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To: DaveMG who wrote (151)	7/20/1999 5:23:00 PM
From: DaveMG	Respond to of 426

Here is the Salomon Smith Barney report: QCOM: F3Q99 EPS A Blow Out; Raising Price Target To $210 Salomon Smith Barney Tuesday, July 20, 1999 -------------------------------------------------------------------------------- --SUMMARY:--QUALCOMM, Inc.--Telecommunications Equipment * We continue to recommend QCOM with a 1H rating * Earnings estimates raised & 12-18 month Price Target Now $210 * EPS in FY99 & F00 now $2.4 & $4.00 vs $2.12 & $2.87, while 2001 established @ $5.30 * F3Q99 operating EPS of $0.75 vs our est of $0.67 & consensus of $0.63. * On proforma basis, excluding biz sold to ERICY, EPS would have been $0.86 * Upside EPS came from both inc margins plus royalties from other manufacturers of CDMA equipment * Upside EPS was impressive because occurred despite component shortages that prevented Qualcomm from exploiting upper end of demand expectations * Revs, ex royalties, were $911.4 mn vs. our est of $951.1 mn, while royalties were $92.6 mn up 97% YOY --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 09/98 EPS $0.29A $0.13A $0.14A $0.27A $0.82A Previous 09/99 EPS $0.30A $0.41A $0.67E $0.73E $2.12E Current 09/99 EPS $0.30A $0.41A $0.75A $0.90E $2.40E Previous 09/00 EPS $N/A $N/A $N/A $N/A $2.87E Current 09/00 EPS $N/A $N/A $N/A $N/A $4.00E Previous 09/01 EPS $N/A $N/A $N/A $N/A $3.75E Current 09/01 EPS $N/A $N/A $N/A $N/A $5.30E Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior:No Change Price (7/19/99).....:$158.69 P/E Ratio 09/99.....:66.1x Target Price..:$210.00 Prior:150.00 P/E Ratio 09/00.....:39.7x Proj.5yr EPS Grth...:44.4% Return on Eqty 98...:48.9% Book Value/Shr(99)..:7.01 LT Debt-to-Capital(a)0.2% Dividend............:$N/A Revenue (99)........:3649.00mil Yield...............:N/A% Shares Outstanding..:159.0mil Convertible.........:No Mkt. Capitalization.:25231.7mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION:------------------------------------------------------------------ We continue to recommend Qualcomm with a 1H rating. In fact, we are raising our earnings estimates and price targets based on June quarter results that were significantly above expectations. We now expect earnings in fiscal 1999 and fiscal 2000 to be closer to $2.40 and $4.00, respectively, as opposed to $2.12 and $2.87 we had previously estimated. Based on our view, Qualcomm can continue to trade at similar valuations of about 40 times forward earnings as many of its peers, we believe Qualcomm's share price can move up to $210 per share over the next 12-18 months. EARNINGS PER SHARE: Last night, after the close, Qualcomm reported F3Q99 EPS of $0.75 (excluding non-recurring items), which compares to $0.14 last year, our estimate of $0.67 and consensus of $0.63. Excluding the recently sold infrastructure business, as well as non-recurring items, EPS for the quarter would have been $0.86. HIGHER MARGINS & ROYALTIES DROVE EARNINGS: Better than expected earnings were driven by revenue levels that were essentially on target combined with significantly greater gross and operating margins as well as higher than expected royalty fees generated from a booming market for wireless infrastructure and mobile phones based on Qualcomm's CDMA technology. Manufacturers throughout Asia, including Korea and Japan, as well as companies such as Lucent, Motorola, Nortel, Nokia and now Ericsson pay Qualcomm royalties on all CDMA-based equipment sold. REVENUES: Qualcomm reported revenues, excluding licensing and development fees, of $911.4 million, an increase of 10% from $828.6 million reported last year and compares with our estimate of $951.1 million. Revenue was essentially in-line, for the most part, because Qualcomm was not able to fully meet the demand for its products due to the tight supply for certain components. While Qualcomm was not able to ship as many mobile phones as it would have liked in the quarter, the company was still able to exploit the upper end of demand via royalties obtained from other manufacturers. In fact, royalty fees obtained from manufacturers of CDMA-based equipment nearly doubled during the quarter when compared to same period a year ago. As mentioned in our recent Company Report on Qualcomm, the company is somewhat neutral to whether it sells the phone or its licensees. SEGMENT REVENUES: Communications Systems revenues increased 8.6% YOY to $823.6 million from $758.6 million, which compares to our estimate of $877.6 million. Contract Services revenues were $87.9 million in the quarter versus $70 million reported last year and compared to our estimate of $73.5 million. Licensing and Royalty fees, which we analyze below the operating line, were $92.6 million in fiscal 3Q versus $46.9 million reported last year and our estimate of $86.2 million. PROFITABILITY: Gross margin for the quarter was 34.4% versus 24.6% last year and our estimate of 31.0%. Viewed separately, Communications Services gross margin was 34.5% versus 24.3% in F3Q98 and our estimate of 31.0%. Contract Services gross margin was 33.3% compared with 27.6% reported last year and our estimate of 31.4%. Operating margin for F3Q99 was 13.5%, versus 0.8% last year and our estimate of 9.9%. BALANCE SHEET: The balance sheet remains healthy and working capital requirements stable. Inventory days improved to 36 days in the quarter from 44 days last quarter, and the company's collection cycle shortened to 81 days from 96 last quarter.

To: DaveMG who wrote (151)	7/20/1999 5:28:00 PM
From: DaveMG	Respond to of 426

QUALCOMM Files New Complaint in Longstanding Dispute with Motorola SAN DIEGO, July 20 /PRNewswire/ -- QUALCOMM Incorporated (Nasdaq: QCOM - news) today filed a lawsuit seeking a judicial determination that QUALCOMM has the right to terminate all licenses granted to Motorola, Inc. (NYSE: MOT - news) under a 1990 Patent License Agreement signed by the parties, while retaining all licenses granted by Motorola to QUALCOMM under the same agreement. QUALCOMM's complaint was filed in San Diego in the United States District Court for the Southern District of California where a number of earlier actions between the parties relating to the Patent License Agreement have been pending for more than two years. The complaint alleges that Motorola has committed breaches of the Patent License Agreement that include pursuing a lawsuit against QUALCOMM for infringement of patents that are in fact licensed to QUALCOMM under the agreement. QUALCOMM's new filing also seeks a ruling that upon termination of the Patent License Agreement, the patents formerly licensed to Motorola would be infringed by Code Division Multiple Access (CDMA) handsets and network infrastructure equipment made and sold by Motorola. The litigation between QUALCOMM and Motorola began in March 1997 in response to allegations by Motorola that QUALCOMM's then recently announced Q(TM) phone infringed design and utility patents held by Motorola. In April 1997, the federal court in San Diego denied Motorola's motion for a preliminary injunction, thereby permitting QUALCOMM to continue to manufacture, market and sell the Q phone. In January 1998, the U.S. Court of Appeals for the Federal Circuit upheld the lower court's decision not to enjoin QUALCOMM from manufacturing and selling the Q phone. The litigation eventually expanded to include several consolidated cases for patent and trade dress infringement and QUALCOMM's claims for breach of the Patent License Agreement and unfair competition. The consolidated cases are presently set for a final pretrial conference in December 1999.

To: DaveMG who wrote (151)	7/20/1999 5:37:00 PM
From: DaveMG	Read Replies (1) \| Respond to of 426

Merrill today on Q: Investment Highlights: · The company reported operating EPS of $0.75, well above consensus expectations of $0.63. · Revenues were basically in-line with our estimate but gross margins were much higher than expected. · We are raising our fiscal 1999 EPS estimate from $2.15 to $2.42 and our fiscal 2000 EPS estimate from $3.05 to $3.80. Based on these revised estimates, we are raising our 12-18 month price objective to $178 based on a P/E multiple of 43-times calendar 2000 EPS estimates. Fundamental Highlights: · June quarter results were driven by strong royalty payments and ASIC sales. Results could have been even better were it not for some component supply shortages. · QUALCOMM completed the sale of its infrastructure business in May. Excluding this, the company had operating EPS of $0.86. · There continues to be tremendous margin leverage in the operating model. We are assuming only a gradual improvement in component supply availability, which should have a modest positive effect on gross margins. Highlights of June Quarter Results QUALCOMM reported a 15% increase in revenues to $1.00 billion versus $875.5 million, in-line with our expectations. Communications Systems revenues increased by 9% to $823.6 million versus $758.6 million, license and development fees grew by 87% to $87.9 million versus $46.9 million, and revenues from contract services increased by 33% to $92.6 million versus $69.9 million. The company reported EPS of $0.59. However, the reported results included non-recurring charges of $117 million associated primarily with the sale of the terrestrial CDMA wireless infrastructure business. Excluding these charges, operating EPS were $0.75 versus $0.14 a year ago, substantially above consensus expectations of $0.63. Gross margins were about 3 points better than expected. Gross margins improved in each of the company's product lines, except the wireless infrastructure business, which was recently sold to Ericsson. As for the balance sheet, cash and equivalents were $448 million as of June 27, 1999, about $244 million above the previous quarter. Accounts receivables were $787 million (111 days sales outstanding compared to 118 in the preceding quarter) and inventories were $213 million (11.1 inventory turns ratio). Business Trends June quarter results contained contributions from the wireless infrastructure business that was sold to Ericsson on May 24 th , 1999. Management indicated that excluding the infrastructure business, revenues would have been $966 million, EPS would have been $0.86, and gross margins would have been 42%. This means the infrastructure business recorded revenues of $38 million and a net loss of $19 million in the first two months of the quarter. Even including two months of money-losing contributions from the infrastructure business, QUALCOMM reported operating results that were far better than consensus estimates. The primary contributors were higher royalties and better than expected ASIC sales. Strong royalty payments reflect the growing adoption of CDMA worldwide. In the first half of 1999, there were 4 million CDMA subscribers added in Korea and 1 million CDMA subscribers added in Japan. The U.S. also continues to be a solid CDMA market. In ASICs, the company shipped 11 million MSM phone chips in the quarter versus 9 million last quarter. We estimate ASIC sales at about $300 million, a 20% sequential improvement. This performance was also reflected in the much better than expected gross margins. The pipeline for ASICs continues to be strong, as reflected in an ASIC book-to-bill ratio of 1.2 in the June quarter. We expect ASIC revenues to increase modestly in the September quarter. The June quarter results could have been even better, if the company were not experiencing some component shortages for its handsets. As a result, QUALCOMM only shipped about 1.7 million phones in the June quarter, flat with the preceding quarter and about 100,000 units below our expectations. And while gross margins on handsets did improve on a sequential and year-over-year basis, the improvement could have been even better with higher volumes. We believe that the component shortages are an industry wide problem, and are indicative of the stronger than expected demand for CDMA handsets. We expect component availability to gradually improve, with QUALCOMM shipping 1.9 million phones in the September quarter. Gross margins should also improve modestly as more Thinphones are shipped. The higher margin Thinphone only represented about 20% of the units shipped in the June quarter. Assuming a gradual improvement in component supply availability, we would expect continued 15-20% growth in sales and a modest expansion in gross margins. Based on this, we are raising our fiscal 1999 EPS estimate from $2.15 to $2.42 and our fiscal 2000 EPS estimate from $3.05 to $3.80.