QUALCOMM Incorporated — FY2009 Form 10-K
Reporting period: Fiscal year ended September 27, 2009 (52 weeks). The filing also reports unaudited fourth-quarter results; FY2009 figures are not Q4 figures. Qualcomm earns revenue mainly from sales of wireless chipsets and from licensing intellectual property and collecting royalties.
Key financial metrics
Amounts in millions, except per-share data and percentages.
| Metric | FY2009 | FY2008 | Change |
|---|---|---|---|
| Revenue | $10,416 | $11,142 | Down 7% |
| Operating income | $2,226 | $3,730 | Down 40% |
| Net income | $1,592 | $3,160 | Down 50% |
| Diluted EPS | $0.95 | $1.90 | Down 50% |
| Operating margin | 21% | 33% | Down 12 percentage points |
| Net cash from operating activities | $7,172 | $3,558 | Up 102% |
| Cash, cash equivalents and marketable securities | $17,742 | $11,269 | Up $6,473 |
FY2009 revenue comprised $6,466 million from equipment and services and $3,950 million from licensing and royalties. Operating margin is calculated from reported revenue and operating income. Cash flow from operations benefited substantially from collection of a $2.5 billion licensing receivable in October 2008. The company reported no conventional borrowings as a separate balance-sheet line in the provided filing text; capital-lease obligations were $187 million at year-end. Current assets were $12,570 million and current liabilities $2,813 million.
FY2009 Q4: Revenue was $2,690 million, operating income $597 million, net income $803 million, and diluted EPS $0.48. The filing does not provide a clear Q4 cash-flow value.
Material changes and unusual items
- Revenue fell 7%, primarily as equipment and services revenue declined $694 million, including a $597 million decrease in integrated-circuit sales amid lower demand and CDMA channel-inventory contraction. Licensing and royalty revenue was nearly flat.
- QCT revenue declined to $6,135 million from $6,717 million; MSM shipments fell to about 317 million from 336 million, and QCT operating margin decreased to 23% from 27%. QTL revenue was essentially flat at $3,605 million, with an 85% operating margin versus 87%.
- Operating results included a $783 million charge related to the Broadcom settlement and a $230 million accrual for the announced KFTC fine. Net investment losses were $150 million, including $743 million of impairment losses on marketable securities. These items materially weighed on earnings.
- R&D expense rose to $2,440 million from $2,281 million (23% of revenue versus 20%). Capital expenditures were $761 million, down from $1,397 million.
- Operating cash flow more than doubled, but was boosted by the prior-period licensing receivable collection. Cash and securities totaled $17,742 million, including $9,800 million held by foreign subsidiaries; the company said domestic cash flow and investments were its primary operating liquidity source due to tax considerations.
Outlook, risks and contingencies
- No numerical FY2010 revenue or earnings guidance is provided in the supplied filing text. Management expected continued global 3G growth and planned substantial investment in chipsets, CDMA and OFDMA/LTE technologies, software, and services. It expected to launch direct-to-consumer FLO TV subscriptions in the United States in FY2010.
- Key risks include intense competition and technology transitions; exposure to a small number of customers and licensees; and geographic concentration, with 94% of FY2009 revenue from international customers and 69% from South Korea, China and Japan. Four largest customers accounted for 49% of revenue.
- Regulatory and litigation matters could affect licensing economics. The EC investigation remained active; the JFTC issued a cease-and-desist order that Qualcomm intended to challenge; and the KFTC announced a fine of at least 260 billion Korean won, with the written decision pending. Qualcomm recorded a $230 million charge and intended to appeal.
- Broadcom settlement payments totaled $891 million: $243 million was paid in FY2009, the recorded year-end liability was $612 million, and the filing cited $648 million of remaining payments due ratably through April 2013. These are different accounting and payment measures.
- Qualcomm deferred recognition of certain Panasonic WCDMA royalties reported and paid in Q4 while the matter proceeded to arbitration. Other possible litigation losses were not accrued because management did not consider them probable; the filing said potential loss ranges could not be reasonably estimated.
- Management said existing liquidity, expected operating cash flow and untapped debt capacity should meet needs over the next fiscal year and beyond. It intended to continue dividends and buybacks subject to capital availability; $1.7 billion of repurchase authorization remained at year-end.
Investor facts to verify
- How much of FY2009 operating cash flow reflects recurring operations versus the $2.5 billion licensing-receivable collection.
- The final written KFTC decision, fine amount and appeal outcome, and the effect of the JFTC order and ongoing EC investigation on licensing terms and royalties.
- The timing and accounting treatment of Broadcom payments, and the outcome of the Panasonic royalty arbitration and deferred revenue.
- Whether chipset shipment volumes and margins recover, given customer concentration and reliance on third-party manufacturing suppliers.
- Performance and funding needs of FLO TV and the mirasol display business, including whether planned commercialization achieves adequate market adoption.