEMs. Overall, our Wi-Fi attach rate on a unit basis is over 50% and we expect it to continue to grow throughout fiscal 2014.
To conclude, we see significant growth opportunities ahead for our business and we are managing our resources to maintain our technology leadership and best position ourselves for the future. I look forward to discussing this with many of you at the upcoming Analyst Day.
I'll turn the call now over to George.
George S. Davis - EVP and CFO: Thank you, Steve and good afternoon, everyone. We are pleased to be reporting strong financial results for both this quarter and the full fiscal year.
Fiscal fourth quarter revenues were a record, up 33% year-over-year and non-GAAP operating income was up 20% year-over-year. Non-GAAP earnings per share of $1.05 was up 18% year-over-year. Our non-GAAP results this quarter included a $173 million or $0.10 per share litigation expense related to the recent ParkerVision verdict, which was not included in our fiscal fourth quarter guidance.
Excluding this $0.10 charge, our non-GAAP EPS would've been $1.15 per share or 9% above the midpoint of our prior guidance range, and up 29% year-over-year.
In addition to strong operating results, the impact of certain tax items, share repurchases and investment portfolio performance accounted for approximately $0.06 per share in the quarter.
QTL total reported device sales by our licensees were $60.2 billion, just above the high end of our guidance range with the average selling price in line with last quarter consistent with our expectations.
QCT had record revenues and MSMs in the quarter and implied revenue per MSM was down sequentially, reflecting increased low-tier shipments relative to expectations. QCT operating margin was 16%, at the low end of our guidance also reflecting the low-tier product mix.
Non-GAAP combined R&D and SG&A expenses grew 6% sequentially, consistent with expectations.
During the fourth fiscal quarter, we returned approximately $3.9 billion to stockholders, including approximately $600 million of dividends paid and $3.3 billion in stock repurchases. As of the end of fiscal 2013, we had used $150 million of our new $5 billion stock repurchase program announced in September. Cash flow from operations was very strong at 39% of revenues, reflecting solid working capital performance, particularly inventory drawdown. We ended the quarter with cash and marketable securities of $29.4 billion. Our fiscal fourth quarter non-GAAP tax rate was 16%.
Turning to our results for fiscal year 2013, revenues were a record, up 30% from last year on strengthening QCT share at the high tier, strong 3G/4G device growth and increasing ASPs in the QTL business. Non-GAAP operating income was a record $8.66 billion and non-GAAP earnings per share were a record $4.51, both up 22% year-over-year. QTL's 2013 revenues were a record up 19% year-over-year with operating margin of 87% towards the high-end of our prior guidance range. We estimate that the fiscal 2013 3G/4G device average selling price was $226 at the midpoint, up $7 or 3% year-over-year. QCTs fiscal 2013 revenues were also a record, up 38% year-over-year. Earnings before tax, was up 39% year-over-year and operating margin was 19% for QCT, in line with our full year guidance.
Fiscal 2013 cash flow from operations was $8.8 billion at 35% of revenues. We returned approximately $6.7 billion or 86% of free cash flow to stockholders during fiscal 2013 paying $2.1 billion of cash dividend and repurchasing $4.6 billion of our shares.
We are increasing our forecast for 3G, 4G device shipments in calendar 2013 to between 1.075 billion to 1.125 billion units, up 15% to 20% year-over-year, driven by strength in emerging regions particularly China.
Now turning to our guidance for fiscal 2014, we estimate fiscal 2014 revenues to be in the range of approximately $26 billion to $27.5 billion up 5% to 11% year-over-year. We expect. QTL top and bottom line growth to remain strong, driven by continued strength in 3G, 4G device demand, stable replacement rates and ASPs in developed regions, 2G to 3G migration in emerging regions, as well as LTE deployments in China and elsewhere. We are forecasting a modest ASP decline in fiscal 2014, down $3 at the midpoint or 1% to $223.
We expect QCT to continue to benefit from technology leadership in modems and our Snapdragon family of products. We expect QCT growth in fiscal 2014 to reflect strong end market demand somewhat mitigated by the effects of OEM concentration at the high tier. QCT has successfully established strong positions across all of the key top tier OEMs and much of the medium tier smartphone accounts.
QCT growth in fiscal 2014 is aligned with the growth trends in these tiers. In addition, we are seeing continued high OEM share concentration, particularly at the high tier and this impacts our product mix, as well as our revenues and related operating margin.
We are also seeing (tiering) of products by these large customers that is leading to a higher utilization of previous generation MSMs in their overall mix of products. We see this affect mostly limited to QCT's product mix in the first half of fiscal 2014.
As Steve mentioned, we forecast improving trends in the second half of our fiscal year versus the first half. We expect higher device ASPs for QTL and a better mix of leading parts in QCT, including the impact of LTE in China.
We also forecast lower operating expenses and product cost contributing to a stronger second half. We expect fiscal 2014 non-GAAP earnings per share to be in the range of $4.95 to $5.15, up approximately 12% year-over-year at the midpoint.
As Paul mentioned, we have not included the estimated gain on the sale of Omnitracs in our guidance. If this gain was included our fiscal 2014 non-GAAP earnings per share estimate would be up 17% year-over-year at the midpoint.
For calendar 2014, global 3G, 4G based device shipments we estimate that between 1.22 billion and 1.3 billion devices will be shipped by our licensees, up approximately 11% to 18% year-over-year, reflecting increased shipments around the world, particularly in emerging regions.
We estimate fiscal 2014 QTL operating margins will be 87% to 89% and QCT operating margins will be 18% to 20% both stable year-over-year. We expect our non-GAAP tax rate to be 17% to 19% for fiscal 2014.
As Paul and Steve noted, we are slowing our level of operating expense growth in fiscal 2014. We expect combined non-GAAP, R&D and SG&A expense to grow approximately 5% to 7% year-over-year, in contrast to more than 20% annual growth over the past three years.
We are reducing a number of R&D project expenses in order to operate more efficiently and focus more fully on growing our investments in key areas, including modem technology, low-cost chip designs, CPU and GPU, RF 360, connectivity in integrated SoCs, as well as longer-term initiatives like displays, small cells and enterprise products. This reduced expense growth is well below recent years and aligns with the expected top line growth and our requirements to drive the critical elements of our roadmap and new technology initiatives.
We also expect to continue an accelerated pace of return of capital to our shareholders. In fiscal 2014, we currently expect to repurchase a minimum of $4 billion of stock and we have included this repurchase activity in our guidance. We will provide further details of our capital return metrics at our New York Analyst Day in two weeks.
For the first quarter of fiscal 2014, we estimate revenues to be in the range of approximately $6.3 billion to $6.9 billion, up approximately 10% year-over-year at the midpoint. We estimate non-GAAP earnings per share in our first fiscal quarter to be approximately $1.10 to $1.20 per share, down 9% year-over-year at the midpoint.
Versus the year ago quarter, we are expecting increased shipments of thin modems and low and mid-tier products in QCT, as well as the impact of longer-term pricing initiatives that were not in place in the first quarter of fiscal 2013 and the impact of higher operating expenses. As you recall, our first quarter results in fiscal 2013 were very strong with a resolution of our 28-nanometer supply constraints, favorable product costs and low relative operating expenses. We anticipate first quarter non-GAAP combined R&D and SG&A expenses will be flat sequentially with modest growth in R&D, offset by lower spending in SG&A.
In QTL, we estimate that total reported device sales of $57.5 billion to $63.5 billion will be reported by our licensees in the December quarter for shipments they made in the September quarter of approximately 14% year-over-year at the midpoint. We estimate the QTL ASP to be down in our first fiscal quarter versus the prior quarter, consistent with the increased quarterly fluctuations we have seen during the last couple of years, related to regional, OEM and product mix. We expect the ASP for our fiscal second quarter to be flat to up quarter-over-quarter.
In QCT, we anticipate MSM shipments of approximately 195 million to 210 million units during the December quarter, up approximately 11% year-over-year at the midpoint. We expect revenue per MSM to be lower quarter-over-quarter, reflecting a greater mix of lower priced modems. We expect QCT operating margin to be up sequentially and in the range of 17% to 19%. We see the first fiscal quarter trends being reflective of the first half of fiscal 2014 overall. We expect more favorable top line trends, as well as, cost and expense improvements in the second half of the fiscal year.
That concludes my comments. I look forward to seeing many of you at our Analysts Day on the 20th in New York, where we will provide further details and guidance points supporting our financial outlook for fiscal 2014 and beyond.
I will now turn the call back to Warren.
Warren Kneeshaw - VP, IR: Thank you, George. Operator we are ready for questions.
Operator: Mike Walkley, Canaccord Genuity.
T. Michael Walkley - Canaccord Genuity: Steve just going into the QCT, I calculate the guidance implies, maybe a 5% to 10% drop for the Q1 in terms of revenue per MSM. How should we think about both sequentially and then on a full-year basis? Would you expect your revenue per MSM given what sounds like a more mix to (low entity) down relative to fiscal 2013 levels?
Steve Mollenkopf - President and COO: Mike, yes, I don't know if you are going to see a huge difference. It doesn't move around all that much. Actually we are seeing a weaker mix I would think relative to what you would normally see in a quarter like this, certainly relative to what you would have seen last year. But it still remains I think reasonably strong throughout the year.
Operator: Simona Jankowski, Goldman Sachs.
Simona Jankowski - Goldman Sachs & Co.: I just had a clarification first, which is does the 16% operating margin in QCT include the litigation charge and if we back that out what would be margin? Then the question I had was it looks like the implied royalty rate declined to about 3.1% in the quarter, can you just go over some of the reasons for that and how we should think about that going forward?
George S. Davis - EVP and CFO: Simona, this is George. The 16% did not include the litigation expense which was taken in Corporate and Other – as it was shown on the other line in OpEx.
Derek Aberle - EVP and Group President: This is Derek. So, on the implied royalty rate, as you know, this thing tends to bounce around quarterly and there is a number of moving parts in here. Probably some of the factors that affected the decline from Q3 to Q4 included OEM mix shift. Also we had an increasing (TRDs), the market as well as lower infrastructure royalties and so the fixed licensing fees tend to be a bit of a drag on the rate when that happens. We also had, actually the ASPs in the high tier during this quarter increased in. So, those are the types of devices at that point that would be subject to caps. Then finally we had couple of one-time items, including overpayment claim that came in the quarter, and then some timing related to cash-based revenue recognized licensee payments.
Operator: Brian Modoff, Deutsche Bank.
Brian Modoff - Deutsche Bank: Got couple of questions. So, Steve, if you were to walk through what you are saying regarding your mix improvement through the fiscal '14, especially into the back half, what percent of that's coming from your overall savings from mix getting better perhaps, if you say, with TDD LTE shipments in the back half of the year. And how much of this is coming from just simply cost savings? And then the comment you made earlier about $1 billion in revenue from China in fiscal '13. Can you give us an idea what that rate of change was from '12?
Steve Mollenkopf - President and COO: George, why don't you start on the first one, I'll probably add a little color to it.
George S. Davis - EVP and CFO: Sure. I would say that the operating expense improvement certainly helps, but I think it's the – I would put a little bit more weight on the product cost improvement. Certainly, China LTE coming in actually helps from a mix standpoint as well, and we also see a little bit less of the kind of (n) minus 1 part issue that we're seeing in the first half of the year.
Steve Mollenkopf - President and COO: That issue – just for clarity, what that essentially means is you're seeing some customers right now, I would say, downshifting to a lower tier product, although still a height tier product from the perspective of how QTL would see it, but maybe a smaller – a lower product – still low, high-tier product from the perspective of QCT. So, we think that reversed a bit going into the second half of the year. With respect to the $1 billion in China, the way to think about that is to take our business in China really in the new channels. So, remove Huawei and ZTE kind of the international existing businesses, just take the new channel that we have been developing, and take away some of the higher tier premium devices. Just take a look at that new kind of QRD channel and what I would call the lower tier channel. We've grown that really from nothing over the last several years to now north of $1 billion. Last year, it has probably doubled, I would say over the year. I'd have to check that, but it's pretty significant growth. We are expecting in China the move toward LTE to be a good trend for us. So, we think that channel is now working and set up and hopefully we can move it LTE which should be better for us even further.
Operator: James Faucette, Pacific Crest.
James Faucette - Pacific Crest: Just a quick couple of questions for me. First, looking at your long-term outlook, you've expanded your double-digit revenue and earnings growth again this year. I'm wondering, Paul, if you can talk a little bit about what you see as the potential long-term drivers on that at the longer end of that period from an end-market perspective? How we should think about that? Then, just a point of clarification, did I understand correctly, George that we could expect to exit fiscal 2014 at a low level than we have exited (2013)?
Dr. Paul E. Jacobs - Chairman and CEO: Let me start. So obviously, we're still spending quite a bit in research and development, so we spent $5 billion in fiscal '13. We have moderated the growth of that, but it's still growing and so there's plenty of effort on new technologies, new products. Obviously, the basic one of 2G to 3G and 4G migration, especially in emerging markets that's pretty fundamental for our growth. LTE spreading more, particularly, China as we said, really looking forward to that towards the end of the year. Tablets and other kinds of computing, Steve, mentioned the traction that we're getting on design wins on the tablet side. We've talked a lot about small cells and that opportunity going forward. More content going into the devices, talking already about RF front-ends, Wi-Fi, but also display, sensor, integration, other kinds of things. Clearly, wearables, machine-to-machine these are new growth areas for us. Other growth is just more devices per person, whether it's in compute or in their car, in their home, machine-to-machine. So, all of these kinds of things are very significant growth opportunities for us going forward. So we are investing into those growth opportunities and a few others that we haven't yet talked to you about.
George S. Davis - EVP and CFO: On the – I think your question, you broke up a little about, but the question I believe was, will we exit the year fiscal '14 at a lower run rate on OpEx than we entered it and that was a point Steve was making. We get through the and it is kind of what we have been describing as a bubble of spending in the first half of this year and we will be exiting that year at a lower run rate than we entered it.
Operator: Tim Long, BMO Capital Markets.
Tim Long - BMO Capital Markets: Just wanted to get back to the chip margins here. I'm calculating another decline in the gross margins on the QCT side after going up a little bit last quarter. I'm just curious, I know this is probably a mix effect there but are we starting to see more pressure from some of the larger Tier 1 vendors impacting that gross margin? Related to it from an absolute level we are probably online with MediaTek's gross margins now in that business. Just curious, if you think we are bouncing along the bottom of an acceptable gross margin for QCT? Thank you
Steve Mollenkopf - President and COO: Tim this is Steve. I think you are seeing a couple of effects. One is you are seeing a mix shift, which obviously comes at a different gross margin. You are seeing the effect of concentration in the industry. Clearly people have stronger buying power the more concentrated the industry. Kind of moving forward, although we don't give gross margin guidance, I would say that those things we expect to be improving over time moving forward. Both from a mix perspective but also I mentioned some work that we are doing to improve product costs, both at the supplier level as well as at the design level. So I think you are probably looking at a relative minimum right now.
Operator: Rod Hall, JPMorgan.
Rod Hall - JPMorgan: I just wanted to – I know this one getting beaten to death, but I wanted to come back to the QCT chip margins. Just trying to understand it feels like the high end shipments here into the calendar year in fiscal Q4, Q1 are probably lower than would have been anticipated. And I just wanted to double check, Steve, if that is in fact the case and that's – what part – is it part of the reason that the guidance in fiscal Q1 is maybe a little weaker than we would have anticipated? And I just wonder the other question I have got is shouldn't some of that volume come back to us in the beginning of the year or do you guys just think it is lost forever or are we just completely misinterpreting it and it is not really a mix related issue at all in those chip margins.
Steve Mollenkopf - President and COO: First of all, we still think that tier is growing. That's I think an important point and we think it is going to continue to grow relative to what we would've thought a couple of months ago, or even more than a quarter ago. It is probably a little bit softer in some OEMs relative to what we would have thought. That's impacted the mix. I would say the concentration of more thin modem relative to some larger Snapdragon products you are properly seeing in the mix as well. Moving forward, there are couple of things that we mentioned, but I think one of the more important once is that we think the move to LTE in China is an important move for us. I would say, if you look at our unit guidance for the year, our unit plan delivering on all of the operating metrics that we talked about. We are not really expecting a massive uptick in terms of unit volume, we will continue to have strong units but I think the plan is pretty balanced there. I did comment on it.
Operator: Stacy Rasgon, Sanford Bernstein.
Stacy Rasgon - Sanford C. Bernstein & Co., LLC: I wanted to drill into the, I guess, the China LTE for a moment. You've got unit growth of about 15% which, you are right, is not really huge acceleration versus where we are today. You have LTE starting, I guess, sometime second half of next year. How much of this do you foresee as current, I guess, single-mode TD-SCDMA players who are making the migration from single-mode TD to multimode TD-SCDMA and LTE? Is that incorporated in your unit guidance or if it's not, do you expect to see any of that in 2014? Is that more of a 2015 horizon or longer?
Steve Mollenkopf - President and COO: Stacy, this is Steve. I think one thing that we do consistent really even with prior years is we tend not take a very aggressive view on the beginning of launches. So, we are assuming that we will see really some international OEMs move into the LTE market in China, more consistent with I would say a new up-tier product. Obviously, new for us because we don't get any volume today out of China Mobile, even it is largest in the world. We expect that to transition down into the lower tiers at some point. But really out plan right now is that this will probably be a higher tier product at first versus a replacement for the tier that I think you asked about. Now, I want to be clear. We are pushing through our chipset offerings, a tiered roadmap into the market. So that could happen. But we've always been a little bit cautious in terms of the front end of any technology migration. But the real work is happening right now. And you're going to see from us a multi-tiered strategy to push products worldwide in this technology.
Operator: Alex Gauna, JMP Securities.
Alex Gauna - JMP Securities: Steve, I wanted to follow-up with exactly what can you tell us about plans from China Mobile in terms of the readiness of the network. When we'll actually start getting deployments? Then I wanted to clarify, it sounded like in your 2014 forecast, you're basing your view on mid-tier and high tier growth. But you've also mentioned some of the entry level, the new emerging skews being important. Can you reconcile those two statements is the low-end or penetration low-end upside to your guidance?
Steve Mollenkopf - President and COO: Sure Alex. So, on the China question, it's difficult for me to talk about the plans of any particular carrier or in this multiple carriers. I will say that we are engaged actively as are others to help the launch occur as quickly as we can. But I think the decision of when really falls outside of our hands. We are working with some lead OEMs to support the timing that I mentioned in my script, which essentially is their Chinese New Year timing and that does seem consistent with the quality of the technical work that we see. With respect to low-end and high-end. I guess, the point we wanted to make is, number one the high-end continues to grow. We're doing well there. We continue to expect that it will continue to grow and we will continue to have strong share position there. Now at the low tier, I think we're growing into that market, as well as, improving our cost structure into that market. However, the number of dollars per device is pretty different than in the first category that I mentioned. As those mixes change it does impact our profitability and you're probably seeing that more in the near-term. That's really what you see, I think we're pleased to consider ourselves to be strong in both areas. In the lower tier we tend to be lower in units but probably higher in terms of gross margin dollars per unit than our competitor. I think we are probably a little bit better positioned going into LTE than what we expect to see from other people.
Operator: Kulbinder Garcha, Credit Suisse.
Kulbinder Garcha - Credit Suisse: I just want to clarify one thing Steve, a couple of things. The first thing is just on the high-end of the business. If I – I just want to – is what you are seeing that high end demand in smartphones is – the market is still growing unlike some people see it. But some of those high end customers are just buying lower ASP devices so there is a mix shift within them. So that hurts your QCT level of profitability in the near term but it doesn't impact Licensing, is that the right way of thinking of it? That's my first clarification. Then the second thing is that, if there is this increased buying power in the high end which is obvious has been there now for at least a year I would argue, what is it that is now causing them to exert this pressure on you and why isn't this a multi-quarter or even multi-year issue because frankly I don't think those high end vendors are going to lose share any time soon. I don't think anybody else thinks that either. So is there risk when we get to six or nine months' time that maybe China LTE doesn't improve your mix in that segment of the business. But you have got this almost consistent pressure on QCT, so the day that QCT actually shows any leverage keeps getting pushed out. Can you just comment on those two that would be very helpful?
Steve Mollenkopf - President and COO: Maybe I will start with the last one first, which is, our plan and even Paul's comments on the double digit actually assume continued concentration in the industry. One of the reasons why we are comfortable in that besides growing the content in the device as Paul mentioned as well as some of the adjacent markets that we talked about is that we believe that our investments that we've made over the last several years and we are going to continue to make in key areas are protecting us in this area. Now, one of the things that happened over the last several years that has masked this effect a bit is that we've been growing really into a growing market and growing share. Now we are at a point where I think the business is very much at scale. We are continuing to grow at the high tier. But now we are moderating, I think, the size of our investments to really show leverage in the business. And you will start to see that I think more in the second half of the fiscal year as we work through this bubble that George mentioned in terms of operating expenses. Maybe I'll let Derek comment on the impact of licensing. He probably can cover that better than I could.
Derek Aberle - EVP and Group President: This is Derek. So, I think, as Steve pointed out, we are continuing to see growth and expect to see growth in the high tier. The high tier actually has a pretty widespread of selling prices. And so as Steve pointed out, there might be a situation where some of our, not the highest tier, but still the high tier part are going into devices that still from a licensing perspective we would categorize as high tier. And although as the selling prices come down we have things like caps that may cause a muted effect as some of the ASPs come down. So, there will probably be some impact on licensing, but I would expect it to be less than what's being seen right now in QCT.
George S. Davis - EVP and CFO: This is George, just wanted to add one other point. You had asked about the dependency on China LTE in the second half, and I would just say that our actions on operating expenses, our actions on product cost improvements both in the supply chain and internally plus our view of where the part mix goes based on the launches all those are factors that are not depending on that but help us in the second half of the year.
Operator: Tavis McCourt, Raymond James
Tavis McCourt - Raymond James: Couple of them. First, specifically on Snapdragon 200 which I think was the first purpose-built design lower end Snapdragon. Where are you in terms of shipments related to that? Is there more coming in terms of low-end designs or is it that one design that could help the margins at the low-end?
Steve Mollenkopf - President and COO: Sure. So the 200, I'm sorry, I don't have the actual numbers on that. That was a very successful product for us and continues to do well. I just don't remember what the numbers are. If you look at our product portfolio looking forward, I think, we're pretty pleased actually with the design traction in the lower part of the roadmap. Today, we have a couple of products, the 8x10 and similar family, that I think is doing a fairly good job in terms of design traction, particularly in international OEMs that are now looking at the growth in the China market as a growth area, particularly when they see the same concentration in developed markets and they're going after that, and they tend to go after that with products that we are engaging with them on. Additionally, we are coming out with a product that's already sampling it's actually going to be in devices here soon, which is essentially a lower tier AP, but also a LTE solution as well. We expect that to also be an important product, not only in China, but also worldwide. So, we're continuing to, I think, put more focus on the low end versus what we have had historically and really refreshing that product line. In addition, we are working on an optimized – cost-optimized architecture for the low-end, which we think in addition to providing good design traction, we also improve our structure down there as well.
Operator: Mark McKechnie, Evercore Partners.
Mark McKechnie - Evercore Partners: My question is for Derek on the implied royalty rate for QTL, you brought up some of the factors that caused that to drop there in September. Could you give us a sense for directionally, how you see that moving throughout fiscal '14?
Derek Aberle - EVP and Group President: Hey, Mark, I was planning to give probably more color around that in New York. If you look at last year, for instance, kind of at the beginning of the year, we thought our best guess at the outset was we would come in maybe a little under, the 338 range or so. But we said at the time that that was based on our current outlook of the market and as you know the market grew significantly faster than we expected. Also ASPs went up throughout the year as you know and so couple of things that we noted was that, if those things came through, it would likely be a bit of a drag on the rate, which is kind of where we ended the year here about 327 taking into the last quarter. So I'm planning to go through kind of what we see in New York in a couple of weeks, bearing in mind that there are so many factors that impact the rate that it is pretty hard to forecast that far out.
Operator: Romit Shah, Nomura.
Romit Shah - Nomura: Steve, MSM units at the midpoint look like they are up about 6% in December, which is below the growth rate we saw in December of last year and the year before. Could you talk a little bit about channel inventories? How your – in your biggest customers are managing supply and I guess tagged into that how do we think about seasonality for March?
Steve Mollenkopf - President and COO: I will start and maybe some of my colleagues can jump in as well. I think particularly comparing to last – last year I think was an exceptionally strong year. So I think comparing to last year is difficult to do. I think from two perspectives. One, as we were coming off of a supply constrained environment. We also had I think some very strong product launches that also impacted that last year. This year I think you are seeing a combination of a little bit weaker mix than what we typically see and then people trying to figure out what – how to deal with the concentration that is existing in the handset industry. We are seeing that a little bit in our orders. The other thing I would caution too is that our – these things can change now pretty radically in terms of how the smartphone business works. So this is our best estimate right now. We expect to see I think good unit growth but these dynamics can change pretty rapidly.
Operator: Vijay Rakesh, Sterne Agee.
Vijay Rakesh - Sterne Agee: Just two questions here. You mentioned the cost side. I was wondering (indiscernible) 28-nanometer – do you have any active shrinks going on your product lines as you look at 2014?
Steve Mollenkopf - President and COO: The answer is yes. I will say we are in a constant state of deciding which products go to the next node and cost optimizing them. Also a lot of work even on, particularly in the low tier how do we change the packaging to make it more appropriate for the low tier which is fairly different than what's in the high tier. So, it is a constant effort for us to do that. As you know we have multiple sources of supply and some of the suppliers are a bit more focused on the lower cost nodes versus the high performance nodes and you will see sometimes see us move supply around consistent with those goals.
Operator: Srini Pajjuri, CLSA.
Srini Pajjuri - CLSA: Steve, question on the mix of modem versus Snapdragon. How should we think about it for next year versus last year?
George S. Davis - EVP and CFO: Srini, this is George. What we are seeing is volume metrically it is easier to see that we believe we will be starting out stronger in the first part of the year than we saw last year. How that plays out will really depend on product launches in the second half of the year.
Operator: Mark Sue, RBC Capital Markets.
Mark Sue - RBC Capital Markets: George, we recognize it's easier sequential OpEx to protect your profitability. Are there programs to reduce your cost of goods, particularly at the low end, I don't know (indiscernible) high tier. Trying to see how we can quantify improving contribution margins going forward and maybe where we are in terms of extracting some further value from the supply chain with programs that we can do on the gross profit side. Then, Derek, I usually ask the same question on your comfort level because (indiscernible) LTE?
George S. Davis - EVP and CFO: Clearly, we see the actions that we're taking. This is, obviously, managing our costs. We're not just focusing on OpEx. The supply chain – you can affect it by how you design and you can also affect it by how you interact with the supply chain and we're, obviously, focused on all of those things. As we cited, part of the improvement that we see in the second half comes from some of the actions that we're taking above the line, not just below the line.
Derek Aberle - EVP and Group President: This is Derek. On the LTE TDD question, I think really probably not much change from last quarter. We continue to believe that we'll be able to successfully collect on LTE broadly including in China. We continue to add additional licensees over the course of the quarter on single-mode LTE. Several of those came from China as well. We've actually seen recently in the last couple of months some positive statements from the operators as well as some of the government officials in China that I think are consistent with our prior view.
Operator: Blayne Curtis, Barclays.
Blayne Curtis - Barclays: Lot of focus on the ASP. I just want to go back, I want to make sure I heard you right. If you can just talk about the adoption or the attach rate with Wi-Fi, that's the way to add content. So, I'll circle back on the traction you're seeing with RF 360. I think you said it will ship – that the (ET) shipping now, but the (TA) will ship this fiscal year. Can you just talk about the adoption you're seeing with the OEMs and if you could frame it with any sort of design wins or any color would be great.
Steve Mollenkopf - President and COO: On the Wi-Fi side, I think I mentioned that, if you look at unit share, which includes all of our OEMs including ones, which includes our modem solutions, as well as, our MSM solutions. We're now roughly 50% or probably a little higher than that and we think that's going to grow into next year. If you were to back out solutions that are essentially just the ones that are MSM, its significantly higher than that. So we're really pleased actually with how Wi-Fi has gone. We've talked for many years that we thought it would go into a similar way that or excuse me the Bluetooth and GPS have one. It's just something that it's just advantageous to the customer for us to deliver it together. I think that's worked out there quite well. On RF 360, I think the main point is, it's on track. You've already seen the first products come out, I think they've been pretty well covered actually in the blogs, but there are some devices that you're probably well known that have come out with the first version, which is ET, the ET solution. Throughout fiscal year '14, we will see additional products within that family start to launch and that, again, as we expected they're on track and we're pleased with how that goes. We think that's going to an interesting business for us, not only from the perspective of growing confident of device, but it's also important for us to be able to solve the RF band problem, which we think we're well ahead of the competition on and that will help us not only in the additional business, but also pull-through I think our leadership in LTE.
Operator: This ends our allotted time for questions-and-answers, Dr. Jacobs, do you have anything further to add before adjourning the call.
Dr. Paul E. Jacobs - Chairman and CEO: Yes. Thanks everybody for joining us. I just want to say, another really strong year, strong quarter. I want to thank our employees, thank our partners and while I am thanking people, I want to also say thanks to the Omnitracs employees as I said earlier. Obviously this coming year, the shape is a little bit more heavily weighted towards the end of the year and we are doing things to manage our expenses. We spent $5 billion in research and development in fiscal '13, so there is a lot of new products and technologies coming. I am also proud that we are able to return $6.7 billion in capital to shareholders. Looking forward all that growth we believe it's there and we expect as we said double-digit CAGRs over the next five years. So we are looking forward to a lot of opportunities in the future. We are prepared. We love our strategic position. We look forward to talking to you more about that when we see you in New York. So hope to see many of you there. Thanks a lot.
Operator: Ladies and gentlemen this concludes today's conference call. You may now disconnect.