Add
QCOM to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| QCOM > SEC Filings for QCOM > Form 10-K on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Annual Report
In addition to historical information, the following discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results may differ substantially from those referred to herein due to a number
of factors, including but not limited to risks described in the section entitled
Risk Factors and elsewhere in this Annual Report.
• CDMA-based device shipments totaled approximately 492 million units, an increase of 14% over the 433 million units shipped in fiscal 2008. (2)
• The average selling price of CDMA-based devices was estimated to be
approximately $200, a decrease of approximately 9% from the prior year.
• We entered into a Settlement and Patent License and Non-Assert Agreement with Broadcom Corporation. As a result of this agreement, we recorded a $783 million charge.
• In July 2009, the Korea Fair Trade Commission (KFTC) announced (although a written decision has not yet been issued) that it found us to be in violation of South Korean law by offering certain discounts and rebates for purchases of our CDMA chips and that it would levy a fine, as well as order us to cease the practices at issue. We intend to appeal the written decision once issued. As a result of this announcement, we recorded a $230 million charge.
Against this backdrop, the following recent developments occurred during
fiscal 2009 with respect to key elements of our business or our industry:
• Worldwide wireless subscribers grew by approximately 16% to reach
approximately 4.5 billion.(1)
• CDMA subscribers, including both 2G (cdmaOne) and 3G (CDMA2000 1X, 1xEV-DO, WCDMA, HSPA and TD-SCDMA), are approximately 20% of total worldwide wireless subscribers to date. (1)
• 3G subscribers (all CDMA-based) grew to approximately 885 million
worldwide including approximately 455 million CDMA2000 1X/1xEV-DO
subscribers and approximately 430 million WCDMA/HSPA/TD-SCDMA subscribers.
• In the handset market, CDMA-based unit shipments grew an estimated 7% year-over-year, compared to an estimated decline of 7% year-over-year across all technologies.(3)
• In September 2009, the Japan Fair Trade Commission (JFTC) issued a Cease and Desist Order (CDO) seeking to require us to modify our existing license agreements with Japanese companies to eliminate certain cross-license non-assertion provisions in our license agreements, while preserving the license of our patents to those companies. We intend to invoke our right under Japanese law to an administrative hearing before the JFTC and to seek a stay of the CDO from the JFTC, and if necessary, from the Japanese courts.
(1) According to Wireless Intelligence estimates as of November 2, 2009, for the quarter ending September 30, 2009. Wireless Intelligence estimates for CDMA2000 1X/1xEV-DO subscribers do not include Wireless Local Loop.
(2) Derived from reports provided by our licensees/manufacturers during the year and our own estimates of unreported activity.
(3) Based on current reports by Strategy Analytics, a global research and consulting firm, in their Global Handset Market Share Updates.
Our Business and Operating Segments
We design, manufacture, have manufactured on our behalf and market digital
wireless telecommunications products and services based on our CDMA technology
and other technologies. We derive revenues principally from sales of integrated
circuit products, license fees and royalties for use of our intellectual
property, messaging and
other services and related hardware sales, software development and licensing
and related services, software hosting services and services related to delivery
of multimedia content. Operating expenses primarily consist of cost of equipment
and services, research and development and selling, general and administrative
expenses.
We conduct business primarily through four reportable segments. These
segments are: Qualcomm CDMA Technologies, or QCT; Qualcomm Technology Licensing,
or QTL; Qualcomm Wireless & Internet, or QWI; and Qualcomm Strategic
Initiatives, or QSI.
QCT is a leading developer and supplier of CDMA-based integrated circuits and
system software for wireless voice and data communications, multimedia functions
and global positioning system products. QCT's integrated circuit products and
system software are used in wireless devices, particularly mobile phones,
laptops, data modules, handheld wireless computers, data cards and
infrastructure equipment. The integrated circuits for wireless devices include
the Mobile Station Modem (MSM), Radio Frequency (RF) and Power Management
(PM) devices. These integrated circuits for wireless devices and system software
perform voice and data communication, multimedia and global positioning
functions, radio conversion between RF and baseband signals and power
management. QCT's system software enables the other device components to
interface with the integrated circuit products and is the foundation software
enabling equipment manufacturers to develop devices utilizing the functionality
within the integrated circuits. The infrastructure equipment integrated circuits
and system software perform the core baseband CDMA modem functionality in the
wireless operator's base station equipment. QCT revenues comprised 59%, 60% and
59% of total consolidated revenues in fiscal 2009, 2008 and 2007, respectively.
QCT utilizes a fabless production business model, which means that we do not
own or operate foundries for the production of silicon wafers from which our
integrated circuits are made. Integrated circuits are die cut from silicon
wafers that have completed the assembly and final test manufacturing processes.
We rely on independent third-party suppliers to perform the manufacturing and
assembly, and most of the testing, of our integrated circuits. Our suppliers are
also responsible for the procurement of most of the raw materials used in the
production of our integrated circuits. We employ both turnkey and two-stage
manufacturing business models to purchase our integrated circuits. Turnkey is
when our foundry suppliers are responsible for delivering fully assembled and
tested integrated circuits. Under the two-stage manufacturing business model, we
purchase die from semiconductor manufacturing foundries and contract with
separate third-party manufacturers for back-end assembly and test services. We
refer to this two-stage manufacturing business model as Integrated Fabless
Manufacturing (IFM).
QTL grants licenses to use portions of our intellectual property portfolio,
which includes certain patent rights essential to and/or useful in the
manufacture and sale of certain wireless products, including, without
limitation, products implementing cdmaOne, CDMA2000, WCDMA, CDMA TDD (including
TD-SCDMA), GSM/GPRS/EDGE and/or OFDMA standards and their derivatives. QTL
receives license fees as well as ongoing royalties based on worldwide sales by
licensees of products incorporating or using our intellectual property. License
fees are fixed amounts paid in one or more installments. Ongoing royalties are
generally based upon a percentage of the wholesale selling price of licensed
products, net of certain permissible deductions (e.g., certain shipping costs,
packing costs, VAT, etc.). QTL revenues comprised 35%, 33% and 31% of total
consolidated revenues in fiscal 2009, 2008 and 2007, respectively. The vast
majority of such revenues have been generated through our licensees' sales of
cdmaOne, CDMA2000 and WCDMA products.
QWI, which includes Qualcomm Enterprise Services (QES), Qualcomm Internet
Services (QIS), Qualcomm Government Technologies (QGOV) and Firethorn, generates
revenues primarily through mobile information products and services, software
and software development aimed at support and delivery of wireless applications.
QES sells equipment, software and services used by transportation and other
companies to connect wirelessly with their assets and workforce. Through
September 2009, QES has shipped approximately 1,344,000 terrestrial-based and
satellite-based mobile information units. QIS provides content enablement
services for the wireless industry, including BREW (Binary Runtime Environment
for Wireless), the Plaza suite and other services. QIS also provides QChat
push-to-talk, QPoint and other products for wireless network operators. The QGOV
division provides development, hardware and analytical expertise involving
wireless communications technologies to United States government agencies.
Firethorn builds and manages software applications that enable financial
institutions and wireless operators to offer mobile commerce services. QWI
revenues comprised 6%, 7% and 9% of total consolidated revenues in fiscal 2009,
2008 and 2007, respectively.
QSI manages the Company's strategic investment activities, including FLO TV
Incorporated (FLO TV), formerly MediaFLO USA, Inc., our wholly-owned wireless
multimedia operator subsidiary. QSI also makes strategic investments to promote
the worldwide adoption of CDMA-based products and services. Our strategy is to
invest in early-stage and other companies, including licensed device
manufacturers, that we believe open new markets for CDMA technology, support the
design and introduction of new CDMA-based products or possess
unique capabilities or technology. Our FLO TV subsidiary offers its service over
our nationwide multicasting network based on our MediaFLO Media Distribution
System (MDS) and MediaFLO technology. This network is utilized as a shared
resource for wireless operators and their customers in the United States. The
commercial availability of the FLO TV service to retail wireless consumers
continues to be determined, in part, by our wireless operator partners. FLO TV's
network uses the 700 MHz spectrum for which we hold licenses nationwide.
Additionally, FLO TV has and will continue to procure, aggregate and distribute
content in service packages which we will continue to make available on a
wholesale basis to our wireless operator customers (whether they operate on
CDMA, WCDMA or GSM networks) in the United States. Distribution, marketing,
billing and customer care remain functions that are provided primarily by our
wireless operator partners. As part of our strategic investment activities, we
intend to pursue various exit strategies at some point in the future, which may
include distribution of our ownership interest in FLO TV to our stockholders in
a spin-off transaction.
Nonreportable segments include: the Qualcomm MEMS Technologies division,
which is developing an interferometric modulator (IMOD) display technology based
on micro-electro-mechanical-system (MEMS) structure combined with thin film
optics; the Qualcomm Flarion Technologies division, which is developing
femtocell chipset products and other OFDM/OFDMA technologies; the MediaFLO
Technologies division, which is developing our MediaFLO MDS and MediaFLO
technology and markets MediaFLO for deployment outside of the United States; and
other product initiatives.
Looking Forward
The deployment of 3G networks enables increased voice capacity and higher
data rates, thereby supporting more minutes of use and a range of mobile
broadband data applications for handsets, 3G connected computing devices and
other consumer electronics. Data applications include broadband connectivity,
streaming video, location based services, mobile social networking and
multimedia messaging. As a result, we expect continued growth in the coming
years in consumer demand for 3G products and services around the world. As we
look forward to the next several months, the following items are likely to have
an impact on our business:
• The network launches and further expansion of 3G in China, including
CDMA2000 by China Telecom, WCDMA by China Unicom and TD-SCDMA by China
Mobile, is expected to drive competition and growth of 3G products and
services in that region.
• The transition to 3G CDMA-based networks is expected to continue:
o More than 595 operators have commercially launched 3G networks, including 300 CDMA2000 networks and 295 WCDMA networks; (1)(2)
o More than 110 CDMA2000 operators have commercially launched the higher data speeds of 1xEV-DO and more than 75 have launched EV-DO Revision A; (1) and
o More than 280 WCDMA operators have commercially launched the higher data speeds of HSDPA, while more than 90 have launched HSUPA and 26 have launched HSPA+. (2)
• We expect that CDMA-based device prices will continue to segment into high and low end due to high volumes and vibrant competition in marketplaces around the world. As operators deploy the higher data speeds of HSPA, HSPA+, EV-DO Revision A and EV-DO Revision B and as manufacturers introduce additional highly-featured, converged devices, we expect consumer demand for advanced 3G devices to continue at a strong pace.
• To meet growing demand for advanced 3G wireless devices and increased multimedia functionality, we intend to continue to invest significant resources toward the development of wireless baseband chips, converged computing/communication chips, multimedia products, software and services for the wireless industry. We expect that a portion of our research and development initiatives in fiscal 2010 will not reach commercialization until several years in the future.
• We expect demand for cost-effective wireless devices to continue to grow and have developed a family of Qualcomm Single Chip (QSC) products, which integrate the baseband, radio frequency and power management functions into a single chip or package, lowering component counts and enabling faster time-to-market for our customers. While we continue to invest aggressively to expand our QSC product family to address the low-end market more effectively with CDMA-based products, we still face significant competition from GSM-based products, particularly in emerging markets.
• We expect to continue to invest in the evolution of CDMA and a broad range of other technologies as part of our vision to enable a range of technologies, including the following products and technologies:
o The continued evolution of CDMA-based technologies, including the long-term roadmaps of 1xEV-DO and High Speed Packet Access (HSPA);
o OFDM and OFDMA-based technologies, including LTE;
o Our service applications platform, content delivery services and user interfaces;
o Our Snapdragon platform to help create new CDMA-based connected computing products and drive connectivity beyond traditional wireless devices;
o Our Gobi mobile data modems to provide worldwide CDMA-based embedded connectivity for existing computing platforms;
o Our convergence-based chips that include 3G modem and applications processor capabilities (including support for third-party operating systems);
o Our FLO TV mobile television service which includes product and distribution expansion beyond wireless operators through direct-to-consumer products such as automotive devices and personal television devices through retail channels; and
o Our IMOD display technology.
In addition to the foregoing business and market-based matters, the following
items are likely to have an impact on our business and results of operations
over the next several months:
• We expect to continue to devote resources to working with and educating
all participants in the wireless value chain as to the benefits of our
business model in promoting a highly competitive and innovative wireless
market. However, we expect that certain companies may continue to be
dissatisfied with the need to pay reasonable royalties for the use of our
technology and not welcome the success of our business model in enabling
new, highly cost-effective competitors to their products. We expect that
such companies will continue to challenge our business model in various
forums throughout the world. For example, we expect that we will continue
to be involved in litigation, and to appear in front of administrative and
regulatory bodies, including the European Commission, the Korea Fair Trade
Commission and the Japan Fair Trade Commission, to defend our business
model and to rebuff efforts by companies seeking to gain competitive
advantage or negotiating leverage.
• We have been and will continue evaluating and providing reasonable assistance to our customers. This includes, in some cases, certain levels of financial support to minimize the impact of litigation in which we or our customers may become involved.
• The volatility in financial markets may continue to have an impact on the value of our marketable securities and net investment income (loss).
(1) According to public reports made available at www.cdg.org as of October 27, 2009.
(2) As reported by the Global mobile Suppliers Association, an international organization of WCDMA and GSM (Global System for Mobile Communications) suppliers, in their October 2009 reports.
Further discussion of risks related to our business is presented in the Risk
Factors included in this Annual Report.
Revenue Concentrations
Revenues from customers in South Korea, China and Japan comprised 35%, 23%
and 11%, respectively, of total consolidated revenues for fiscal 2009, as
compared to 35%, 21% and 14%, respectively, for fiscal 2008, and 31%, 21% and
17%, respectively, for fiscal 2007. We distinguish revenues from external
customers by geographic areas based on the location to which our products,
software or services are delivered and, for QTL's licensing and royalty
revenues, the invoiced addresses of our licensees. The decline in revenues from
customers in Japan was primarily due to lower replacement rates in Japan.
Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations and liquidity and
capital resources are based on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates and judgments, including those
related to revenue recognition, valuation of intangible assets and investments,
share-based payments, income taxes and litigation. We base our estimates on
historical and anticipated results and trends and on various other assumptions
that we believe are reasonable under the circumstances, including assumptions as
to future events. These estimates form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. By their nature, estimates are subject to an inherent degree of
uncertainty. Actual results that differ from our estimates could have a
significant adverse effect on our operating results and financial position. We
believe that the following significant accounting policies and assumptions may
involve a higher degree of judgment and complexity than others.
Revenue Recognition. We derive revenue principally from sales of integrated
circuit products, royalties and license fees for our intellectual property,
messaging and other services and related hardware sales, software development
and licensing and related services, software hosting services and services
related to delivery of multimedia content. The timing of revenue recognition and
the amount of revenue actually recognized in each case depends upon a variety of
factors, including the specific terms of each arrangement and the nature of our
deliverables and obligations. Determination of the appropriate amount of revenue
recognized involves judgments and estimates that we believe are reasonable, but
actual results may differ from our estimates. We record reductions to revenue
for customer incentive programs, including special pricing agreements and other
volume-related rebate programs. Such reductions to revenue are based on
estimates, including our assumptions related to historical and projected
customer sales volumes, market share and inventory levels.
We license rights to use portions of our intellectual property portfolio,
which includes certain patent rights essential to and/or useful in the
manufacture and sale of certain wireless products. Licensees typically pay a
license fee in one or more installments and ongoing royalties based on their
sales of products incorporating or using our licensed intellectual property.
License fees are recognized over the estimated period of benefit to the
licensee, typically five to fifteen years. We earn royalties on such licensed
products sold worldwide by our licensees at the time that the licensees' sales
occur. Our licensees, however, do not report and pay royalties owed for sales in
any given quarter until after the conclusion of that quarter. We recognize
royalty revenues based on royalties reported by licensees during the quarter and
when other revenue recognition criteria are met. From time to time, licensees
will not report royalties timely due to legal disputes, and when this occurs,
the timing and comparability of royalty revenues could be affected.
Valuation of Intangible Assets and Investments. Our business acquisitions
typically result in the recording of goodwill and other intangible assets, and
the recorded values of those assets may become impaired in the future. We also
acquire intangible assets in other types of transactions. As of September 27,
2009, our goodwill and intangible assets, net of accumulated amortization, were
$1.5 billion and $3.1 billion, respectively. The determination of the value of
such intangible assets requires management to make estimates and assumptions
that affect our consolidated financial statements. For intangible assets
purchased in a business combination or received in a non-monetary exchange, the
estimated fair values of the assets received (or, for non-monetary exchanges,
the estimated fair values of the assets transferred if more clearly evident) are
used to establish their recorded values, except when neither the values of the
assets received or the assets transferred in non-monetary exchanges are
determinable within reasonable limits. Valuation techniques consistent with the
market approach, income approach and/or cost approach are used to measure fair
value. An estimate of fair value can be affected by many assumptions which
require significant judgment. For example, the income approach generally
requires assumptions related to the appropriate business model to be used to
estimate cash flows, total addressable market, pricing and share forecasts,
competition, technology obsolescence, future tax rates and discount rates. Our
estimate of the fair value of certain assets, or our conclusion that the value
of certain assets is not reliably estimable, may differ materially from that
determined by others who use different assumptions or utilize different business
models. New information may arise in the future that affects our fair value
estimates and could result in adjustments to our estimates in the future, which
could have an adverse impact on our results of operations.
We assess potential impairments to intangible assets when there is evidence
that events or changes in circumstances indicate that the carrying amount of an
asset or asset group may not be recoverable. Our judgments regarding the
existence of impairment indicators and future cash flows related to intangible
assets are based on operational performance of our businesses, market conditions
and other factors. Although there are inherent uncertainties in this assessment
process, the estimates and assumptions we use, including estimates of future
cash flows, volumes, market penetration and discount rates, are consistent with
our internal planning. If these estimates or their related assumptions change in
the future, we may be required to record an impairment charge on all or a
portion of our goodwill and intangible assets. Furthermore, we cannot predict
the occurrence of future impairment-triggering events nor the impact such events
might have on our reported asset values. Future events could cause us to
conclude that impairment indicators exist and that goodwill or other intangible
assets associated with our acquired businesses are impaired. Any resulting
impairment loss could have an adverse impact on our net investment income
(loss).
We hold minority investments in publicly-traded companies whose share prices
may be highly volatile. We also hold investments in other marketable securities,
including non-investment-grade debt securities, equity and debt mutual and
exchange-traded funds, corporate bonds and notes, auction rate securities and
mortgage- and asset-backed securities. These investments, which are recorded at
fair value with increases or decreases generally recorded through stockholders'
equity as other comprehensive income or loss, totaled $15 billion at
September 27, 2009. We record impairment charges through the statement of
operations when we believe an investment has experienced a decline that is other
than temporary. The determination that a decline is other than temporary is
subjective and influenced by many factors. In addition, the fair values of our
strategic investments are subject to substantial quarterly and annual
fluctuations and to significant market volatility. Adverse changes in market
conditions or poor operating results of investees could result in losses or an
inability to recover the carrying value of the investments, thereby requiring
impairment charges. When assessing these investments for an other-than-temporary
decline in value, we consider such factors as, among other things, how
significant the decline in value is as a percentage of the original cost, how
long the market value of the investment has been below its original cost, the
extent of the general decline in prices or an increase in the default or
recovery rates of securities in an asset class, negative events such as a
bankruptcy filing or a need to raise capital or seek financial support from the
government or others, the performance and pricing of the investee's securities
in relation to the securities of its competitors within the industry and the
market in general and analyst recommendations, as applicable. We also review the
financial statements of the investee to determine if the investee is
experiencing financial difficulties. If we determine that a security price
decline is other than temporary, we may record an impairment loss, which could
have an adverse impact on our results of operations. During fiscal 2009, 2008
and 2007, we recorded $743 million, $502 million and $16 million, respectively,
in net other-than-temporary losses on our investments in marketable securities.
Share-Based Payments. We grant options to purchase our common stock to our
employees and directors under our equity compensation plans. Eligible employees
can also purchase shares of our common stock at 85% of the lower of the fair
. . .
|
|