01—Abstract
Summary
Summary of the 10-K filed November 7, 2012. Cited figures are marked; the original filing is the authoritative source.
QUALCOMM's fiscal 2012 (53 weeks ended September 30, 2012) was a record year: revenues rose 28% to $19.1 billiona and net income attributable to Qualcomm reached $6.1 billion, up from $4.3 billion, though the net income figure includes a $776 million benefit from discontinued operations, mainly a $1.2 billion pre-tax gain on the sale of 700 MHz spectrum for $1.9 billion.
Continuing-operations income was $5.3 billionb, up 16%. Growth was driven by the QCT chipset segment, whose revenue rose 37% to $12.1 billion on roughly 590 million MSM shipments (up 22%), and by QTL licensing, which rose 17% to $6.3 billion on higher CDMA device sales. Reported 3G/4G device sales reached about $187 billion, up 25%, and China, South Korea and Taiwan together accounted for 78% of revenue.
The balance sheet strengthened materially, with cash, cash equivalents and marketable securities of $26.8 billionc and total equity of $33.5 billion. Management returned capital through $1.3 billion of buybacks and $1.6 billion of dividends, and raised the quarterly dividend to $0.25. Cash from operations was $6.0 billion.
Offsetting these strengths are heavy spending, with R&D up 31% to $3.9 billiond, a 28-nanometer supply shortfall that constrained fiscal 2012 shipments, and a more concentrated customer base in which Samsung and Hon Hai/Foxconn (Apple supply chain) each exceeded 10% of revenue. Investors should also weigh a sizable set of legal and regulatory matters, including patent suits (Tessera, MicroUnity, MOSAID, ParkerVision), antitrust proceedings in Europe, Korea and Japan, and an SEC and DOJ investigation under the FCPA concerning benefits provided to individuals at Chinese state-owned companies.
The company has not accrued for these matters because it considers losses possible but not probable. Also noted is the QMT display unit, which still lacks operating income and carries $1.2 billion of assets, and an India BWA spectrum venture with roughly $1.1 billion of loans and debentures classified as held for sale.
02—Key points
Key Highlights
- Revenue rose 28% to $19.1B (from $15.0B) and operating income rose 13% to $5.7B, with QCT revenue up 37% to $12.1B and QTL up 17% to $6.3B.
- Net income attributable to Qualcomm was $6.1B, boosted by a $776M after-tax benefit from discontinued operations, mainly the $1.2B pre-tax gain on the 700 MHz spectrum sale. Income from continuing operations was $5.3B, up 16%.
- Diluted EPS was $3.51 total, or $3.06 from continuing operations, versus $2.52 in fiscal 2011.
- Cash, cash equivalents and marketable securities reached $26.8B, up $5.9B year over year, and operating cash flow rose to $6.0B.
- Shareholder returns included $1.3B of buybacks (with $2.8B of authorization remaining) and $1.6B of dividends; the quarterly dividend was raised to $0.25 per share.
- Concentration risk grew: China, South Korea and Taiwan generated 42%, 22% and 14% of revenue, and two customer groups each exceeded 10% of revenue.
- Litigation and regulatory exposure is significant, including an SEC/DOJ FCPA investigation, EU, Korean and Japanese antitrust proceedings, and multiple patent suits, with no accrual recorded.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Qualcomm Inc kept $0.32.
- Revenue$19.12B100.0%
- Cost of revenue−$7.10B37.1%
- Gross profit$12.03B62.9%
- Operating costs−$6.34B33.2%
- Operating income$5.68B29.7%
- Interest, other & tax$427.0M2.2%
- Net income$6.11B31.9%
Where FY2012 revenue went
$19.12B- Cost of revenue: $7.10B, 37% of revenue
- Operating income: $5.68B, 30% of revenue
- R&D: $3.92B, 20% of revenue
- SG&A: $2.27B, 12% of revenue
- Other operating costs: $158.0M, 0.8% of revenue
Kept 30% as operating incomeOther operating costs $158.0M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed November 7, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $19.12B$14.96B | +27.8% |
| Cost of Revenue | $7.10B$4.88B | +45.5% |
| Gross Profit | $12.03B$10.08B | +19.3% |
| R&D Expenses | $3.92B$3.00B | +30.7% |
| SG&A Expenses | $2.27B$1.95B | +16.7% |
| Operating Expenses | $13.44B— | — |
| Operating Income | $5.68B$5.03B | +13.1% |
| Interest Expense | $90.00M$114.00M | −21.1% |
| Net Income | $6.11B$4.26B | +43.4% |
| EPS (Basic) | $3.59$2.57 | +39.7% |
| EPS (Diluted) | $3.51$2.52 | +39.3% |
| Shares Outstanding (Basic) | 1.70B1.66B | +2.5% |
| Shares Outstanding (Diluted) | 1.74B1.69B | +3.0% |
05—Questions
Frequently Asked Questions
What drove Qualcomm's revenue growth in fiscal 2012?
Growth came mainly from the QCT chipset segment, where revenue rose to $12.1B from $8.9B on higher MSM shipments (about 590M units, up 22%) and the Atheros connectivity business acquired in May 2011. QTL licensing revenue rose to $6.3B, driven by higher CDMA device sales and royalties, and reported 3G/4G device sales grew about 25% to roughly $187B. Note that fiscal 2012 contained 53 weeks versus 52 weeks in fiscal 2011.
How much of the net income increase is from one-time items?
A meaningful part. Net income attributable to Qualcomm rose to $6.1B from $4.3B, but this includes $776M of net discontinued operations income, mainly from the $1.2B pre-tax gain on the 700 MHz spectrum sale completed in December 2011. Income from continuing operations rose a more modest 16% to $5.3B. The FLO TV business that was shut down in March 2011 accounts for the discontinued results.
What are the main risks to Qualcomm's customer base and supply?
Revenue is concentrated in a few customers: Samsung and Hon Hai/Foxconn (supplier to Apple) each exceeded 10% of revenue in fiscal 2012, and three customers account for 48% of gross receivables. The company also faced 28nm chip capacity constraints that limited its ability to meet some demand in fiscal 2012, with shortages expected to continue into early fiscal 2013. Management also flagged that device OEMs and operating-system providers such as Microsoft and Google are entering the handset market.
What legal and regulatory matters could materially affect Qualcomm?
The most notable are an SEC formal investigation and a DOJ inquiry into FCPA compliance, relating to benefits provided to individuals at Chinese state-owned companies (valued at under $250,000 so far). Antitrust matters include a European Commission complaint from Icera, a Korean KFTC fine under appeal, and a Japanese JFTC cease-and-desist order that is stayed pending hearings. Patent litigation includes Tessera (trial April 2014), MicroUnity (June 2013), MOSAID (January 2014) and ParkerVision (August 2013). Management says losses are possible but not probable and cannot estimate a range, so no accrual has been recorded.
Are there any notable balance sheet or capital allocation considerations?
Liquidity is strong, with $26.8B in cash and marketable securities, but $16.4B of foreign cash is indefinitely reinvested offshore, and repatriation would trigger a deferred tax liability of about $5.8B. Capital expenditures more than doubled to $1.3B, largely for a QMT display plant in Taiwan. Debt is modest at about $1.1B, mostly Indian rupee loans and debentures for the BWA spectrum venture, which are classified as held for sale and carry roughly 10% interest. The $545M loan tranche is due in December 2012, and the company intends to refinance it.
06—Continue