Qualcomm Pays Price for Counting Stock as Revenue
By Tish Williams
Senior Writer
02/08/2002 02:33 PM EST
thestreet.com
Qualcomm (QCOM:Nasdaq - news - commentary - research - analysis) felt the Enron-fueled fear of investors Friday, based on rumors of a report put out by accounting snoop Howard Schilit's Center for Financial Research and Analysis.
A warning circulated on the Street that Schilit was looking into Qualcomm's royalty revenues as reported in the 10-K annual report filing for the fiscal year ended Sept. 30, 2001.
The stock lost more than 11% late Friday morning, falling as low as $34.59 before pulling back slightly.
Apparently, the issue involves complications of an outreach program Qualcomm began in December 2000 that would allow it to take "early stage" company stock, as Qualcomm termed it in Securities and Exchange Commission filings, as payment for royalties.
In 2001, seven companies participated in the program, according to the company. In its most recent 10-K, Qualcomm reports that it accepted $11 million in "equity consideration" (aka stock) in return for royalty payments for CDMA licenses. More problematic, however, is the $9 million in shares Qualcomm acknowledges taking as payment during fiscal 2001 on accounts that were initially to be paid in cash.
In a time of heightened accounting hysteria, stock in a company that was supposed to pay in cash, but apparently could not, most likely will be interpreted as less-than-solid revenue.
The wireless technology company has historically been an aggressive investor in companies big and small to spread its code division multiple access (CDMA) technology used in mobile phone networks and handsets alike. Qualcomm has investments in complicated efforts such as Globalstar and NextWave, foreign telephone companies such as Vesper in Brazil, and a number of public and private companies that may be important in the future of wireless calling, such as Handspring (HAND:Nasdaq - news - commentary - research - analysis) and PayPal.
To that end, Qualcomm announced on Jan. 17 it would change the way it reports quarterly results to separate out its investing practices. Results for the newly dubbed Qualcomm Strategic Initiatives unit will be factored out of pro forma earnings and revenues from the company's chipset and licensing business. The issue in question, however, focuses on revenue booked in the Qualcomm Technology Licensing Group.
The Center for Financial Research and Analysis would not comment on the matter. Qualcomm did not immediately respond.
Qualcomm shares hit by accounting concerns
biz.yahoo.com
(UPDATE: Updates with option trading, paragraphs 3-6, background, analyst comments paragraphs 11-15)
CHICAGO, Feb 8 (Reuters) - Shares of wireless technology firm Qualcomm Inc. (NasdaqNM:QCOM - news) fell to a low unseen since August of 1999 on Friday after a research firm raised concerns about accounting issues in the company's fourth-quarter and full-year financial reports.
Qualcomm's stock hit a low of $34.59 before settling a bit at $36.70, off $2.42 or 6.19 percent from Thursday's close in heavy trading on Nasdaq.
``Qualcomm options have been very busy on these accounting rumors,'' said lead market maker Dan Brady with Letco on the Pacific Exchange. ``They are buying puts and calls.''
``Some people are discounting this (report) and buying calls and some people are scared of this and buying puts,'' Brady said. ``There is a lot of uncertainty whether this is true or not.''
An American-style call option gives its buyer the right to purchase the underlying stock at a specific strike price any time during the option's life. A put conveys a similar right to the buyer to sell the underlying stock.
By mid-afternoon on Friday, options volume on Qualcomm soared, reaching the highest level since last October based on figures from Track Data, a privately owned firm that provides real time data on options and securities.
According to a summary of the report obtained by Reuters, Rockville, Maryland-based Center for Financial Research and Analysis Inc. (CFRA) on Friday said, ``We found that the company has recorded revenue in exchange for non-cash consideration and that the company has accepted non-cash consideration for receivables removed from Qualcomm's balance sheet.''
Qualcomm officials were not immediately available to comment.
The report went on to cite what it called potential conflicts of interest between the Board and the company's auditor, familial relationships among Qualcomm's executive officers and ``seemingly generous option grants during a year of poor corporate results''.
``In this environment, any time someone raises accounting concerns of a company, the stock is going to suffer,'' Matthew Hoffman, wireless equipment analyst with SoundView Technology, said. ``It's easier for investors to sell first and ask questions later.''
Investors have been jittery about companies' accounting practices in the wake of the collapse of energy giant Enron Corp. and more recently telecommunications firm Global Crossing Ltd. .
Specifically, CFRA said Qualcomm allowed early stage companies to pay for part of their license fees to Qualcomm in equity instead of cash. The company recorded it as revenue.
Edward Snyder, wireless equipment analyst with J.P. Morgan, said investors were overreacting to the news.
``The report that came out addressed maybe $30 million in concerns, which means it's immaterial,'' Snyder said.
``They complained about generous options, contracts in a bad year, which I agree with, but that doesn't really mean anything,'' he said. ``And they hired their sons? It's not my candy store, they can do whatever they want.''
(Additional reporting by Doris Frankel |
