Qcom Reports Second Quarter Results - Revenues $761 Million,$.36 EPS -
SAN DIEGO, April 21 /PRNewswire/ -- QUALCOMM Incorporated (Nasdaq: QCOM - news) today reported its results
for the second quarter of fiscal 1998. Total revenues for the period were $761 million, an increase of $175 million or 30
percent compared to total revenues of $586 million for the second quarter of fiscal 1997. Revenues for the first six months of
fiscal 1998 were $1.5 billion, an increase of $572 million over total revenues of $975 million for the first six months of fiscal
1997.
Net income for the second quarter increased to $26 million or $.36 (diluted) per share compared with $17 million or $.23
(diluted) per share for the same period in fiscal 1997. Earnings per share for the current quarter includes a credit to income
taxes related to Research and Development tax credits. Using the effective tax rate for the year, earnings per share would have
been $.25 (diluted). Net income for the six months ended March 29, 1998 was $63 million, or $.85 (diluted) per share
compared to net income of $26 million, or $.36 (diluted) per share for the same period in fiscal 1997.
''Although revenues decreased from the previous quarter, we are well- positioned to resume our revenue growth in future
quarters,'' said Dr. Irwin Jacobs, chairman and CEO of QUALCOMM. ''On the product front, we announced several large
phone contracts valued at over $457 million, including the first contract for Globalstar phones. We also announced our
fifth-generation CDMA phone chip, which has already garnered significant interest among our customers and is expected to
begin shipping by the end of this calendar year. In addition, we are deploying several infrastructure systems worldwide. On the
technology front, we began the development of two major evolutionary enhancements to cdmaOne(TM) and completed the
GSM-CDMA trial in the United Kingdom. QUALCOMM continues to play a leading role as CDMA becomes the technology
of choice for global wireless communications today and into the future.''
As previously reported on February 5, 1998, second quarter earnings were impacted by economic conditions in South Korea.
These conditions may continue and could impact earnings in the future. In addition, the Company cited lower demand for its
single-mode Personal Communications Services (PCS) Q(TM) phones in the U.S. and South Korea and a delay in the
introduction of the Company's dual-mode cellular Q phone, which is now expected to ramp production in June. During the
quarter, the Company implemented a proactive program to address certain quality issues related to connectors in its QCP
phone models. The Company re-worked its phone inventories, and worked with its customers to re- work their inventories
according to their needs. The Company believes it has successfully resolved these issues; however, the manufacturing re-work
resulted in fewer handset shipments as compared to the previous quarter.
Highlights of Financial Performance
Communications systems revenues were $626 million, an increase of $118 million or 23 percent over the second quarter in
fiscal 1997, and a decrease of $51 million or 8 percent from the first quarter of fiscal 1998. The increase in communications
systems revenues for the second quarter of fiscal 1998 compared to the year ago quarter was primarily attributed to increased
sales of Code Division Multiple Access (CDMA) subscriber equipment; increased sales of Application Specific Integrated
Circuits (ASICs); and increased revenues from international OmniTRACS system sales and messaging. Revenues from
infrastructure equipment increased from the first fiscal quarter to the second fiscal quarter, although revenues were lower as
compared to the year ago quarter when a substantial portion of a major infrastructure contract was recognized.
Communications systems gross margin for the second quarter was 22 percent compared to 18 percent for the year ago
quarter. The decline in gross margin from 25 percent in the first fiscal quarter of 1998 was due to fewer Q phone sales and
additional costs related to phone manufacturing re-work. The gross margin decline was partially offset by increased CDMA
software revenues recognized during the quarter.
License, royalty and development fees for the second quarter of fiscal 1998 increased to $70 million from $29 million for the
second quarter of the prior fiscal year, and from $45 million in the first fiscal quarter of 1998. Revenues for the second quarter
included payments from existing and unannounced licensees.
During the second quarter of fiscal 1998, the Company determined that royalty estimates have become more reliable due to
sufficient historical royalty data and availability of information on licensee subscriber activity. Therefore, in the second quarter of
fiscal 1998, the Company reported actual royalties for the prior quarter and accrued estimated royalties for the current quarter.
The effect of this one-time adjustment increased royalty revenues by $18 million in the second quarter of fiscal 1998. Royalty
income may continue to fluctuate quarterly due to the timing and amount of sales by the Company's licensees, as well as
changes in foreign currency exchange rates.
Contract services revenues totaled $65 million in the second quarter of fiscal 1998, compared to $49 million for the second
quarter of fiscal 1997. The increase of $16 million for the quarter resulted primarily from the development agreement with
Globalstar which has continued to ramp up since its inception in fiscal 1994.
Operating expenses, including research and development, selling and marketing and general and administrative, increased to
$175 million in the second quarter of fiscal 1998 compared to $106 million for the same period last year, and $167 million for
the first quarter of fiscal 1998.
Interest income was $10 million during the second quarter of fiscal 1998 compared to $7 million for the second quarter of fiscal
1997. The increase for the quarter reflects higher average cash balances in conjunction with the proceeds received from the
private placement of $660 million of 5.75 percent Trust Convertible Preferred Securities during the second quarter of fiscal
1997. Distributions accrued on these securities were $10 million for the second quarter of fiscal 1998 compared to $4 million
for the second quarter of fiscal 1997.
Minority interest includes the impact of restructuring QUALCOMM Personal Electronics (QPE). Previously, QPE had been a
design and sales venture in addition to a manufacturing venture. In an agreement signed in March of 1998, the Company and
Sony agreed that QPE would become solely a manufacturing venture. In connection with that agreement, certain expenses
previously included in QPE were absorbed by its parent companies during the second quarter of fiscal of 1998.
Income taxes during the second quarter of fiscal 1998 decreased $5 million compared to the second quarter of fiscal 1997.
The decrease was primarily due to a revision in the estimated annual effective tax rate and an increase in certain estimated tax
credits. The annualized tax rate is estimated to be 29 percent.
Headquartered in San Diego, QUALCOMM develops, manufactures, markets, licenses and operates advanced
communications systems and products based on its proprietary digital wireless technologies. The Company's primary product
areas are the OmniTRACS(R) system (a geostationary satellite-based, mobile communications system providing two-way data
and position reporting services), CDMA wireless communications systems and products and, in conjunction with others, the
development of the Globalstar(TM) low-earth-orbit (LEO) satellite communications system. Other Company products include
the Eudora Pro(TM) electronic mail software, ASIC products, and communications equipment and systems for government
and commercial customers worldwide. For more information on QUALCOMM products and technologies, please visit the
Company's web site at qualcomm.com.
Except for the historical information contained herein, this news release contains forward-looking statements that are subject to
risks and uncertainties, including the ability to achieve revenue growth in future quarters, to develop and introduce cost effective
new products in a timely manner, potential delays in the commercial implementation of the Company's CDMA technology,
continued growth in the CDMA subscriber population and the scale-up and operations of CDMA systems, developments in
current or future litigation, the Company's ability to effectively manage growth and the intense competition in the wireless
communications industry, risks associated with vendor financing, timing and receipt of license fees and royalties including those
with fluctuating foreign exchange values, the Company's ability to successfully manufacture and sell significant quantities of
CDMA handsets, ASICs and infrastructure equipment on a timely basis, failure to satisfy performance obligations, change in
economic conditions of the various markets the Company serves, continued currency fluctuations and risk, as well as the other
risks detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended
September 28, 1997 and most recent Form 10-Q.
QUALCOMM, OmniTRACS and Eudora are registered trademarks of QUALCOMM Incorporated. Q phone is a
trademark of QUALCOMM Incorporated. Globalstar is a trademark of Loral QUALCOMM Satellite Services,
Incorporated. cdmaOne is a trademark of the CDMA Development Group.
QUALCOMM Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
ASSETS
March 29, September 28,
1998 1997
Current assets:
Cash and cash equivalents $ 186,974 $ 248,837
Investments 249,087 448,235
Accounts receivable, net 599,349 445,382
Finance receivables, net 47,720 111,501
Inventories 359,695 225,156
Other current assets 99,382 70,484
Total current assets 1,542,207 1,549,595
Property, plant and equipment, net 518,686 425,090
Investments 111,680 111,786
Finance receivables, net 103,771 --
Other assets 179,387 188,209
Total assets $ 2,455,731 $ 2,274,680
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 529,211 $ 409,156
Unearned revenue 52,712 45,084
Bank lines of credit 56,000 110,000
Current portion of long-term debt 2,917 3,238
Total current liabilities 640,840 567,478
Long-term debt 5,530 7,729
Other liabilities 20,949 15,295
Total liabilities 667,319 590,502
Minority interest in
consolidated subsidiaries 8,504 --
Company-obligated mandatorily
redeemable trust convertible
preferred securities of a
subsidiary trust holding solely
debt securities of the Company 660,000 660,000
Stockholders' equity:
Preferred stock, $0.0001 par value -- --
Common stock, $0.0001 par value 7 7
Paid-in capital 939,330 906,373
Retained earnings 180,571 117,798
Total stockholders' equity 1,119,908 1,024,178
Total liabilities and
stockholders' equity $ 2,455,731 $ 2,274,680
QUALCOMM Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
Revenues:
Communications
systems $ 625,572 $ 507,780 $ 1,302,457 $ 832,360
Contract services 64,927 49,365 128,958 88,044
License, royalty and
development fees 70,054 28,601 114,992 54,282
Total revenues 760,553 585,746 1,546,407 974,686
Operating expenses:
Communications systems 485,279 418,724 992,618 678,209
Contract services 49,053 36,470 95,329 64,195
Research and
development 76,946 53,106 151,747 99,284
Selling and marketing 59,728 31,100 115,826 58,041
General and
administrative 38,246 22,012 74,715 37,604
Other -- 8,792 11,976 8,792
Total operating
expenses 709,252 570,204 1,442,211 946,125
Operating income 51,301 15,542 104,196 28,561
Interest income 9,573 6,548 21,763 11,001
Interest expense (1,685) (3,212) (4,374) (5,196)
Unrealized gain
on trading securities -- 9,454 -- 9,454
Net gain on sale
of investments -- -- 2,950 --
Distributions on trust
convertible preferred
securities of subsidiary
trust (9,927) (3,895) (19,725) (3,895)
Minority interest in
income of consolidated
subsidiary (21,642) (2,110) (17,861) (5,430)
Equity in earnings of
investees (1,398) -- (4,170) --
Income before income
taxes 26,222 22,327 82,779 34,495
Income tax expense (211) (5,582) (20,006) (8,624)
Net income $ 26,011 $ 16,745 $ 62,773 $ 25,871
Net earnings per
common share:
Basic $ 0.38 $ 0.25 $ 0.91 $ 0.39
Diluted $ 0.36 $ 0.23 $ 0.85 $ 0.36
Shares used in per
share calculation:
Basic 68,934 67,225 68,705 66,903
Diluted 73,143 72,821 73,643 71,740
SOURCE: QUALCOMM Incorporated
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