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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Jim Mullens who wrote (81163)	10/17/2008 4:53:25 PM
From: David E. Taylor	1 Recommendation Respond to of 197624

Jim: "Accrual" maybe, but my thought was that would show up on the balance sheet as "accounts receivable", "deferred revenues", or something equivalent, and I did not think they would/could book anything into Q4's income statement until the payment was in hand. You are correct that the settlement "adder" for past NOK royalties due is baked into Q4 analyst estimates. I tracked these back in July/Aug and the analyst community typically added 10 cents to EPS, the mid-point of Keitel's 7-13 cent range. So yes, it will be a downer if there's nothing there from the settlement, and that would require an explanation. But - since I'm not an accountant either though I may write like one occasionally <g> - your post made me dig in and check again on how QCOM books QTL revenues. From the 2008 proxy: Licensees typically pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using the Company’s licensed intellectual property. License fees are recognized over the estimated period of future benefit to the average licensee, typically five to seven years. The Company earns royalties on such licensed CDMA products sold worldwide by its licensees at the time that the licensees’ sales occur. The Company’s licensees, however, do not report and pay royalties owed for sales in any given quarter until after the conclusion of that quarter, and, in some instances, although royalties are reported quarterly, payment is on a semi-annual basis. The Company recognizes royalty revenues based on royalties reported by licensees in during the quarter. So you were right and I was wrong, my mea culpa. Since this practice is presumably in accordance with GAAP, and since the settlement seems to be locked in now with NOK's report, they can book something into Q4 for royalties owed even though they will not as yet have received payment from NOK. And since Keitel put a number range out there, they likely will do so. I hope they stick to something small in the 7 to 13 cent range as they projected back in July, and leave the bulk of it for the amortization going forwards, since that will provide the biggest EPS impact in FY2009. There would seem to be little point in pushing a large one-time EPS boost from the upfront payment into Q4 this year. I guess the settlement agreement could retroactively apply the new royalty rate for the missing quarters back to 4/7/07 as you suggest, or it could apply the old higher rate to those quarters as I assumed, or it could be silent on the rate and just assign or allow for some arbitrary dollar amount. But I still think that's going to be a somewhat arbitrary amount, because I can't line up the EPS impact Keitel gave to any reasonable royalty rate. The 7 to 13 cents is $170 to $315 million royalty revenues, my calcs say they owe $1.07 to $1.27 billion based on NOK unit sales and ASP's and a 4.2% (old) rate, or $509 to $605 million if it's based on a new 2% royalty rate (CSA had $430 million using 2%). So even the top end of Keitel's range of 13 cents is low on any basis. I think I'm going to stop speculating and wait and see what comes out on 11/5/08! FY2009 guidance is still going to be the most important thing to come out IMO. David