TWST: What are the major investment themes you are watching in the wireless space right now?

Mr. Garcha: I think there are two to three themes that are very important in the wireless space right now. I think the first one is the continued growth of the smartphone industry. Smartphone volumes last year were 450 million units; they grew 55%, but we don't think they have maxed out yet. We think that industry will continue to grow from these levels over the next two to three years and that it will will more or less double by 2015, reaching 1 billion units. So I think there's going to be very strong continued smartphone growth. The second thing is the question of within that smartphone growth, how the various ecosystems will play out. You obviously have a very strong competitor with Apple (AAPL), with how the iPhone is progressing, and the iPhone will continue to increase its market share going forward. But you also have Android, which is going to continue to grow as well. Android has about half of the market, literally about 50% of the market, today. I also think, and we published some research on this very recently, we now have a potential recovery in the Windows platform, and Nokia (NOK) is trying to drive that. The question then is who suffers in that environment. We think certain Android vendors are on the weaker side. We think HTC (2498.TW), Motorola Mobility (MMI) and Sony Ericsson (ERIC) are maybe on the weaker side, and we also think that Research In Motion (RIMM) has some real difficulties in terms of turning around their business. So I think the first couple of points will be, number one, smartphone growth and the continued volatile and changing competitive dynamics within it.

I think that the second thing, which kind of impacts wireless mobility, has to do with how the computing market is changing. You have consistently had very strong tablet or iPad growth in the last couple of years, and our secular view is that last year, I think 60 million tablets were sold. We think that number will be 100 million in 2012 and 300 million by 2015, and this will account for 40% we think of all computing products going forward. The additional thing here is that you've got the issue with respect to how the tablet market is going to impact not only mobile computing, but telephony as well. That is certainly another issue.

I think the third thing, at least in the wireless sector, is in terms of spending levels along the networks running into constrains. You also have this balanced issue whereby the overall wireless carrier market - and by that, I mean the AT&Ts (T) and Verizons (VZ) of this world collectively - the question of their revenue issues for the infrastructure providers. We also look how that industry actually grows in revenue terms going forward.

TWST: In your opinion, are they going to continue to grow, or is that going to be difficult for them to do going forward?

Mr. Garcha: I think for the overall wireless industry, the international wireless industry or the carrier market, you have to remember we are looking at an industry now that has the best part of about 5.7 billion mobile subscriptions out of 6.7 billion of the people in the world. The market is very heavily penetrated. The issue being, how many more new users are there going to be? Is the average user spending any more? Not at the global level. In certain markets of the U.S. where you have very strong data growth, that will drive certainly growth in the industry overall, maybe growth in spending; but at the global level, it's very hard to argue though.

TWST: You mentioned some of the companies in weaker positions. What about the other side? Who is best positioned, given the current environment?

Mr. Garcha: I think the vendor clearly in all of these segments that will continue to execute very well is Apple. We think they just have a very superior ecosystem whether it's around their software, whether it's around their App Store, whether it's around iTunes or anything else, and I think there's scope for them to continue gaining market share in the phone market. They had an 18% smartphone share last year. One of the things about Apple I think that's important to remember is that they only supply 230 carriers today, and globally Nokia and RIM supply 500 carriers. In other words, Apple is still building out their distribution, there are still lot of carriers in the world that don't support the iPhone yet. And so that's an avenue for them for growth in addition to any growth they might see with their existing customer base on how to achieve new business going forward. Similarly on the tablet side, we think the whole relationship between the smartphone and the tablet is important. Apple obviously was first to market with introducing the iPad, then relatively aggressively priced it up until now, and they also have the synchronization across a PC, a phone and a tablet now with the iCloud service. So we think those are the two areas in which they will really prosper. I think for 2012, Android as a platform will keep doing well on the smartphone side. I'm a little bit more questionable about whether they long-term can keep growing at the levels they have been doing.

TWST: What about LTE or 4G? Is that going to be a significant difference for the wireless sector? How is it going to impact them?

Mr. Garcha: I think, obviously everybody wants faster data speeds. We are using mobile computing products like tablets on these networks as well as your smartphones. Clearly, there's a very strong demand for data, for faster and more reliable data, and 4G will improve the consumer experience. However, I would equally say that I don't think that LTE in its own right offering a faster speed is going to be a significant stimulus to the industry. I think it's much more of what you can do with these devices on the LTE network that is important. For example, you had 3G networks available for five years in most markets. Really what revolutionized the industry was not the 3G, but it was when smartphones came out, when the iPhone came out with touch screens and applications. Now we actually use these devices differently, that's what really stimulated data usage even on networks that weren't anywhere near as fast as they are today. I think LTE has some impact, it further improves the user experience. I never really saw that as a differentiator. I don't think a consumer walks into a store saying they want the fastest network that's available. They go into a store to buy a new smartphone or a new tablet. But is LTE and the faster data experience going be a reason why they change their phones, spend more money with carriers? That remains to be seen.

TWST: So for companies, it isn't that the faster network will make the big impact, it's what types of products they can create to take advantage of the speed.

Mr. Garcha: Correct, yes.

TWST: Is wireless a good place to invest?

Mr. Garcha: I think the wireless equipment industry is one place that is a bit difficult. Within this, Qualcomm (QCOM) we think will benefit. The problem with the mobile phone market is largely share shifting from one vendor to another. You look at Research In Motion, you look at Nokia, you look at how MMI was before it was taken out, you've got an issue whereby there aren't that many attractive investment ideas. I think Qualcomm is one that works.

With Qualcomm, it's much more about the quality of their business. Qualcomm gets paid, of course, by end licensing and through their chipset business. On the licensing side, they collect royalty for every 3G and smartphone basically sold in the world and every tablet that's sold. So the growth in the end market drives their licensing business. What that basically means, we think, is that no matter who is gaining share, whether it's an Apple or whether it's a RIM, whether it's an Android vendor or someone else, Qualcomm will collect their royalty because they own the core I.P. along with two or three other companies in the world around which is designed as to how wireless standards operate. Secondly on Qualcomm, their chipset business, they have a 40% 3G WCDMA chipset share, but they are about to now ramp up or they started ramping up production with Apple, they will start with Nokia, and they continue to be very heavily aligned with Android. So with all the right customers, we think their market share will expand. So Qualcomm is a different way we think of playing the end growth in both wireless data, smartphones and even tablets.

TWST: You mentioned obviously Apple and Qualcomm. Are there other companies you like right now?

Mr. Garcha: We recently turned more positive on Nokia. But the story on Nokia is much more about a turnaround. We think that there's room now for a third ecosystem. We think that third ecosystem will be Windows, and Nokia, given their significant brand and distribution, now behind Windows and pricing their products aggressively, we think that makes an interesting turnaround story. The issue there is about how the company is growing, about the fact that Nokia is a company that struggled for the last several years by working with the Symbian platform. They announced a strategy to move towards Windows. And as we go through 2012 and into 2013, we believe that will start to show quite a bit of benefit, which will drive a recovery in their profitability.

TWST: Does the macroeconomy impact wireless?

Mr. Garcha: I think one of the things that is impacted is in the sense that if you have rising unemployment levels, people tend to spend less on their mobile telephony phone. They will downgrade them, and that will in the end cause issues as well. So there is some impact. The one thing is that I think the mobile phone is seen as a core part of everybody's life today. If you lose it, you have to replace it, you don't wait until you are in a better financial situation to get a phone. So it's something that you'll continue to spend money on at some level, so there is some immunity. The way the way the industry more tends to be impacted is that when the economy is bad, carriers tend to become a little bit more cautious on how will they subsidize devices, the higher-end users may not upgrade to the same levels, so there is some impact on the revenue outlook. Unemployment can impact this as well. So I don't want to say it's completely immune. All I would say is there's some defensiveness in the sense that if you lose your mobile phone, much like if you lose your PC, you are going to replace that. If you lose your mobile phone, you have to replace it straight away. Most people believe they need to have that phone to stay in contact.

TWST: Thank you. (LMR)

Note: Opinions and recommendations are as of 01/05/12.

Kulbinder Garcha

Managing Director

Credit Suisse

11 Madison Ave.

New York, NY 10010

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