By Scott Moritz, writer

Research in Motion (RIMM) dazzled analysts at its Florida investors gathering with discussion of its business plans and a hands-on demonstration of its newest BlackBerry, once called Meteor and now known as Bold.

Analysts and investors came away from the event Monday reassured about the long-range growth prospects for RIM’s brand of e-mailing smartphones. And why not? BlackBerry’s secure, simple and sleek devices have won a favored spot on the belts of millions of hard-charging professionals.

But it is the short-term cost of the growth that gave a few analysts some reason to trim expectations in the wake of the meeting. RIM is expected to spend more on research and development as well as marketing this year as it defends itself against challengers in the smartphone sector.

“Our takeaway from the capital markets day is that RIM is clearly in ‘investment mode’ as management correctly sees a tremendous opportunity to take share from traditional handset vendors,” Morgan Keegan analyst Tavis McCourt wrote in a research note Tuesday.

“This may limit margin expansion near term, but substantial revenue and earnings growth should continue as RIM expands its product line and its marketing initiatives,” McCourt continued.

And though the company didn’t offer a date when Bold would start selling in with AT&T, the presentation materials provided by RIM put meaningful sales in “late summer/fall,” according to Pacific Crest analyst James Faucette.

This is later than the June debut originally expected and it gives Apple’s (AAPL) new 3G iPhone a two-month head start. The iPhone is expected out on June 27, near the anniversary of the original phone’s coming out party.

And as Apple tries to edge iPhone into RIM’s business-users domain, BlackBerry’s room for growth is in the lower-spending consumer crowd, with its Pearl and Curve. To analysts, this means more subscribers but smaller phone bills and therefore less revenue per user, a key measure of smartphone strength.

“The company pointed to faster [average revenue per user] erosion than we have modeled and indicated the possibility that margins may not be quite as strong as we have modeled,” writes Pacific Crest’s Faucette.

The tempered expectations offer a bit of a reality check as RIM enters a challenging second half of the year.

By Michal Lev-Ram

Churn, or the rate at which customers defect to rival carriers, is one of the most important metrics for measuring the success of a wireless carrier.

Unfortunately for Sprint (S), it has one of the industry’s worst churn rates. On Monday it revealed that 1.09 million of its subscribers decided to take their business elsewhere in the first quarter as the company reported a net loss of $505 million, or 18 cents a share, compared to a loss of $211 million, or 7 cents a share, a year earlier. Revenue dropped 8% from a year ago to $9.33 billion. Excluding a number of one-time charges, such as job-cut costs and merger-related expenses, Sprint’s adjusted profit slid to 4 cents a share from 19 cents a year ago.

Meanwhile, rivals Verizon (VZ), AT&T (T) and T-Mobile (DK) saw their churn rates for postpaid accounts fall during the same period, and their customer base grow. Verizon added 1.5 million wireless subscribers, and 1.3 million new customers signed up with AT&T. Even T-Mobile, the smallest of the top four U.S. carriers, added nearly a million customers the last quarter, tipping its total subscriber base to slightly over 30 million for the first time.

Many of Sprint’s recently-departed subscribers also happen to be some of its best customers. That means that a large percentage of defecting Sprint users are the type of people likely to pay for higher-priced data plans, pay extra fees for text messaging and downloading ringtones or buy more expensive phones. That is a big part of the reason Sprint’s average revenue per customer declined by about $2 compared to the first quarter of 2007.

“We continue to place the highest priority on reducing churn by improving the customer experience,” CEO Dan Hesse said in a statement Monday.

He told analysts on a conference call Monday that he is investing to acquire new customers as well as to keep existing ones from fleeing.

Improving customer service and simplifying rate plans are two ways Sprint is trying to keep retain subscribers. Later this summer, the company will also launch an iPhone competitor it hopes will provide an incentive for customers to stay - current customers, as opposed to new subscribers, will have first dibs on a Samsung touchscreen called the Instinct.

But it will likely be some time before those changes turn around Sprint’s churn rate. Hesse, however, is optimistic. On Monday he told analysts that in March, “We began to see improving trends in churn.”

By Scott Moritz

Research in Motion (RIMM) takes the stage this week to preach to a gathering of its faithful in Florida during the Canadian company’s annual Wireless Enterprise Symposium. But just as the BlackBerry maker seems to be reaching the height of success, its flock may well start to stray.

Not only will followers be tempted by new devices like Apple’s (AAPL) forthcoming business-friendly iPhone, other sect members will face excommunication as cost-cutting initiatives sweep through the office ranks.

For now, however, it’s party time for RIM. A few highlights ahead for the week in Orlando include a performance by John Mayer, and even hotter, the unveiling of the company’s first 3G phone, the BlackBerry Bold.

These have been very good times for RIM. European sales have taken off as has the stock, up 81% over the past year, and hovering close to a one year high.

It’s been a good run, but now come a new set of threats.

Due to delays first reported by Fortune, the dazzling BlackBerry Bold will not be available in the United States until as late as August. This means Apple will beat RIM to the market in June with its 3G iPhone.

The hotly anticipated, speedier successor to the original iPhone will also have a deep price cut thanks to a planned subsidy by AT&T (T). The new iPhone is also designed for the sweetspot in smart phones - BlackBerry’s business e-mail niche. Apple says it will license software to allow the iPhone to work with Microsoft’s (MSFT) Exchange platform for office e-mail as well as calendar and contact syncing.

And according to Cisco (CSCO), the iPhone business plan seems to be marching along. On an earnings call with analysts last week, Cisco chief John Chambers said the new iPhone has some of Cisco’s office network security system loaded on. “The upcoming software version 2 for the iPhone incorporates Cisco’s VPN technology,” Chambers said.

Having the networking giant involved with Apple’s business play certainly can’t be comforting to RIM.

Another potentially unsettling development is Nokia’s (NOK) upcoming plan to offer a series of BlackBerry lookalikes through AT&T. The new phones, starting with the E71, will also work with Microsoft Exchange and use a Nokia managed e-mail server, a delivery and security system akin to the BlackBerry approach, says one source familiar with the plan.

BlackBerry fans have seen threats like this before. Good Technology had a popular business e-mail system favored by Palm (PALM) Treo users. Motorola (MOT) acquired Good in 2006, and so far has failed to make much added headway against RIM. If anything, RIM’s one-trick killer-app ability to deliver instant, secure e-mail has been extended beyond professionals to consumers attracted by the sleeker phone designs, GPS navigation, music players and cameras.

On Monday, RIM announced a plan to start a $150 million venture capital fund to spur development of applications on the BlackBerry platform. The move - made along with RBC and Thomson Reuters - is similar to the $100 million venture effort that Kleiner Perkins Caufield & Byers announced in March to develop software for Apple’s iPhone.

A good part of RIM’s success is reflected in the stock’s rise, which has so far defied the slowing economy and sluggish corporate information technology spending. But the new product delay coupled with arrival of Apple and Nokia’s BlackBerry killers, may challenge RIM’s perennial winner status.

To be sure, a lot can be made of BlackBerry’s huge sales opportunities overseas where RIM has a very good chance of repeating the business e-mail success it had in the United States. And some RIM analysts see some big promise in the a crop of new BlackBerries coming out in the coming months.

TD Newcrest analyst Chris Umiastowski points to two phones in the works that should help restart the BlackBerry sales cycle. One is a flip or clamshell styled phone code-named KickStart that will launch with T-Mobile this fall, Umiastowski wrote in a report. And the long awaited touchscreen answer to the iPhone, which is apparently dubbed Storm, is due out in late fall, he notes.

But there is a different sort of storm on the horizon, in the form of spending pressure. It used to be common practice amoung businesses to hand out BlackBerries to an entire staff of go-getters. But the devices are not cheap, about $200 and up, and the monthly service contracts, and revenue sharing payment to RIM are large numbers on the business expense list. Some companies looking to attack costs have targeted the BlackBerry line item.

Here’s one example: Honeywell (HON) has recently taken its belt tightening efforts in a notch and told employees in some units to prepare to turn in their BlackBerries.

Honeywell, an aerospace and electronics giant, isn’t exactly under the gun in terms of immediate economic pressure - the company increased it profits by 22% last quarter on 10% sales growth. The point being, if the strong players are looking for places to cut the fat, one can imagine how the budget police in industries like banking, airlines, autos might be viewing BlackBerries these days.

By Michal Lev-Ram

When Sprint Nextel CEO Dan Hesse joined the wireless company last December, he inherited a backlog of problems. Among them: The logistical nightmare of managing two different networks formed by Sprint’s merger with Nextel, a high rate of subscriber defections and a bad (okay, horrible) reputation for customer service.

At his first conference call with analysts in February after Sprint (S) announced disappointing fourth-quarter earnings, Hesse himself admitted that “the issues we face are more difficult than what I had expected to find.”

But that didn’t stop the former AT&T (T) executive from quickly implementing some much-needed changes. Within five months, Hesse has cut costs by closing 8 percent of Sprint’s retail stores and laying off nearly 7% of the staff. He also made senior management changes, launched a new unlimited voice and data plan, and just this week inked a joint WiMax venture with Clearwire (CLWR) and a slew of high-profile investors.

Now, as Sprint prepares to release its first-quarter earnings results Monday, investors are looking to Hesse to see what he’ll do next to turn the wireless carrier around.

“So far the read on him is cautiously optimistic,” says RBC Capital Markets analyst Jonathan Atkin. “He’s taken prudent steps to evaluate what the issues are, and made progress on his checklist - including the critical item of how to move forward with WiMax.”

Sprint’s investment in WiMax - a next-generation network that promises faster speeds well-suited for data services like web browsing and music downloads - has been a main point of contention among investors. Under former chief executive Gary Forsee, the company poured about $5 billion into the technology, only to find its cutting-edge service bogged down by delays and an inability to seal a WiMax partnership with broadband Internet provider Clearwire.

But last Wednesday the two companies announced they had finally come to an agreement and would combine their wireless broadband operations to create a $14.55 billion venture. Intel (INTC), Google (GOOG) and a handful of other companies have agreed to invest $3.2 billion in the new company.

In an interview with Fortune earlier this week, Hesse said the upcoming WiMax service will give Sprint a “differentiating advantage.”

“This allows us to be the only company to offer 4G [fourth-generation network] services,” said Hesse. “WiMax as a technology is available now and it works now.”

Of course, it’s still not clear exactly when the new service will be available to Sprint customers, though the Clearwire joint venture is expected to close by year-end. Sprint rivals AT&T and Verizon (VZ) have said they are committing to a competing fourth-generation network technology called Long Term Evolution, or LTE, which is expected to become available around 2010.

With its increasingly narrower time-to-market advantage, WiMax is still far from a guaranteed success. And in the meantime, Hesse has his hands full trying to put out other fires.

Come Monday, investors will be looking for news regarding Sprint’s core business, selling voice and data services on its CDMA network, which has been bleeding customers. Subscribers have also been defecting from the iDEN network the company inherited when it merged with push-to-talk service provider Nextel in 2005.

“We are still looking for evidence that Sprint is generating positive momentum around its postpaid marketing to return back to positive postpaid subscriber growth over time,” Citigroup analyst Michael Rollins wrote in a recent report.

In an effort to retain and attract customers, Hesse has already embarked on a new brand campaign that aims to position Sprint as the “superior network.” But Rollins says that the company hasn’t “gone far enough to differentiate its message on network quality perception or price.”

Hesse has also said that improving Sprint’s customer service is one of his top priorities.

“Not only are we not attracting enough new customers, but our existing customers are leaving us at too big a rate,” Hesse had told Fortune in an interview last February, after Sprint posted a fourth-quarter loss of $29.5 billion and a continued decline in subscriber numbers.

There’s no question Hesse has his work cut out for him. But if his first five months in at the company’s helm are an indication of what’s to come, you can count on seeing more changes at the number three mobile operator - for better or worse.

By Scott Moritz

WiMax is facing a now-or-never moment as Sprint (S) and Clearwire (CLWR) try to finalize terms of a multi-player joint venture.

Nearly five months into his job as Sprint chief, Dan Hesse has a chance to set Sprint free from an expensive network buildout commitment, and simultaneously spark the WiMax revolution. Sprint and Clearwire are set to announce the formation of a WiMax joint venture involving Comcast (CMCSA), Time Warner Cable (TWC) and funding from Intel (INTC) and Google (GOOG). The announcement could come as early as 6 a.m. Wednesday, according to one source familiar with the plan. Sprint and Clearwire shares surged 7% Tuesday afternoon on raised expectations of an announcement.

It is also possible that the deal could come later, or never, if the parties can’t ultimately agree on who controls the network. Google, for example, has been a uneasy participant, say people familiar with the company. The other players would like to attach Google’s winning name to this ambitious project, but apparently the Net giant has waffled in recent weeks, backing out at one point, then opting back in.

Those watching the unsteady progress of WiMax can’t be brimming with confidence after watching other tech deals disolve. As Microsoft’s three-month failure to woo Yahoo proved, lots of big egos, some forceful approaches and a weakening economy don’t add up to easy negotiations.

Once heralded as the next big thing in mobile broadband, WiMax was to be the successor to WiFi, an untethered Net connection that would usher in a new generation of mobile devices and portable applications.

There have been a couple bumps along the road to WiMax success however. The development of a national network operating on a unified standard has largely been in the hands of two disappointing tech shops: Sprint and Clearwire. The second setback is that the two largest wireless players, AT&T (T) and Verizon (VZ), are pursuing a different technology, called long term evolution or LTE.

The WiMax move would also help move Sprint further down the split-up path. Hesse, with the urgings of some of Sprint’s bigger investors like Ralph Whitworth of Relational Investors, has been mulling a breakup of the No.3 wireless shop. Among the options is the sale of Nextel’s iDEN network, reported to have caught the interest of former Nextel co-founder Morgan O’Brien who runs a public safety networking venture called Cyren Call.

Another step would be the sale of Sprint’s long-distance business, the Global Markets Group. While some analysts say separating the company’s seemingly core network would be nearly impossible, others argue that Sprint is not in a position to turn down any offers at this point.

But the first piece of the splinter strategy for Sprint is WiMax. Hesse inherited the WiMax business, known as Xohm when he took over the CEO job left by Gary Forsee. Forsee staked the company’s future on the promising mobile wireless broadband technology. But the $5 billion cost to build a WiMax network was too much for Sprint, already beset by massive customer defections stemming from its failed merger with Nextel.

The pairing of Sprint’s spectrum and WiMax technology with Clearwire was proposed last year. Sprint needed to get the costs off its books and Clearwire needed a big partner to help make WiMax happen and lend some financial support.

Intel Capital holds about a 25% stake in Clearwire. Clearwire founder Craig McCaw is the largest single shareholder, with a majority of the outstanding shares.

Comcast and Time Warner Cable have identified wireless broadband as a huge opportunity to deliver services like video and calling to a new generation of mobile devices. Last week Comcast raised $2 billion in a bond sale that analysts say signals the Philly cable giant’s readiness to jump into the WiMax venture.

Intel and Google have high hopes that a new national network would open up a mass market for their products and services.

Without this bold joint venture alliance, WiMax faces a bleak future, as other fourth-generation technologies gain ground. The deal could save WiMax from being another promising yet soon forgotten new next thing.

By Michal Lev-Ram

Just as one high-profile buyout bid is wrapping up, another may be beginning.

Deutsche Telekom AG (DT), the parent company of T-Mobile, is considering a bid to acquire Sprint Nextel (S), according to news reports Monday.

Shares of Sprint were up nearly 6% on the news, while Deutsche Telekom was down about 1.4%.

While Germany-based Deutsche Telekom has nearly 120 million customers worldwide, T-Mobile is the smallest of the top four mobile operators in the United States, with just 28.7 million subscribers. A combination with Sprint (which has about 54 million customers) would make T-Mobile the largest U.S. wireless carrier, ahead of rivals Verizon Wireless (VZ) and AT&T (T).

Last year, Deutsche Telekom said it would look at international acquisitions as part of a new growth strategy its CEO called “Focus, fix and grow.”

“We want to use our expertise to be able to grow in mobile communications, including the possibility of acquisitions, based on our strict business criteria,” Rene Obermann, the company’s chief executive, said in March 2007.

But while Sprint’s flagging share price, coupled with the benefits of its subscriber base and spectrum holdings, may make it an attractive target, some analysts say a buyout is unlikely to happen anytime soon.

Sprint has been struggling with customer service issues and managing the two networks it currently runs, and has also run into problems with the delayed launch of yet another next-generation network called WiMAX, now expected to roll out later this summer. All three of Sprint’s network technologies are different from T-Mobile’s GSM infrastructure, which means they’re compatible with different phones. Running all four could be a logistical nightmare for Deutsche Telekom.

Citigroup analyst Michael Rollins predicts that there’s a 25% chance of a Sprint acquisition — not just by Deutsche Telekom — in the next year.

“…The problems at Sprint are still deep-rooted and may deter a buyer in the near-term…” Rollins said Monday in a written report, adding that other potential obstacles to a deal going through include issues with regulatory approval and the difficulties of integrating Sprint and T-Mobile’s different networks.

A Deutsche Telekom spokesperson could not be immediately reached for comment. Sprint spokesperson Leigh Horner declined to comment on “speculation.”

Also on Monday, T-Mobile announced the New York City launch of its 3G network. It is the last of the top four carriers to roll out the technology, which provides customers with a higher-speed network well-suited for data services.

By Michal Lev-Ram

Apple’s iPhone may reign over the fledgling mobile music market in the United States, but in the rest of the world Nokia is No. 1 on the hit parade.

Last year alone, Nokia (NOK) sold 147 million music-playing phones worldwide, while Apple’s (AAPL) sleek touchscreen has sold 5.7 million units so far this year. And although the iPhone is now the top-selling music phone in the U.S. market, it doesn’t even make the top five in Europe where three of Nokia’s music-playing handsets are best-sellers. Now the Finnish phonemaker plans to launch a new service later this year that will let people download as many songs as they want for a limited time.

Unlike the iPhone’s pay-per-track model, Nokia’s new “Comes With Music” plan will offer several handsets that include a year’s worth of unlimited music in the cost of the phone. Once the year is over, subscribers will be able to keep their existing tracks on their phone or PC, and Nokia says they’ll have several options of extending their “Comes With Music” membership without necessarily having to upgrade to a new device. The company is still mum on what those other options may be, though it’s likely customers will have to start paying a subscription fee to keep the unlimited downloads service.

“The track-by-track purchase methodology was cumbersome to people,” says Liz Schimel, head of Nokia’s music business. “Consumers were looking for a more seamless way to access a lot of content.”

Subscription-based, all-you-can-listen-to digital music models have been around for a while. Companies like U.K.-based Omnifone and Rhapsody offer similar services and for years rumors have circulated that Apple itself will launch a flat-rate, unlimited version of iTunes. But Nokia is the first mobile giant to turn away from the a-la-carte model of selling mobile music, and, unlike other existing subscription-based services, its will allow people to keep their tunes on their phone and PC even after their subscription expires.

Of course, while customers won’t have to worry about losing their music library, they also won’t be able to transfer their songs to a new device unless that new device is another “Comes With Music” Nokia phone.

The company plans to launch several compatible handsets, as current Nokia music phones won’t work with the upcoming service. It’s not clear how much built-in memory those new phones will have, but one of Nokia’s most popular multimedia phones on the market today is the N95, which, like the iPhone, comes in an 8-gigabyte version.

Lucky for the Finnish phonemaker, analysts say content providers are eager to experiment with new ways of getting their music onto cell phones.

“They [content providers] want to at least try to shift the center of gravity away from iTunes and Apple,” says Mark Donovan, a senior analyst with mobile research firm M:Metrics.

Two of the world’s largest music labels - Universal Music Group and Sony BMG - have already committed to “Comes with Music,” and the company expects more will sign on before the new service launches in the second half of this year.

Nokia won’t disclose the details of the new business model, or say how much the “Comes With Music” devices will cost. Some media reports have suggested the phonemaker is paying $35 to Universal alone for each handset it sells. With more labels expected to join the partnership, that could end up cutting into Nokia’s profit margins, though M:Metrics’ Donovan says he believes the company has figured out a model “that has legs.”

“The idea that they would pay Universal $35 a handset doesn’t smell good to me at all,” says Donovan. “But of course the devil will be in the details.”

Schimel, head of Nokia’s music business, says the company put a lot of energy into crafting a model that makes sense for everyone involved - the music labels, customers, carriers and Nokia itself. The result, she says, will be able to compete with lots of players on the marketplace, including Apple.

“The mobile industry as a whole has enormous potential in digital music but up until now it’s only been unlocked to a limited extent,” says Schimel, who would not disclose the specifics of the “Comes With Music” business model.

One thing Nokia has been clear about is that music and other services are an important part of its overall strategy. In 2006 the company acquired digital music player Loudeye, which enabled it to launch a pay-per-track mobile music store (similar to what’s currently available on the iPhone), now available in nine countries.

But it’s Nokia’s “Comes With Music” service that has the potential to disrupt the prevalent iTunes way of selling digital music - at least when it comes to mobile downloads.

Despite Apple’s dominance in MP3 player sales, Nokia’s got a global headstart when it comes to the mobile phone market. It’s got 40% of the global handset market and is especially strong in regions that have been quick to embrace mobile content, including China and Europe.

Of course, providing a viable competitor to Apple’s iTunes means succeeding in the U.S. market as well. Currently, Nokia has just 7% market share in the United States, and its total North America sales accounted for only 2.6% of its overall, global revenues.

Nokia’s Schimel says although it won’t be one of the launch markets Nokia has every intention of eventually bringing its “Comes With Music” service to the United States.

But it’s possible Apple will be pressured into change its tune — and offering a subscription-based iTunes service — long before that happens.

By Scott Moritz

Comcast (CMCSA) has raised $2 billion through a bond sale as the company explores its wireless broadband options, among other things.

The Philadelphia cable giant was able to increase its planned debt offering of $1.5 billion to $2 billion on strong demand for the note, according to Bloomberg News. The news comes a day after the company posted solid first quarter earnings and said it was still planning to move ahead in wireless data.

On the earnings conference call with analysts, Comcast executives said they would take action to to preserve its credit rating.

“We are going to be very disciplined in our capital structures, and do things that make a lot of sense,” Comcast executives said Thursday.

As of March 31, Comcast’s total debt was $37.4 billion, according to a regulatory filing.

Some analysts says the financing move is a good sign that Comcast is getting closer to reaching some sort of agreement on a proposed WiMax joint venture between Sprint (S) and Clearwire (CLWR). Other players that have been involved in those discussions include Time Warner Cable (TWC), Intel (INTC) and Google (GOOG).

Comcast has a big role in the fate of a national WiMax network. If the joint venture fails to find enough funding or participants, the so-called 4G wireless technology faces falling behind the long term evolution or LTE technology that AT&T (T) and Verizon Wireless (VZ) have already committed to.

Microsoft (MSFT) signaled its ready to play hardball with Yahoo (YHOO) in its bid to acquire the Internet giant, and antitrust regulators are scrutinizing a trial advertising partnership that Google (GOOG) and Yahoo recently struck.

Microsoft put some substance behind its threat to take its three-month-old buyout offer to Yahoo shareholders by naming 13 people as potential candidates to the company’s board, according to Thursday’s The Wall Street Journal.

The list includes former Nextel Partners CEO John Chapple; Edward Meyer, former chief of Grey Global Group; Jaynie Studenmund, the former chief operating officer at Overture Services, a company Yahoo acquired a few years ago; and former Adelphia Chief financial officer Vanessa Wittman, the Journal reported.

Microsoft’s tougher stance comes amid news reports that the Justice Department is looking into Yahoo’s outsourcing of some of its advertising to Google. The companies’ two-week trial ended Wednesday. Yahoo has said it involved about 3% of its search results.

Yahoo has been looking for ways to reduce the cost of operating its search service and, in an effort to thwart Microsoft, to demonstrate it can thrive as a standalone business. But the cooperation between the No.1 and No.2 two search engine shops immediately raised anticompetitive flags when the pact was announced earlier this month.

Google says it “informed the Justice Department before we launched this test, and we have been responsive to their questions about it,” according to the Los Angeles Times. Yahoo said it too had given the Justice Department a heads up prior to the test, according to the Times report.

Microsoft has given Yahoo until Saturday to come up with a counter proposal or answer to its $43 billion takeover offer.

By Scott Moritz, writer

Qualcomm (QCOM) isn’t seeing a slowdown in wireless apparently. The San Diego tech giant posted solid fiscal second quarter results and guided up for the current quarter.

The wireless standard bearer posted an adjusted profit of 54 cents a share, up from 50 cents a year ago, and 2 cents better than analysts predicted. Sales in the quarter rose 17% to $2.6 billion from $2.2 billion in the year-ago quarter. Analysts anticipated a $2.5 billion revenue performance.

“The fundamental drivers of our business remain strong, and based on the current business outlook, we are raising fiscal 2008 revenue and earnings per share guidance,” CEO Paul Jacobs said in a press release.

Looking ahead, Qualcomm expects a fiscal third quarter profit of 51 cents, directly in line with analysts expectations. Sales for the quarter are expected to remain flat at about $2.6 billion, well above analysts estimates calling for sales of $2.3 billion.

And as a sign that demand for more expensive smart phones is rising, Qualcomm forecast the average selling price of phones to jump to $223 in the fiscal third quarter from $215 last year.

For the full year, Qualcomm now expects sales to be around $10.2 billion that is up from previous guidance calling for $9.8 billion in revenue.  That compares with $8.8 billion last year. Analysts were looking for $9.9 billion in total sale for the year ending in September.

Qualcomm shares dipped 53 cents to $41.36 in after-hours trading Wednesday.