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To: Olu Emuleomo who wrote (52288)	4/23/1999 8:03:00 AM
From: Glenn D. Rudolph	Respond to of 164684

QUALCOMM – 21 April 1999 2 Highlights of March Quarter Results QUALCOMM reported a 23% increase in revenues to $932.4 million versus $760.6 million, in-line with our expectations. Communications Systems revenues increased by 24% to $774.3 million versus $625.6 million, license and development fees grew by 9% to $76.6 million versus $70.1 million, and revenues from contract services increased by 26% to $81.5 million versus $64.9 million. The company reported a loss per share of $0.59. However, the reported loss per share included a $166 million in one-time charges primarily related to the company's pending sale of its infrastructure business and recent restructuring actions. Excluding these charges, operating EPS were $0.82 versus $0.25 a year ago, substantially above consensus expectations of $0.59. Total gross margins were higher than expected, reflecting much stronger than expected royalty payments. As for the balance sheet, cash and equivalents were $205 million as of March 28, 1999, about $33 million below the previous quarter. However, management indicated that cash flow from operations was positive. Accounts receivables were $874 million (118 days sales outstanding compared to 117 in the preceding quarter) and inventories were $254 million (9.6 inventory turns ratio). Business Trends March quarter results were a little confusing because they included several charges and the company presented its results in several different ways. However, for investors willing to decipher the information, we believe they would have uncovered four key points: 1. The infrastructure business is a bigger drag on earnings than we originally thought. However, with the pending sale of this business to Ericsson, investors should begin to examine what QUALCOMM's operating results could be without this unit. Management indicated that excluding the wireless infrastructure business that is being sold to Ericsson, pro form revenues were $908 million, pro forma net income was $98 million and pro forma EPS were $1.20. This suggests that the wireless infrastructure business had revenues of $24 million but a net loss of $33 million in the quarter. We estimate that SG&A expenses in this unit were $20 million and R&D expenses were $40 million in the quarter. 2. The recent restructuring actions taken are already showing benefits. SG&A expenses declined by $16 million sequentially on essentially flat revenues. 3. The worldwide demand for CDMA phones has a tremendous impact on QUALCOMM's earnings, especially in the way it impacts royalty payments. QUALCOMM estimates the royalty payments it reports largely based on the number of ASICs it ships in the quarter. Given the company's dominance in this business, this has turned out to be a fairly accurate indicator of the number of phones the manufacturers indicate on their license reports filed in the subsequent quarter. Comments that were made by Sprint PCS yesterday morning confirms that the outlook for CDMA growth in the U.S. continues to be very strong, and the recent launch of a new network by IDO in Japan is also positive. 4. The ASIC business continues to be very strong, despite concerns about competitive pressures. Unit shipments of certain ASICs increased by as much as 80% sequentially (9 million MSMs versus 5 million in the preceding quarter) We estimate that ASIC revenues increased by 40% sequentially. With a book-to-bill ratio of 1.7, the visibility in this business looks good. Based on these factors, we are raising our fiscal 1999 EPS estimate from $2.75 to $3.70 and our fiscal 2000 EPS estimate from $3.60 to $5.00. We are also raising our 5- year EPS growth rate estimate from 25% to 30%. Merrill Lynch is currently acting as a financial advisor to Ericsson AB in connection with its proposed acquisition of the CDMA wireless infrastructure business of Qualcomm Inc. announced on 3/25/99. Ericsson AB has agreed to pay a fee to Merrill Lynch for its financial advisory services, a significant portion of which is contingent upon the consummation of the proposed acquisition.