Story.............Thursday July 22, 12:41 pm Eastern Time
S&P ups Qualcomm Inc corp credit rating
(Press release provided by Standard & Poor's)
NEW YORK, July 22 - Standard & Poor's today raised its corporate credit and bank loan ratings on Qualcomm Inc. to
double-'B'-plus from double-'B' and its preferred stock rating on the company to single-'B'-plus from single-'B'.
The ratings are removed from CreditWatch, where they had been placed with positive implications July 13, 1999.
The outlook is stable.
The ratings on Qualcomm reflect the company's substantially improved business and financial profile following resolution of patent disputes with AB LM Ericsson on
terms favorable to Qualcomm, and its late-July 1999 sale of $1.08 billion in common stock.
In addition, the rating reflects the sale of the company's unprofitable base-station manufacturing operations to Ericsson.
These factors are somewhat offset by an expected increase in competition for handsets, which represent nearly 50% of revenues, and price pressures on
special-purpose chips that the company supplies to most suppliers of code division multiple access (CDMA) wireless products.
The company remains obligated to offer a substantial degree of financial support to several speculative-grade businesses.
San Diego, Calif.-based Qualcomm manufactures wireless communications products based on the CDMA technology that it commercialized. CDMA patent royalties are
substantial, based on equipment manufacturers' revenues.
Royalties also will apply to equipment built for the next generation of the Global System for Mobile Telecommunications (GSM) wireless standard, pervasive in Europe,
starting in about three years.
Qualcomm is the dominant supplier of profitable application-specific semiconductor chips to the CDMA industry, although competition is developing.
The company also generates good cash flows from its truck fleet communications service, and provides services and equipment to the Globalstar L.P. satellite
communications system.
Royalty income stability has been enhanced by favorable resolution of intellectual property disputes with Ericsson, while profitability has benefited from the sale of the
unprofitable base-station business.
Although earlier handset manufacturing problems have been overcome, the handset business is subject to profitability pressures, rapid product line evolution, continual
execution challenges, and the uncertainty of consumer tastes.
Although funds flow from operations is good, rapid growth has entailed substantial increases in working capital levels.
Resulting operating cash flows have been negative, exacerbated by large historical capital expenditures to build handset and base-station factories as well as by rising
levels of vendor finance extended to several customers.
The company's decision to exit the base-station business has strengthened its operating profitability, helped moderate its construction expenditures, and will curtail the
growth in potential vendor finance commitments.
Still, future prefinancing cash flows will depend on the growth rate of the handset operations and on customer requirements for vendor financial support, potentially
totaling more than $1 billion.
Cash balances of $1.5 billion may decline but should remain ample over the near to intermediate term. Debt leverage is low, as growth has been financed by more than
$2 billion in common and preferred stock offerings during the past five years.
Financial flexibility is enhanced by $600 million of revolving credit agreements.
OUTLOOK: STABLE
Rapid changes in the wireless industry, the company's substantial exposure to the very competitive handset marketplace, and its ongoing vendor financing commitments
are likely to constrain further ratings upgrades over the near to intermediate term, Standard & Poor's said.
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