QUALCOMM Incorporated — FY2021 Form 10-K
Reporting period: Fiscal year ended September 26, 2021 (52 weeks), compared with the year ended September 27, 2020. The filing is an annual report; the supplied text does not provide standalone fiscal fourth-quarter financial results.
Business context
Qualcomm develops wireless technologies and sells integrated circuits and related products through QCT, licenses intellectual property through QTL, and makes strategic investments through QSI. Its business spans mobile handsets as well as automotive and Internet of Things (IoT) applications.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $33.566 billion | $23.531 billion |
| Operating income | $9.789 billion | $6.255 billion |
| Net income | $9.043 billion | $5.198 billion |
| Diluted earnings per share | $7.87 | $4.52 |
| Gross margin | 58% | 61% |
| Net cash from operating activities | $10.536 billion | $5.814 billion |
| Cash, cash equivalents and marketable securities at year-end | $12.414 billion | $11.249 billion |
Revenue rose 43% and net income rose 74% year over year. Equipment and services revenue increased to $26.741 billion from $16.298 billion; licensing revenue declined to $6.825 billion from $7.233 billion. Gross margin fell three percentage points, mainly because FY2020 included substantial Huawei-related licensing revenue and licensing revenue was a smaller share of FY2021 revenue. QCT gross margin improved.
Segment results: QCT revenue was $27.019 billion, up 64%, with earnings before tax (EBT) of $7.763 billion and a 29% EBT margin, versus 17% in FY2020. QTL licensing revenue was $6.320 billion, up 26%, with EBT of $4.627 billion and a 73% EBT margin, versus 68%. QSI EBT was $916 million versus an $11 million loss, primarily reflecting investment gains and lower impairment losses.
QCT revenue growth reflected stronger 5G-related demand and recovery from pandemic impacts: handset revenue increased to $16.830 billion, RFFE to $4.158 billion, automotive to $975 million, and IoT to $5.056 billion. FY2020 included $1.8 billion of Huawei settlement and royalty revenue recorded outside segment results, making the licensing comparison less representative of recurring trends.
Liquidity, debt and capital allocation
Operating cash flow increased to $10.536 billion. Investing activities used $3.356 billion and financing activities used $6.798 billion. Capital expenditures were $1.888 billion. Qualcomm paid $3.008 billion in dividends and repurchased $3.366 billion of shares during FY2021.
At year-end, the company reported $15.472 billion of principal notes outstanding, including $1.5 billion due in May 2022, and $500 million of commercial paper. Balance-sheet debt was $2.044 billion short term and $13.701 billion long term; no borrowings were outstanding under the $4.5 billion revolving credit facility. Management said available liquidity, expected operating cash flow and financing activities were expected to meet requirements for at least the next 12 months.
Purchase obligations totaled $23.5 billion, including $12.9 billion expected to be paid in the next 12 months, primarily for supplier commitments. The company expected higher operating cash outflows under multi-year capacity commitments.
Outlook, risks and unusual items
- Management expected QCT revenue to benefit versus FY2021 from demand across handset, RFFE, automotive and IoT, while anticipating continued 5G deployments and launches.
- R&D expense was expected to increase in FY2022, particularly for 5G, application processors and other long-term initiatives. Capital expenditures were also expected to rise to support manufacturing and production capacity.
- Qualcomm highlighted global semiconductor capacity constraints and its multi-year supplier commitments. Supply shortfalls could limit sales; demand forecast errors could create excess or obsolete inventory.
- Customer and licensee concentration is significant. Apple, Samsung and Xiaomi each represented at least 10% of FY2021 consolidated revenue. Customer-developed chips, competitor products, premium-device cycles and U.S.-China trade or national security measures could pressure sales and margins.
- China, including Hong Kong, accounted for $22.512 billion of revenue based on delivery or licensee billing location. Management cautioned that this measure does not necessarily identify where devices are ultimately sold.
- COVID-19 adversely affected demand in prior periods; management did not expect a significant future impact at the time of filing but emphasized uncertainty around the pandemic and its effects on customers and suppliers.
- Licensing practices remained exposed to legal and regulatory challenges. Qualcomm had accrued approximately $1.5 billion for two European Commission fines and provided financial guarantees while appealing them. Other matters included Korean regulatory proceedings and consumer and securities litigation; the company said losses for certain matters were reasonably possible but not estimable and had not been accrued.
- FY2021 investment and other income included $427 million of net gains on marketable securities and $470 million of net gains on other investments. FY2020 included $405 million of impairment losses on other investments, including a substantial OneWeb write-down.
- In October 2021, Qualcomm agreed with SSW Partners to fund substantially all of an approximately $4.5 billion Veoneer transaction to acquire the Arriver business, subject to approvals and other conditions, with closing expected in 2022. Qualcomm also agreed to provide or guarantee up to $480 million in financing under specified circumstances.
Important facts for investors to verify
- Review QCT growth and margins against continuing supply constraints, supplier commitments and customer demand forecasts.
- Assess the durability of QTL royalties, license renewals and collections, including the effect of the FY2020 Huawei settlement comparison.
- Track customer concentration, Apple’s development of its own modem, and potential U.S.-China trade or regulatory developments.
- Check subsequent rulings and any changes to accrued liabilities or business practices arising from the European Commission fines and other licensing disputes.
- Evaluate the cash-flow and financing implications of the $23.5 billion purchase obligations, the Veoneer/Arriver transaction and planned capital returns.